Don't Raise Taxes on Small Businesses

Statement

Americans are understandably uncertain about the full extent of the damage to our economy if Congress and the White House fail to agree on deficit reduction and taxes to avoid the January 1, 2013 "fiscal cliff." But most taxpayers do know that their taxes are going up on January 1 if agreement isn't reached.

I still believe that a timely, bipartisan agreement can be finalized. But time is growing short, and the White House and Congressional leaders need to commit to serious negotiations.

Thus far, the President has only talked about tax increases on "wealthy" taxpayers (individuals who make more than $200,000 and joint filers who make more than $250,000). If the President gets his way, however, hundreds of thousands of small businesses would be hit by these higher taxes and new hiring would remain weak.

Most small business owners declare business profits on their personal tax returns and are taxed at the personal tax rates. In the most recent year for which data is available, 4.3 million small businesses filed and paid taxes at individual tax rates. Of those, 1.2 million would be affected by the proposed tax increase. Small businesses are the engines of our economy. They are responsible for driving most of the job growth in this country, providing approximately 55 percent of private sector jobs. And the most dynamic job-creators are found within the 1.2 million small businesses that would be hit with higher taxes.

On my June bus tour in central and south Texas, I talked to a number of small business owners about what higher taxes would mean. In Uvalde, I talked to Donald McLaughlin of DKM Enterprises, who owns a steel salvage and distribution company. His is among America's tens of thousands of small and medium-sized manufacturers, many of them centers of cutting-edge technology and employers of some of the most skilled workers in the world. Nearly seven out of eight of small manufacturers pay their taxes at personal income tax rates. These companies already pay higher taxes than competitors in Germany and China. Raising their taxes even more will make them less competitive, and opportunities to grow and create more good-paying jobs will be lost.

Also set to take effect on January 1 is a huge jump in the estate tax, referred to as the "death tax" by small-business owners. If action isn't taken, when a family business owner dies, his or her survivors will pay a 55 percent estate tax on assets: equipment, land and inventory. The increase will boost death tax liabilities by more than one-third on most family-owned businesses and threaten to force many to close and liquidate in order to pay the IRS. Particularly hard-hit will be ranchers and farmers, who could be forced to sell land in an unfavorable real-estate market.

Proposed tax rate hikes would come on top of the Obamacare taxes that begin in earnest in 2013: higher Medicare health-insurance taxes, a new health-insurance penalty tax, costs of government health-insurance mandates, and taxes on employers that provide relatively generous coverage. The Joint Committee on Taxation projects that, beginning in 2013, the costs of Obamacare on small businesses will rise to more than $100 billion per year. In addition there will be a 3.8 percent surcharge on capital gains and dividend taxes.

The looming fiscal cliff could set back our economy and our small businesses for years. Higher taxes will hammer down job growth and make only a small dent in the huge budget deficit - which will exceed $1 trillion for the fourth consecutive year. We need serious engagement in Washington on the two critical issues: reducing skyrocketing federal spending and enacting comprehensive tax reform. It is the only way to get the economy back on track. In the next few weeks, I'll be putting forward my ideas on these two crucial problems.

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