Georgia can’t afford fiscal cliff

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.


14 comments Add your comment

Get Schooled blog a stooge for teachers' unions

August 15th, 2012
10:48 am

Once again today’s AJC’s Get Schooled blog is being lent to the teachers’ unions to aid their war against education reform and parental choice.

The latest debate issue is State Schools Superintendent John Barge’s decision to break with other Republicans and oppose the charter school constitutional amendment on November’s ballot. Predictably, the union crowd yearns to use this in heading off public pressure for more charter schools and innovation.

And predictably … the Get Schooled blog administrator is doing all she can to see that the anti-choice union viewpoint is heard—while blocking from comment many of us who advocate for greater parental choice.

Robert Medley

August 15th, 2012
11:51 am

The thing here is aside from my personal opinions or anything else, just brass tacks here, the financial future either way is going to cause some serious issues. We as a nation financially in many ways are in a corner here. This happens if Obama is elected, if Romney/Ryan is elected this construction company owner will not have to worry about that tax hike, However; the state will then be the one running the Romney/Ryan Voucher system which will cost more than currently available in and of itself, not to mention the rest of the junk in it. That is unless Romney sticks with Obamacare being that it is modeled on his plan when he was a Governor. Then they will have the insurance issues that come with that. This cliff is coming no matter which way we go in this current political picture from what I see!

Marlboro Man

August 15th, 2012
12:02 pm

Expires means expires. Simple.

Road Scholar

August 15th, 2012
12:30 pm

Get schooled: Get on the right blog! Maybe you need a refresher course in reading or manners? Besides the other blog is not about having/not having charter schools; it is about whether the state can trump the local school board decision on charters.


August 15th, 2012
1:12 pm

Through a set of circumstances, I’m more than familiar with small business owners’ plight. And it’s common knowledge that all tradesmen, stores that normally supply building supplies and appliances, are having a hard time. The hard times began when the building industry bubble broke; it broke because homes were built to satisfy the demand of buyers who could obtain mortgages without even having to prove they had an income. And when those buyers couldn’t meet the mortgage payment demands, they simply walked away. It’s also common knowledge that this sorry set of circumstances came about because certain members of Congress insisted that everyone is entitled to a home whether they can afford it or not. A steep climb is in store for small business owners and only those with hard earned surpluses are going to make it.


August 15th, 2012
2:03 pm

These end-of-the-world-as-we-know-it scenarios like “taxmageddon” never occur.

Remember how the S&P downgrade of U.S. government debt was going to knock the Earth off its axis. Then Greece/Italy/Spain etal were going to pull us all into the abyss. What a joke.

As long as our political leaders can borrow and print money they’ll never allow the “(fill in the blank)geddons” to happen.

blue dog

August 15th, 2012
3:40 pm

The cuts in Defense should be much bigger… we are getting out of two unfunded Wars.
The tax rates need to return to the pre Bush era…because that additional revenue is needed and will greatly reduce our annual debt…thus propping up the dollar on the world market.
Long term, this country will be better off with EVERYONE paying slightly higher taxes. It did not hurt the economy during the Clinton years and I think this doomsday talk is just that…all talk.
Just let the tax cuts expire and the budget cuts happen as scheduled in January. That is probably the only “progress” we will see from Congress any time soon.

Chris Sanchez

August 15th, 2012
4:46 pm

This is a result of the politicians that “We The People” continue to send to Washington DC each election cycle. If we are unhappy with the results in DC, we need to change the people that are sent there to represent us!

Not Blind

August 15th, 2012
5:23 pm

There are billions of dollars lost to countless forms of fraud in government entitlement programs, income tax theft, illegal alien issues, runaway crime, yada yada yada………. But the easiest thing for the goobermint to do is harass [ tax ] the crap out of the honest citizen.

We could close scores of overseas military bases and plant some new bases on our southern border. This isn’t the cold war any more. Japan and the European nations need to be supplying their own defense.

We don’t need billion dollar jets and tanks :rolleyes:

The foreign aid situation is downright idiotic.


August 15th, 2012
5:38 pm

A lot of this crap is just election year politics from both parties. Anyone with any common sense knows we do not need any tax increases during an economic down turn.


August 15th, 2012
5:44 pm

Casino gambling is the answer to Georgia’s financial issues. Gambling will bring in all the money to solve Atlanta’s traffic woes. It will put thousands of people to work, take care of the HOPE scholarship and give a gigantic boost to land development. Do not forget riverboat gambling[Rhett Butler] the boats will be able to navigate 38 miles up the Savannah[deep water harbor] although those paddle wheel boats will hardly need it. Have to get moving, already have the booze in the grocery stores.


August 15th, 2012
5:58 pm

In Speaking of a running OFF A CLIFF! This morning the City of Atlanta made National News! On FOX & Friends at 650am. there was a three minute story on the BELTLINE SPENDING Fiasco! A story line presented in great detail of the corruption done by those individuals involved. Talk about embarrassing!

I could not help, but think of Mayor Kasim Reed! Cheerleader in charge!
A Republican dominated news organization throwing the very program he has been trying to usher into Atlanta, now for YEARS front and center being thrown head long under THE BUS!

Mr MAYOR, you have just become a LIABILITY to President OBAMA!


August 15th, 2012
6:09 pm

“No one can serve two masters. Either he will hate the one and love the other, or he will be devoted to the one and despise the other. You cannot serve both God and Money. – Matthew 6:24

An observer

August 15th, 2012
8:26 pm

Don’t we all agree with President Obama that taxes need to increase so that we can continue to implement all these very necessary federal programs? Since we do, while all this gnashing of teeth? Don’t we all want to send more money to Washington so our very intelligent politicians and bureaucrats can guide the economy to a wonderful new future where all is fair and their is no disparity of income? I have been listening to Obama’s speeches about he future he envisions and I completely agree with him!