SBE Council Pleased by Passage of Small Business Tax Cut

The Small Business & Entrepreneurship Council (SBE Council) was pleased to see that the U.S. House of Representatives passed the Small Business Tax Deduction Act (H.R. 9) today.

Karen Kerrigan, SBE Council’s president and CEO, said, “Entrepreneurs are concerned about the tax increases due to kick in at the end of this year. Those tax hikes will reduce the ability of small businesses to invest, build and create jobs. In contrast, the Small Business Tax Deduction Act that passed the House, by providing a 20 percent tax deduction to small businesses, shifts the tax policy debate in a welcome, far more pro-entrepreneur, pro-growth direction.”

Kerrigan continued, “Obviously, much more needs to be done on the tax front. That includes eliminating the many tax increases coming next year that pose additional, significant threats to an already poor economic recovery. If we want to reinvigorate economic growth and job creation, then tax increases are the last thing we need.”

Raymond J. Keating, chief economist at SBE Council, added, “Economic and employment growth require that resources be left in the hands of America’s entrepreneurs, as opposed to taking those resources so they can be spent for political purposes. Let’s hope that this vote in favor of lower taxes on small businesses by a majority of members in the House of Representatives will be recognized as the right direction to go on tax policy by the U.S. Senate and the Obama administration.”

SBE Council's "Business Tax Index" Ranks State Tax Systems

Today, the Small Business & Entrepreneurship Council (SBE Council) published the "Business Tax Index 2012: Best to Worst State Tax Systems for Entrepreneurship and Small Business." The index ranks the 50 states and District of Columbia according to the costs of their tax systems for entrepreneurship and small business.

(To view the interactive U.S. map with each state ranking, please click here.)

Raymond J. Keating, chief economist for SBE Council and author of the report, said: "While 'Tax Day' 2012 is officially April 17, it is critical to understand that federal, state and local taxes are a burden on entrepreneurs, investors and the economy throughout the year."

Keating added: "All taxes matter, whether imposed at the federal, state or local level of government. They matter to consumers, entrepreneurs, investors and businesses. State and local levies matter in terms of a state's competitiveness. And they matter when it comes to economic growth and job creation."

SBE Council's "Business Tax Index 2012" pulls together 18 different tax measures, and combines those into one tax score that allows the 50 states and District of Columbia to be compared. Among the taxes included are income, capital gains, property, death/inheritance, unemployment, and various consumption-based taxes, including state gas and diesel levies.

According to the "Business Tax Index 2012," the 15 best tax systems are: 1) South Dakota, 2) Texas, 3) Nevada, 4) Wyoming, 5) Washington, 6) Florida, 7) Alaska, 8)Alabama, 9) Ohio, 10) Colorado, 11) Mississippi, 12) Michigan, 13) South Carolina, 14) Tennessee, and 15) Missouri.

The 15 worst state tax systems are: 37) Nebraska, 38) North Carolina, 39) Illinois, 40) Oregon, 41) Rhode Island, 42) Connecticut, 43) Hawaii, 44) Vermont, 45) California, 46) Maine, 47) Iowa, 48) New York, 49) New Jersey, 50) Minnesota, and 51) District of Columbia.

In terms of recent policy changes, it's worth noting that some states have made steps forward on providing some tax relief, such as Indiana, Arizona, Maine, Michigan, North Dakota, Delaware, Oklahoma, along with Ohio. In contrast, other policymakers worked against entrepreneurship by making state taxes less competitive, such as Oregon, Connecticut, Illinois and New York.

Small Business Tax Measure Proposed by U.S. House Leaders Will Free Up Capital for Entrepreneurs

Cash flow and access to capital are major concerns for small business owners as they struggle through the weak economic recovery. The pressure of rising costs, including the spike in gas prices and increases in health coverage premiums, are squeezing small business owners and they need immediate relief. That is why the Small Business & Entrepreneurship Council (SBE Council) is supporting House Majority Leader Eric Cantor's (R-VA) "Small Business Tax Cut," as it will provide critical assistance to capital-starved entrepreneurs.

SBE Council chief economist Raymond J. Keating said, "In the current atmosphere, small business owners are worried about the threat of higher taxes. Moving in the opposite direction would be a welcome change. The debate should be about how to reduce tax burdens on the entrepreneurial sector of our economy. This 20 percent tax cut for smaller businesses is a step in the right direction."

SBE Council President & CEO Karen Kerrigan added, "Ideally, the Congress and the White House should have moved on early opportunities to fundamentally restructure the tax system where all rates are cut and the fix is permanent. This did not happen, yet small businesses desperately need relief. The 20 percent tax deduction would infuse small businesses with the capital they need to withstand economic headwinds and costs that continue to work against them."

A survey released last week by SBE Council found that higher gas prices were adding to the strain of small business owners. In fact, 43 percent of small business owners said their firms would not survive if gas prices remained high or increased further.

"Getting our nation's economy back to strong and sustained growth needs to be a top priority for our elected officials. High confidence and robust job creation in the small business sector is central to that end. The 20 percent tax cut for small business owners is not only needed, it will have an immediate impact on the economy," added Kerrigan.

The True Impact of the Looming Year-End Tax Increases

Why exactly do the White House and Democratic leaders in Congress want to increase taxes at the end of this year?

In addition to the enormous tax increases that are being phased in under ObamaCare - including higher taxes on upper incomes, including capital gains, and penalty taxes on businesses and individuals who do not offer or have government approved health insurance, along with higher levies on pharmaceutical firms, medical device manufacturers and health insurance companies - the 2001 and 2003 tax relief measures expire at the end of this year.

If Congress does nothing, huge tax increases will hit all aspects of the economy directly.

If President Obama gets his way, large tax hikes would still be imposed, and the negative effects of those tax increases would be felt throughout the economy.

The Obama tax agenda features raising the two top personal income tax rates from 33 percent and 35 percent to 36 percent and 39.6 percent, respectively; increasing the top individual capital gains and dividends tax rate of 15 percent to 20 percent; and after it has been eliminated for 2010, re-imposing the death tax at its 2009 levels, with a top rate of 45 percent and $3.5 million exemption.

Let's consider a few key points as to why these tax increases would be bad ideas...

Read the rest of this SBE Council Cybercolumn by chief economist Ray Keating here.

Message to President Obama: Your policies are not creating jobs

Small business owners have led the U.S. out of previous economic downturns, but it’s not working out that way this time around. An August 19 Wall Street Journal article, which reported on jobs data released the previous day, wrote “Businesses with fewer than 50 employees accounted for 61.8% of all job cuts in the private sector in the fourth quarter, the Labor Department reported Wednesday, while they created 54.1% of new jobs.”

Business of all sizes slashed a net 200,000 jobs in the fourth quarter (adding 6.6 million jobs and shedding 6.8 million.)

The piece continued:

“Companies with 50 to 249 workers made 17.8% of all job cuts in the fourth quarter, and nearly the same percentage of job gains. Midsize companies, with 250 to 999 employees, added 9.9% of new jobs and accounted for 10% of job losses.

The largest companies, those with 1,000 or more employees, hired a larger share of workers than they let go. These firms, which employ about 38% of all workers, accounted for 18.3% of all job gains versus 17.7% of job losses.”

As I said in a media release last week in response to the hike in jobless claims, which was the basis for a story in The Hill newspaper about the failure of the President’s economic policies:

"There is little to no confidence among small business owners that Washington knows what it is doing, or understands how business functions. The relentless push for higher taxes and intrusive regulation in every sector of our economy is the reason why this recession will be prolonged. On top of a host of misguided policies that are punishing job creation and investment, we have a dangerous spending mentality that threatens U.S. competitiveness and mid to long-term economic growth. The size and scope of government is becoming a major drag on our economy."

Congressional leaders and the Obama Administration had an opportunity to implement the policy ideas and needs of small business owners. They did the exact opposite. Unfortunately, the bad news will keep pouring in and may get worse if their tax hikes, cap-and-trade bill and additional spending programs are enacted. Washington needs to stop burdening small businesses and the private sector. Congressional leaders and the President are crushing the resourcefulness of our entrepreneurs.

Karen Kerrigan, President & CEO

Another Response to Obama’s Small Business Agenda

Republican Study Committee Chairman Tom Price (GA) offered the following response to President Obama’s March 16 small business agenda:

If President Obama really wants to help small businesses, he won’t tax away their viability. His attempt finally recognizes that small businesses will play a vital role in our economic recovery. Unfortunately, his policies have been entirely counterproductive. This aid package makes for a nice media opportunity, but it does not make up for the fact that the President is putting the largest tax hike in American history on the backs of small businesses across the country. Raising taxes on small businesses will only lead to more lost jobs. That is the last thing we need during these tough economic times. These big-government plans restrict economic freedom and tax away any opportunities for recovery. We must put economic power back in the hands of American individuals and businesses. We can immediately clear the way for economic growth by cutting taxes and letting businesses invest more of their own money. The road to economic recovery is paved with a healthy small business community that requires greater access to its own capital.

The RSC has offered a substantially different agenda to boost small business and the economy through the Economic Recovery and Middle-Class Tax Relief Act.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

Small Business Owners on Reviving the Economy

Just an important reminder that entrepreneurs generally know what’s best when it comes to economic policy.

Consider the following from a March 6 eWeek.com story:

A survey conducted this month by SurePayroll, the online payroll service found most small business owners feel the government should be taking a different approach to boost the economy to deal with the economic crisis.

According to the results, nearly three out of four small business owners disagree with the way the U.S. government has allocated funds in its Troubled Assets Relief Program (TARP), and believe tax cuts would be the ideal solution.

The survey found that nearly half of the respondents feel the government should focus on tax cuts to boost small and medium-size business (SMBs).

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

Small Business Owner vs. Obama

You can usually count on the New York Post for a good front-page headline.

As I grabbed the newspaper from the end of my driveway on Wednesday (October 15) morning, the headline screamed: “Bam’s Leak! ‘Spread wealth,’ he tells plumber.”

The article is well worth reading, as it tells the story of a small business owner who challenged presidential candidate Barack Obama on his proposal to jack up taxes on those earning more than $250,000 a year.

Here’s the intriguing exchange as reported by the Post:

The fracas over Obama's tax plan broke out Sunday outside Toledo when Joe Wurzelbacher approached the candidate. Wurzelbacher said he planned to become the owner of a small plumbing business that will take in more than the $250,000 amount at which Obama plans to begin raising tax rates.

"Your new tax plan is going to tax me more, isn't it?" the blue-collar worker asked.
After Obama responded that it would, Wurzelbacher continued: "I've worked hard . . . I work 10 to 12 hours a day and I'm buying this company and I'm going to continue working that way. I'm getting taxed more and more while fulfilling the American Dream."

"It's not that I want to punish your success," Obama told him. "I want to make sure that everybody who is behind you, that they've got a chance for success, too.”

Then, Obama explained his trickle-up theory of economics. "My attitude is that if the economy's good for folks from the bottom up, it's gonna be good for everybody. I think when you spread the wealth around, it's good for everybody."

Well, there it is – classic wealth redistribution. Unfortunately, what Barack Obama is missing is that wealth redistribution equals wealth destruction, and nobody benefits from that. It’s certainly the last thing we need in the current economy.

Here’s a thought: How about pro-growth tax and regulatory relief that spurs wealth creation for all?

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council