Showing posts with label middle class. Show all posts
Showing posts with label middle class. Show all posts

Friday, January 4, 2013

Small Business Impact of the Fiscal Cliff Deal

In an effort to get the word out, yesterday the White House sponsored a conference call with small business owners to describe the "Fiscal Cliff" bill, signed into law by President Obama on January 3rd in a successful effort to avoid a government shutdown. (For a detailed, highly technical summary of the new law, see:

The law extends the Bush tax cuts for those making less than $250,000. It keeps the earned income tax credit, tax credits for child care, and something called the American Opportunity Tax Credit: college tuition tax breaks. The law also fixes a problem with the Alternative Minimum Tax (AMT), in the sense that those in the middle class will not be faced with a $2,500 increase in taxes due to the AMT.

The White House called this a balanced approach, meaning that upper income persons will face higher taxes. The law reinstates a 39.6% tax rate on those with income over $450,000 (couples)/$400,000 (singles). Certain tax exemptions are limited for those earning more than $250,000.

Dividend and capital gains tax rates will go up to Clinton era rates. The law increases taxes, from 35% to 40%, on estates larger than $5 million dollars. The top 2% of earners will pay tax rates at Clinton era levels.

For small business, benefits flowing from the law are few and far between.

It does support economic growth by maintaining tax credits for certain investment incentives, for Research and Development (R&D), and for Section 179 expensing. It allows small business owners to write off 100% of new (non plant and equipment) investments (up to $500,000). Small business owners can also write off half of new investments in plant and equipment made in 2013. The production tax credit was extended.

For those at the lower end of the income scale, unemployment benefits have been extended for a full year.

Congresses' main goal in drafting the law, according to the White House, was to provide certainty to the middle class about the tax system they will face in 2013. The middle class will be impacted, of course, but they appear to be an afterthought, not the people this law was designed to address. This law speaks to (and for) corporate interests. (That is why the Dow rose so strongly after it was passed...) Among benefits incorporated are tax breaks that "allow manufacturers and banks to defer taxes," a tax designed to subsidize rum production, and tax credits that "finance new luxury apartments"..and "the construction of Goldman Sachs’ new headquarters."

All revenue generated will go to deficit reduction, not spending. This deficit reduction effort is the 2nd phase of an effort begun in 2011, with the 2011 Appropriation bill and the Budget Control Act, which together reduced spending by $1.7 trillion. The current law reduces the deficit by $700 billion. (This is akin to saving water to drink when your hair is on fire: the deficit is the last problem we need to be concerned with. The deal will not increase economic activity or employment over the short term, and THIS is what we should be concerned with.)

Overall, the law moves us away from the Fiscal Cliff, at least for the next two months. It does little to grow the economy. This implies that employment prospects for the vast majority of Americans were not improved by this law. Bottom line: economic and employment growth will continue to be sluggish, thanks largely to the Republicans.

At least we now stand a better than average chance of not falling into another self inflicted recession.
Enhanced by Zemanta