(Washington, DC) -- Expiring federal tax cuts, nagging state-level tax increases, and looming proposals to boost payroll taxes constitute a triple threat to small businesses: that's the warning the 350,000-member National Taxpayers Union (NTU) gave to policymakers at a forum sponsored by the Small Business & Entrepreneurship Council.
"Small businesses could be locked out of a prosperous future unless the tax cuts of the last four years are locked in," said NTU President John Berthoud, who served as a Speaker at the Council's event. "The income tax rate reductions, phase-out of the death tax, and numerous other provisions enacted between 2001 and 2004 have fueled America's economic recovery, for which the small business sector has provided the most horsepower."
Berthoud, who holds a Ph.D. in Political Economy from Yale University, noted that approximately two-thirds of all personal income tax returns in the top bracket report at least some earnings from a small business concern, making the recent reductions in this and other personal tax brackets a vital component of relief for sole proprietorships and other small firms. He also cited results from a 2004 NTU study of Tax Code complexity, which found that a decade of federal government tinkering with the tax laws has added a billion extra hours to the annual paperwork burdens on American taxpayers, including small businesses.
"Here today, gone tomorrow tax provisions have contributed greatly to the planning headaches of small businesses," Berthoud said. "A steadily growing economy likewise depends on a solid low-tax structure that businesses and individuals can confidently plan around in years to come."
Berthoud cautioned that ill-advised tax hikes from state governments, as well as proposals to effectively increase payroll taxes, could prove catastrophic to the small business sector. "From coast to coast, state lawmakers have been hunting for new revenues to fund their spending sprees, and small businesses are often caught in the crosshairs," he noted. "Whether disguised as licensing fees, loophole closures, or temporary surcharges, the result is the same -- businesses and their employees are starved to fatten government's coffers."
In addition, Berthoud observed, recent discussion of lifting the cap on earnings subject to Social Security taxes "could hit sole proprietors with a one-two punch to their pocketbooks," in the form of a marginal tax rate increase of more than 12 percent. High-earning employees of small businesses would fare little better, since they would see a direct tax bite as well as a loss of future wage increases. Other workers might forfeit their jobs entirely as business owners struggle to stay on their feet because of the heavier tax load.
"Until the Tax Code is scrapped in favor of a simpler system, the bottom line for businesses may depend on making the recent tax cuts permanent and avoiding punitive increases in other federal and state taxes," Berthoud concluded.
NTU is a non-partisan citizen group working for lower taxes and smaller government. Note: Further tax policy research, including NTU's tax complexity study, is available at www.ntu.org.