A 35 Year Old “Temporary Tax” FINALLY Ends

If you push hard enough sometimes miracles do happen – that is the case with the end of a 35-year old “temporary tax” on employers that SBE Council has long advocated for its end. June 30 marked the end of the “temporary” Federal Unemployment Tax Act (FUTA) “surtax,” which was implemented in 1976.

“The surtax is one of those ‘death by a thousand cuts’ that small business owners refer to when they talk about the government sapping resources that are needed to compete, invest, grow and survive. During this challenging economic period, the resources that are now freed from the never-ending surtax will make a difference for small businesses,” said SBE Council President & CEO Karen Kerrigan.

According to background information provided by the House Ways and Means Committee: “The purpose of the ‘temporary’ 0.2% surtax was to repay Federal general revenues used to provide Federal unemployment benefits paid in the wake of the 1973-75 recession. Though the tax raised $27 billion (adjusted for inflation) and the general revenues were fully repaid by 1987, the 0.2 percent surtax remains on the books today. Since 1987, the tax has raised an additional $46 billion (adjusted for inflation) above and beyond what was needed at the inception of the tax in 1976.” The House Ways and Means Committee refused to entertain an extension of the surtax, which means it has finally expired.

In a statement issued marking the end of the surtax, House Ways and Means Chairman Dave Camp said: "The death of any tax on jobs — no matter how big or small — is a historic moment and one to be celebrated. The fact that it has taken 35-years for this ‘temporary’ tax to expire clearly illustrates the dangers of higher taxes — once in place, they are unlikely to ever go away. We need employers paying more salaries, not paying higher taxes. And when the surtax expires, job creators will get a little and long overdue relief.”

Karen Kerrigan, President & CEO

Will Tax Reform “Talk” Turn to Action

U.S. tax rates are uncompetitive. President Obama has acknowledged such, and a team at the U.S. Treasury Department is working on “business tax reform” with a focus on lowering corporate taxes. Key leaders in both political parties seem to want to address our nation’s high corporate tax rate.

This week, I met with key officials at Treasury charged with undertaking this project. Clearly, I noted, the U.S. needs to lower the corporate tax rate in order to stay competitive. However, government leaders cannot forget about small business owners as they look to lower corporate rates, I added. After all, most small businesses are not structured as corporations so it is just as important for our elected officials to be talking about lowering rates for all entrepreneurs and firms.

This week, House Ways and Means Chairman Dave Camp (R-MI) stated he wants to cut the top individual and corporate tax rates to 25 percent. Chairman Camp would eliminate deductions and simplify the system -- an approach long supported by small businesses, given the outrageous complexity (not to add the instability) of our nation’s tax system.

(Read SBE Council Chief Economist Raymond Keating’s Cybercolumn on this topic by clicking here.)

Of course, efforts to reform the tax system have come and gone. Commissions have been appointed; recommendations made, and then shelved. Is it different this time?

Reforming the tax system will take leadership, and hopefully someone with the passion and energy to tackle this critical initiative will step forward.

Karen Kerrigan, President & CEO