Walsh Subcommittee Examines the Fiscal Cliff's Impact on Small Business

Press Release

The Small Business Subcommittee on Economic Growth, Tax and Capital Access, led by Chairman Joe Walsh (R-IL), today held a hearing titled, Adding to Uncertainty: Small Businesses' Perspectives on the Tax Cliff. The Subcommittee heard testimony from small business owners that tax increases will put many small firms under tremendous strain in an already difficult economy.

The hearing examined how the potential expiration of the 2001 and 2003 tax relief at year's end is already influencing small business decision making and hiring plans. Witnesses testified against the President's proposal to impose higher rates on those with income over $200,000 (and $250,000 for couples), which would raise taxes on about 940,000 small companies according to the nonpartisan Joint Committee on Taxation. Many small businesses are organized as "pass-through" entities, so the owners pay their business taxes at individual rates. A July study by accounting firm Ernst and Young found that the President's proposal would cost about 700,000 jobs.

"Small business owners are deeply concerned about the tax cliff, and with good reason," said Rep. Walsh. "Tax increases would place new burdens on our best job creators. Just the threat of a tax hike is holding small businesses back and slowing our chances at economic recovery. Instead of investing or hiring, businesses are waiting, knowing they may have to pay the government more. That's the wrong policy priority. Until we have a true recovery with growth and opportunity, the focus should be on jobs, not on taking more money from employers that are surviving on thin margins in order to support bigger government."

Yesterday, a group of 298 business organizations called on the President and Members of Congress to immediately enact legislation that averts America's impending fiscal cliff. On August 1st, the House voted to pass an extension of all current tax rates, with 19 Democrats joining Republicans, however, the Senate has not taken up the bill. On August 22nd, the nonpartisan Congressional Budget Office issued a report that said a recession is likely next year if Congress fails to act on the fiscal cliff, including pending tax increases.

Materials for the hearing are posted on the House Small Business Committee's website HERE.

Notable Witness Quotes:

Theresa Kern, Owner of MA Steel Erectors, Inc., in Palos Heights, IL said, "While media headlines blare "Corporations don't pay their fair share', let me assure you that small business corporations not only pay their fair share, but are a major contributor to the economy as well as the tax base of this country and have often been referred to as the "life blood of the US economic growth engine."

"I have finally located a reinforcing steel fabrication plant that I would like to buy to expand my business by being able to provide the rebar that we install. My CPA is telling me that unless I could close escrow before the end of this year, I would be foolish to proceed because there is no certainty about tax policy in just four short months. …So for now, I am forced to sit and wait while the economy sputters along and factory workers remain unemployed because there is no productive tax policy in place that will give me confidence I need to make this investment."

Doug Harmon, CEO of Twin City Die Castings Co. in Minneapolis, MN said "Not knowing whether or not Congress will renew the Bush-era tax cuts and the pro-business tax extenders, which expired at the end of 2011 is keeping many die casters, and for that matter, most manufacturers from investing as much as they could to grow their business, purchase new equipment and hire more employees."

"Given this uncertainty over taxes and other potential government regulations, instead of hiring new employees, increasingly, the die casting industry is choosing to hire temporary workers to fill their employment needs utilizing and/or implementing overtime with its current workforce."

"As a small business, we may report thousands of dollars or more in profit, but few manufacturers take those profits home -- they are overwhelmingly reinvested back in the business, our employees, facilities and equipment. This means that the less resources we have, due to paying more in taxes, the less resources we have for improving our employees' wages and benefits and buying new equipment."

Scott Hodge, President of The Tax Foundation in Washington, DC said "The issue is not how few businesses will be impacted. The relevant economic question is how much business income will be hit with higher tax rates. No matter how you parse the data, the evidence is clear that the vast majority of pass-through business income is earned by high-income taxpayers and they would be disproportionately impacted by such a tax increase."

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