Small Business, Jobs, and the Tax Cut Debate

Treasury Secretary Timothy Geithner was the featured speaker in an August 4 panel that focused in part on how tax cuts would affect small businesses and their role in job creation.

John Podesta of the Center for American Progress introduced the panel, noting that a policy of continuing tax cuts to the top 2 percent of Americans would cost $700 billion and was ranked last among eleven policy options analyzed by the Congressional Budget Office for their effects on output and employment.

Douglas Holtz-Eakin, President of the American Action Forum, countered that households with their current badly damaged household balance sheets are not in a position to be powering the economy forward. Data from the most recent ADP employment report show that most new jobs are coming from businesses with fewer than 500 employees, so raising marginal tax rates places jobs at risk, and is a step in the wrong direction, he said.

Secretary Geithner advocated for extending tax cuts for the middle class—households earning $250,000 or less—while allowing the 2001 and 2003 tax cuts for the top-earning 2 percent of Americans, earning $800,000 on average, to expire. Extending tax cuts for the middle class would target economic stimulus to Americans who are more likely to spend the money, he said, while allowing tax cuts for the top 2 percent to expire would have no effect on more than 97 percent of small businesses. In the context of the president’s proposal to freeze non-security discretionary spending, “asking the top earners in our society to forgo an extension of recent tax cuts has to be part of the compact that restores fiscal responsibility in Washington.” He also advocated passage of the Small Business Jobs Act currently before the Congress.

In response, Holtz-Eakin noted that one of the traditional objectives of tax policy is to have a tax code that does not discriminate unfairly as to forms or scales of business, and to draw a line that says you’re small, you’re large, and to treat them differently is at odds with such a tax policy.

It’s an interesting debate. What really does stimulate small business jobs growth? The issues and answers are complex, but stay tuned—Advocacy is looking at these questions in a variety of formats and will be sponsoring an October symposium on high-impact entrepreneurship.

Kathryn Tobias, Senior Editor

  1. North Carolina retirement community advisor says

    As a small business owner, I’m looking forward to seeing the end result. I hope it will be beneficial…

  2. Frank Flavin says

    Taxes should not draw a line between small or large companies.
    In most cases the small business is drawing in business because of larger companies. Trickle down economics. If you tax it-it will go away.

  3. Ben Eubanks says

    I’m interested in hearing more about the affects of the tax changes on small businesses and entrepreneurs. My parents own a small business and although it isn’t wildly successful, they still get hit hard by a lot of different taxes, and that makes it difficult to hire, compensate, and retain quality employees.

    *sigh* The trials of life. 🙂

    Great post and coverage, Kathryn!

  4. Karen Hall says

    We are the payroll software provider for small business and accountants. Year 2010 is still the hard time for us and for our users.

    We expect more small business owners can benefit from the tax changes.


  5. Aiden says

    All states fight over landing large employers. Why is that? Tax revenue local community growth, dollars etc. Where do large 500+ employers come from? Quite frequently they have their beginnings from small business. Promote small business with low taxes and you’ll soon see the birth of large business.

  6. Marissa Mans says

    Why can’t we just have a straight sales tax economy? No income tax, no property tax, etc. That way the people who spend more, pay more taxes. However, certain food items would have to be exempt. I thought I heard of this tax plan before, but I don’t remember who talked about it.

  7. Jeff Rauth says

    It seems to be just another blow to small business owners that don’t beleive that the administartion “gets it.” Like it or not the top earners create the jobs that the rest of us need.

  8. Bella Mendes says

    Its very difficult for the small business owner to pay different types of taxes when they do not get enough revenue.

  9. Ken Sundheim says

    Between the tax cuts and the new lending that banks are doing, I still feel as if this is another drop of red ink in the ocean. Yes, tax cuts are great. However, maybe you should focus on the economy?

  10. Fish Finders says

    I own a small business and am quite interested in extending the tax cuts to everyone. I believe the tax cuts will not only help me with fewer taxes in the business, allowing me to hire employees, but also will keep money in the hands of my customers who in turn may just spend it in my business or on other small businesses.

  11. Maggie Brown says

    As a small busines owner I am anxiously awaiting news on tax changes for small businesses. We have struggled to keep our head above water this year and last. I believe that business incentives do help stimulate the economy and am hopeful our leaders agree!

  12. Adam says

    Tax changes are nice and everything, but what about program that supplements salaries for new hires by small businesses? It would be great if small business owners could hire a new employee and have half of their salary supplemented by government–even if only for a few months. The extra jobs this would create would help stimulate local economies, at least in my opinion.

  13. dbalkan says

    When so many businesses are not making money or showing a profit the business tax rate isn’t a concern of mine right now. A lot of us are still getting tax loss carry-forwards.

    What does concern me is the personal tax rate. Persons earning over 250K a year should have their taxes raised. Those in that group are reaping a larger benefit from our economic system and deserve to pay a litle more back. Persons making over 250K can readily afford paying more in taxes without it affecting whether they can feed their families, pay their mortgage, etc. Maybe they would have to turn in their 5 series for a 3 series………..

    Unless the overall quality of life is raised in this country, including health care for everyone, we cannot continue to consider ourselves world leaders. We cannot continue to delude ourselves by thinking that if a person works hard anything is possible in the USA. We need find our empathy and compassion. In doing so we can rediscover our greatness.

    Raise taxes for the upper middle class/wealthy. We as a people stopped thinking about “trickling it down” a long time ago.

  14. Neal Coxworth says

    Sometimes what seems to be lost in the debate is the sheer amount of time a small business owner needs to devote to complying with various tax laws and regulations on the three levels of government, local, state and federal.

    Often the expense and time consumption of just trying to stay “legal” devours much of the creative energy a business owner with limited resources might have.

    Lost in the large debates of reform is the actual mechanics of how such reform can make compliance easier and more streamlined for the end user, namely the small business owner in whose name much reform is supposedly enacted.

  15. tami says

    I agree about lowering taxes. Cut out the pork and earmarks and let the money flow!

  16. Andy says

    Glad to see the HR 5219 bill has been approved. Is going to provide a big boost to small business owners like me.

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