After a seemingly endless and extremely costly campaign, the people have spoken. Still, the question that needs to be asked and, hopefully, answered is: Can the Obama administration and House Republicans agree on anything and work together to address some of the country’s most critical and immediate problems?
The country has set itself up to jump off of the fiscal cliff in January. If nothing is done to stop it, the Bush tax cuts will expire, resulting in a huge tax increase for everyone in the face of a teetering economy that is one step away from falling into another recession.
Coupled with the diabolical concept of spending sequestration that came out of last summer’s deficit disagreement in Washington, the country is faced with some challenging decisions.
Most people outside the Beltway recognize that, in order to deal with the deficit and debt issue, there will have to be a combination of spending cuts and increased tax revenues. The small business community, which holds the best chance of leading the country out of the economic doldrums, wants to be sure that the burdens of any solution do not fall disproportionately on the backs of successful firms that can create the new jobs the country so desperately needs.
The campaign rhetoric on both sides is often focused on tax increases on the wealthy and whether they are paying their fair share. Democrats argue that the wealthy need to pay more at higher rates while Republicans argue that to do so would unfairly tax job creators.
Many small business owners are concerned that a tax increase on those making more than $250,000 would negatively impact many successful small businesses that employ workers because most small businesses operate as pass-through entities that tax their owners at the individual tax levels. The Democratic argument that such an increase would only impact 3 percent of the small businesses is a bit disingenuous because the measurement of all small businesses includes any taxpayer that reports any miscellaneous business income.
When measured against businesses that employ people, the percentage of affected small businesses would be much higher. Small business owners I’ve spoken with believe there should be parity on taxing business income. Small firms should not be paying taxes at higher tax rates than big businesses.
The solution is to carve out income from business entities and tax that income at a rate that is no higher than the highest corporate tax rate similar to how capital gains are currently taxed.
Serious tax reform that broadens the tax base, eliminates some deductions and lowers tax rates generally would be good for the small business sector. Creating a tax code that is simpler, consistent and stable helps in long-term business planning. Constant change and uncertainty leads to frustration and economic paralysis.
American small businesses are unique in the world economy. They are resilient in their ability to survive and flourish despite high obstacles, and they are efficient, innovative and productive. At the same time, they are fragile and need support to compete in the new global economy.
Presidents Reagan and Clinton used White House Conferences on small businesses to successfully boost their economic recoveries.
As the country looks for ways to grow jobs and improve our economy, Congress and the administration should convene a new White House Conference on small business as soon as possible to hear directly from the small business sector as to how they can best help small firms drive the U.S. economy.
Grafton “Cap” Willey IV is a certified public accountant and small business advocate in Providence, RI.