By Representative Michael Fitzpatrick
With an unemployment rate expected to remain stuck above 8 percent, August 2012 will likely mark yet another month of the worst economic recovery since the Great Depression. At this point after the previous five recessions, economic growth averaged 4.4 percent, or double the current rate of recovery.
We are faced with an economy which desperately wants to recover, but is restrained by uncertainty from Washington and the failure of a Senate which refuses to act, and a president who fails to lead.
This latest report clearly indicates our economic recovery cannot handle additional strain.
In August, I voted to extend for all American families the tax rates established by the Economic Growth and Tax Relief Reconciliation Act of 2001 and the Jobs and Growth Tax Relief Reconciliation Act of 2003.
I agree with President Clinton -- I do not believe that it makes economic sense to raise taxes on anyone during the type of down economy in which we find ourselves. A range of studies have been conducted by financial firms, policy analysts and think tanks to determine the economic cost of failure to extend the 2001 and 2003 tax rates -- the conclusions are alarming.
One report states that as a result of the expiration of the 2001 and 2003 tax cuts and the new taxes being imposed through administration policies, the average family in Pennsylvania's 8th Congressional District can expect to pay nearly $4,500 more in taxes in 2013.
These tax hikes, left unchanged, will drain over $20.5 billion from Pennsylvania's economy at a time of anemic economic growth and discouraging jobs numbers.
The non-partisan Congressional Budget Office in a May 2012 report expressed concerns that immediate tax increases would represent an added drag on the weak economic expansion.
A July report by Ernst & Young analysts cautioned that "higher marginal tax rates will result in a small economy, fewer jobs, less investment and lower wages. Specifically higher taxes will have significant adverse economic effects in the long-run: lowering output, employment, investment, the capital stock, and real-after tax wages when the resulting revenue is used to finance additional government spending."
The report also warns that reduced work effort and labor force participation resulting from higher taxes will reduce long-term economic output by more than $200 billion and destroy over 710,000 jobs.
These tax hikes will have such a profound effect on the economy given the prevalence of LLCs and S-Corporations. In these small businesses, business income is taxed at an individual rate, through the owner. This type of organization is common, with the National Association of Manufacturers reporting that nearly 70 percent of its members are operated as an LLC or S-Corporation.
The negative effects of raising taxes on all families and our small-business job creators are clear. Congress must not fail in the task so plainly laid out before it. The House has done its job, the Senate must now act to prevent these economically devastating tax hikes.
Ultimately, however, debates over specific tax rates seem almost irrelevant when high-wealth individuals and corporations are able to employ armies of lobbyists, lawyers, and accountants to manipulate a complicated and broken tax code rife with exemptions and loopholes to avoid paying their fair share.
When corporations like GE manage to pay nothing in corporate income taxes, middle income families and small-business owners have been unfairly forced to pick up the slack.
In the long term, a simpler, fairer and flatter code which encourages, not punishes, success and forces everyone to pay their fair share will help promote investment in our economy and the creation of good, family-sustaining jobs. In the short term, Congress must not raise taxes on the middle class and job creators at a time when we need our economy to recover.
In my visits to 100 businesses in 100 days this summer, the message from job creators has been consistent in term of what Congress should do to put our economy back on the right track. Excessive regulation has been at the top of the list with reforming the tax code and reining in health care costs.
As such, I worked to have the House Financial Services Sub-Committee on Capital Markets mark-up the Fostering Innovation Act (HR 6161), which I authored, aimed at reducing burdensome regulations on emerging job creators. The bill was favorably reported to the full committee.
With the Supreme Court upholding the Affordable Care Act as a tax on middle income families, I have outlined ways to make health care more affordable and accessible without increasing taxes in a bipartisan fashion.
Faced with what has proven to be a summer of uncertainty, the small-business community has struggled with managing the "unknowns" regarding health care, energy prices, regulations, and taxation. It is time to provide them with the certainty they need to grow. This is essential to our economic recovery.
I urge the Senate and the president to join me in providing some certainty to Bucks County job creators by stopping the tax hike looming on Jan. 1.
Congressman Michael Fitzpatrick, serves the 8th District, which comprises all of Bucks County and small parts of Montgomery County and Philadelphia.