Small business slammed
Tax policy — or the lack thereof — has consequences. Americans are seeing that uncertainty about the federal fiscal cliff is sparking investors to make moves to profit now, instead of getting hit with potentially much higher taxes in 2013.
“Tax-related selling may be behind the weaker trend in the shares of market leader Apple,” whose stock is down 20 percent in this quarter, Reuters reported. “Of this year’s top 20 performers in the S&P 1500 index, which includes large, small and mid-cap stocks, all but four have lost ground in the last five trading sessions.”
“It’s very simple,” Dan Mitchell told us; he’s a senior fellow at the libertarian Cato Institute. “The capital gains tax could go from 15 percent to 23.8 percent. The dividends tax could go from 15 percent to 43.8 percent. And that’s not to mention ordinary income tax rates,”
which could go from 35 percent to 39.6 percent for the top rate. “If you have any discretion with your money, you will try to protect it.”
Mitchell also pointed to how Costco Wholesale Corp. and the Washington Post Company are issuing dividends this year to avoid higher taxes next year. Ironically, both companies were big supporters of the re-election of President Barack Obama, who is pushing for the higher federal tax rates.
Mitchell added that what we’re really seeing is a “timing issue.” By itself, that doesn’t mean much. Companies and investors shift money around all the time. But the deeper meaning is that “taxes matter. The real problem is what these tax increases mean for long-term growth and competitiveness.”
Obama and other tax-increase advocates — such as California Gov. Jerry Brown — insist tax hikes are needed so the rich “pay their fair share.”
But Mitchell said that’s not what really happens. The truly wealthy, he said, have money in stocks and bonds, which gives them “flexibility,”
making it easier to shift funds to avoid taxes.
Instead, he said, the tax increases “are a big problem for the small business and the entrepreneur. They don’t have the liquidity of the really rich. If you own a muffler shop, or a couple of Applebee’s or an accounting firm, your income is your cash flow. Your liquidity is used to hire workers. Obama is pushing class warfare, but that really hits small business. The really rich shrug this off like a horse swatting a fly.”
Many small businesses file taxes as S corporations, which means they’re taxed at individual rates. So the higher tax rates aimed at the “rich” also will hit companies that are hoping to use profits for expansion and jobs creation.
According to a 2010 report by the Small Business Administration’s Office of Advocacy, from 60 to 80 percent of new jobs are created by small businesses. The national unemployment rate has dropped gradually throughout 2012, to 7.7 percent in November from 8.3 percent in January. But that trend could change if small businesses are slammed by higher taxes in 2013.
As the country is about to barrel over the fiscal cliff in a hot-rod Lincoln, those seeking tax increases should realize that small business is locked in the trunk.
The Orange County Register