Moderated by Rick Badie
Automatic spending cuts and potential expiration of the George Bush-era tax cuts have caused some businesses to pull back, while Congress stands divided. The state director of a small business association says the political impasse hinders Georgia’s economic growth. A personal finance writer explains the possible impact of the fiscal cliff on our lives and I talk with the president of a Marietta firm grappling with uncertainty. Comments are welcome below.
By Kyle Jackson
Political pundits and strategists are talking about what’s going to happen politically if President Barack Obama and Congress allow the Bush tax cuts to expire on Dec. 31, but I’m worried about what the looming “taxmageddon” is doing to Georgia’s economy right now. I was talking the other day with a business owner who said he’d put a $1 million construction project on hold because he’s afraid the looming $500 billion tax hike would hurt his bottom line.
This isn’t a hypothetical situation. This was a real project that would have created real jobs that’s been canceled because of real concerns about the politically-based move to block the extension of these crucial tax provisions. It isn’t fair to make small businesses wait while Washington tries to get its act together. It isn’t fair to make entrepreneurs sit helpless while the president and some members of Congress play political chicken with our state’s economy. It isn’t that Washington hasn’t been warned that it’s about to steer the economy over a “fiscal cliff.” It’s that these politicians don’t seem to recognize the danger. President Obama has even asserted that, “The private sector is doing fine.” Of course, the truth is that the private sector is not doing fine. Small business in particular is hurting.
According to the National Federation of Independent Business’ latest monthly index, small-business optimism fell three points in June. That essentially wiped out gains earlier this year and is an indication of slow growth. Only one of 10 index components improved — expectations for available credit. That sounds like great news, but only 3 percent of small-business owners surveyed said access to credit was an issue. According to the survey, the No. 1 problem was weak sales (23 percent), followed by taxes (21 percent) and unreasonable rules and regulations (19 percent).
So much of what you hear about the economy is about Wall Street and major corporations, but small business really is the engine that drives the economy. Small business represents 99 percent of all employers and employs nearly 50 percent of the nation’s private-sector workforce, according to the U.S. Small Business Administration.
You can’t help the economy unless you help small business, but so far, the Obama administration and some in Congress have shown no intention of doing that. Instead, the president has made it clear he believes we need higher taxes, bigger bureaucracies and greater regulation.
Allowing the higher taxes and spending cuts to kick in Jan. 1 will end important tax provisions. Most tax brackets will rise, as will capital gains rates on long-term assets, dividends will be taxed as ordinary income, and credits for earned income, dependent care and adoptions will cease.
In addition, estate taxes will leap 20 percentage points to 55 percent, expensing limits will fall, employees’ payroll taxes will rise by one-third to 6.2 percent and 31 million additional taxpayers will be forced to pay alternative minimum taxes. Failure to extend these key tax lifelines to small business will only cause more damage to America’s floundering economy.
Georgia can’t afford that.
Kyle Jackson, state director for the National Federation of Independent Business.
By Bruce Watson
Like a slow-motion car wreck, the slog toward the “fiscal cliff” has been depressingly spellbinding. Beginning with a financial crisis and following through an impotent 12-member “Super Committee,” it is poised to conclude with billions of dollars in automatic budget cuts that will hit as the George Bush tax breaks expire. This perfect storm of higher taxes and lower services will kick in on Jan. 1, 2013.
For families, the first blow will be the end of the “payroll tax holiday,” a 2 percent Social Security tax cut on the first $110,000 in wages. The average household, which makes about $50,000 per year, will face a $1,000 payroll tax increase. Income taxes will also go up. After the standard deduction, the average household now pays about $4,845 per year: 10 percent of wages up to $17,400 and 15 percent of everything else. When tax standards revert to pre-Bush levels, that number will rise to $6,397, a jump of $1,552. Many common exemptions will be scaled back: the $1,000 child tax credit will be cut in half, and the Bush-era “marriage penalty reduction” will expire.
Households with college-aged children will feel a bigger pinch. The average family can claim the American Opportunity Tax Credit, which gives up to $2,500 for each college student for up to four years. That benefit expires Jan. 1, leaving the less-generous HOPE credit, a two-year credit of up to $1,800 per child. This translates to an immediate $700 cut in tax credits and up to $6,400 less over the course of a child’s education.
The Earned Income Tax Credit, which partially offsets Social Security costs for lower-income families, will be slashed. Increases in estate tax, capital gains tax, and dividend taxes will rock wealthier families. Everyone will be brutalized by sweeping federal budget cuts. The defense budget will be slashed by 10 percent, resulting in cutbacks and loss of thousands of jobs. Newly unemployed defense workers will have to scramble for work: unemployment benefits last for 99 weeks, but will revert to 26 weeks on Jan. 1, flooding an already-tight job market with thousands of new unemployed as current jobless becomes more desperate.
Meanwhile, “discretionary” expenditures, including schools, roads, homeland security and most other federally funded programs, will lose 8 percent of their funding. Some entitlements will get hit: Medicare reimbursement rates will drop by 2 percent, making it hard for providers to offer the same level of service.
Tax hikes will hit every worker. Federal budget cuts will ripple across the economy, likely sending the country back into recession. Meanwhile, Congress is frozen: Hoping to pick up seats in November, both sides bank on a last-minute solution.
Wall Street doesn’t share their optimism: Worried that a new recession is imminent, U.S. manufacturers have held off on capital improvements and hiring. In so doing, they have dragged down the economy. The rate of economic growth has slowed from 4.1 percent at the end of last year to an anemic 1.5 percent. In other words, by twiddling its thumbs and waiting for the fiscal cliff, Congress may have hastened its arrival.
Bruce Watson, senior features writer for DailyFinance, a personal finance website based in New York.
By Rick Badie
You’d have to live a fragrance- and flavor-free life to not come across products created by Arylessence, a family-owned business in Marietta. It works with clients to develop an array of consumables, from mouthwash to perfumes.
“Our sweet spot happens to be in store brand products for big-box retailers or grocery stores,” President Steve Tanner said. “We specialize in the consumer products arena.” In an interview, Tanner talked about the economic climate that has paralyzed small-business owners. Congress has yet to act on looming spending cuts and tax increases that take effect in January.
Q: How did your company fare during the recession?
A:We have been able to hold our own. A lot of folks are down and a lot didn’t make it through. We are fortunate to be able to not lay off employees or cut anybody’s pay. We went through operations and if there was anything we could do without, we did. Right now, we are just a microcosm of what’s happening around the country. We are waiting and seeing what the rules are going to be before going forward. It’s the prudent thing to to.
Q:How has the congressional stalemate affected Arylessence?
A: A lot of our staff is devoted to research and development. There is no school you go to; there is a lot of on-the-job training. We have been reluctant to bring more professional people or to hire folks we can turn into professionals, because that’s a long-term commitment. It takes a number of years before they are productive. From a facility standpoint, we are at 80 percent capacity right now and we really need to be pulling the trigger on some more plant and facility-type improvements, building out more space. But we will have to wait.
Q: Are you angry with Congress?
A: I am frustrated. In Congress the problem is the unintended consequences of its action, or inaction. That is what is the spirit-killer. It is frustrating and it is not what we like as entrepreneurs. Whatever we did today is history. We want to go on and make improvements. When we do better, we hire people, are able to pay for benefits and actually improve the lot of all the people associated with us.
Q: What do small business owners need from Washington?
A: Give us stability. Give us taxation, however you want to do it. But give us stability in what to expect from the regulatory environment and we will move forward. I run a business. I try to stay as close to debt free as I possibly can. That’s a philosophy.
Q: What’s your take on the so-called “fiscal cliff”?
A: It is a troubling situation. Think about the automatic spending cuts. Cuts in the military or defense — that’s one side. The other side, of course, is what is going to happen with the other cuts? What will be the overall effect on our economy? If they tip us into a recession, that is the worrisome thing.