Let upper-end Bush-era tax cuts expire

By Frank Knapp, Jr.
The Hill's Congress Blog
September 21, 2011

 

President Obama’s call for cutting the deficit by $3 trillion includes the roll back of the Bush-era tax cuts on the top income tax brackets, a move expected to bring in about $800 billion over the next 10 years.

As expected the defenders of the wealthiest two percent of taxpayers, such as Speaker John Boehner, trotted out their bogus criticism of the proposal saying that it hurts small businesses, the “job creators”.

First, the data clearly shows that only 2 to 3 percent of tax filers reporting some income from a small business have family incomes of over $250,000 a year, the filers who would be impacted by the proposal. This minority of “small business owners” consists largely of very successful attorney’s, physicians, hedge fund managers, K Street lobbyists, high-powered consultants, Wall Street bond traders and the country’s wealthiest millionaires.  An incremental tax increase on these Americans will not affect the number of employees they hire one bit.

But while the critics of President Obama’s plan are disingenuous as to who it would impact, at least they continue to remind the public that most net new jobs are in fact created by small business.  Now if they would only support proposals that directly target small business for assistance.

When the President announced his jobs plan earlier this month, my reaction was, “Finally, a jobs plan that actually helps the largest jobs-producing sector to create jobs—small business.”

It was not just another trickle-down proposal for job growth.  The American Jobs Act would infuse money into Main Street by putting more dollars in the hands of consumers, cut payroll costs for small businesses to help their bottom line and reward small business with tax credits for hiring the unemployed especially veterans.

Tax credits for small businesses creating jobs is a particularly sound government policy.  It’s not a tax cut for big business and cross your fingers that they will hire.  It’s a tax credit that a small business gets only if it hires a new employee under specific conditions.  No hiring, no expenditure of government funds.  This is a common sense job creation proposal.



Unfortunately, Mr. Boehner did not endorse any of these proposals to help small business in his subsequent speech at the Economic Club of Washington. In fact, Mr. Boehner disparaged the proposed job tax credits for small businesses saying that this would make reforming the “tax code more complex”.

It is time for Congress to put actions behind their loving praise for small business and quit holding us up as a shield to protect the wealthiest individuals and corporations.

Hands-on small business owners are not Lloyd Blankfein of Goldman Sachs who received $800,000 last year due to the upper-end Bush-era tax cuts; or Rex Tillerson of Exxon Mobil who netted $1.454 million in 2010 because of the tax cuts; or Rupert Murdoch of News Corporation who saved $1.2 million last year from the controversial tax cuts.

The CEO’s of the biggest multinational corporations are just some of this country’s wealthiest people who the President is asking to sacrifice just a little more so that the small business owners of the local retail shops, plumbing companies and restaurants can have more customers and create more jobs.


Mr. Knapp is the President and CEO of The South Carolina Small Business Chamber of Commerce.

Source:

http://thehill.com/blogs/congress-blog/labor/182961-let-upper-end-bush-era-tax-cuts-expire

Cash flow and job tax credits

In my blog on Monday, I made the following observation about the job tax credits within the President’s proposed American Jobs Act.

Tax credits are taken when tax returns are prepared, not at the time of hiring.  If a business doesn’t have the capital to do the initial hiring, the tax credit months later won’t do them any good.

Therefore, small business must have access to lines of credit and loans for the job-creating tax credits to succeed.  We must step up our efforts to prod financial institutions to provide access to capital for small businesses qualifying for these tax credits.

Apparently I am not the only one to have indicated concern about the tax credits not being available but only once a year.  Cash flow for small business is always a major issue.  Getting a financial incentive later doesn’t help you if you can’t afford to hire today. 

Yesterday Karen Mills, the head of the U.S. Small Business Administration, was reported by the North Carolina News Network to have heard the same concern when she talked to small businesses.

So we said to them what's the most important thing you need and they said a tax credit that comes into my hand week by week, month by month, I don't want to wait until the end of the year, I have more cash so I can go out and market more, get more business so I can go out and hire that next person

I am trying to track down the story on this.  Is the Administration intending to allow small businesses to take the proposed tax credits for hiring the unemployed throughout the year? 

This is a critically important issue.  If the answer is yes, the jobs tax credits will be much more effective in creating jobs.  If not, then it’s back to my comments from Monday.

I’ll let you know.

Job tax credits can work

This evening President Obama submits his American Jobs Act to Congress.  According to a story in The Hill most economists from Moody’s Analytics to the Economic Policy Institute think that the plan, if passed, would add about 2 percent to the GDP growth next year.

The big concern Wall Street is voicing is that the plan is not big enough to really move the economy.  Even worse, the fear is that Congressional Republicans won’t even allow this much job-creating effort to pass. 

But let’s assume that the GOP at least agrees to the tax credits for small businesses that hire the unemployed.  (Click here to see my interview with a local TV station on the subject.)

But passing the tax credits is only the first step necessary for this part of the plan to actually result in jobs.

Small businesses must also know the tax credits exist.  Most small business owners don't have the luxury of following tax law so it will be very important for the media and advocacy organizations for small business to make a solid effort to educate the public.

But the education effort shouldn’t just be about this new federal tax credit for hiring the unemployed.  States might have their own job tax credits to add to the job-creation incentive mix.

In South Carolina we were successful in changing our job tax credit law in 2006 to (for the
first time) include small business hires.  As an example, a small business of any kind in a rural area can get a $4000 tax credit if they hire at least 2 net new jobs.  Add the American Jobs Act and the state tax credits and you have a combined $8000 per employee and even higher if other state conditions are met.  That is a pretty big incentive for many small businesses that are paying around $12 an hour.

One final ingredient is necessary for these tax credits to do their job-creating work. 

Tax credits are taken when tax returns are prepared, not at the time of hiring.  If a business doesn’t have the capital to do the initial hiring, the tax credit months later won’t do them any good.

Therefore, small business must have access to lines of credit and loans for the job-creating tax credits to succeed.  We must step up our efforts to prod financial institutions to provide access to capital for small businesses qualifying for these tax credits.

If all these conditions are met, will every small business increase hiring?  Of course not.  But those businesses that are trying to make a hiring decision based on a slight increase in demand vs. new employee costs will be more inclined to hire.

Providing financial incentive to encourage job growth on Main Street will help start the economic turnaround.  Continued stalemate in Congress definitely won’t do it.

Jobs: Part 2

In yesterday’s blog I talked about some of Dr. Douglas Woodward’s keynote address at this weekend’s South Carolina NAACP African American Economic Summit.  I discussed his latest research on the important role of small business our state and the prospects for the nation’s economy.

Dr. Woodward also made it clear that job creation is what we need.  Dr. Woodward believes that South Carolina lost its focus on creating jobs back in 2003 when Harvard Professor Michael Porter convinced state leaders to adopt a new bible for economic development centered around business clusters.  We created a whole new organization for cluster development—New Carolina, South Carolina’s Council on Competitiveness. 

It wasn’t that this cluster idea was bad, said Dr. Woodward, it was that the state lost its focus on creating jobs and instead just wanted to pursue wealth and raise per capita income.

Confused?  Let me give you a real life example of what happens in state government if the focus is on wealth creation and not job creation.

In 2005 the Legislature passed a bill amending the state’s job tax credit program.  Prior to this time only certain types of businesses (primarily manufacturing) that created 10 net new jobs were eligible for a tax credit on each new job.  The South Carolina Small Business Chamber lobbied very hard to open up the job tax credits for the first time to small businesses that created a minimum of two net new jobs.  A job was a job was a job we argued.  The House agreed and included this provision in the bill.

But the Senate then caved into the state’s big business community that argued that South Carolina should not be rewarding the creation of just any net new job but only jobs that paid far above the average per capita income in that county.  Generating wealth in the state by raising per capita income was THE goal, not creating jobs.  

Our response to this misguided economic approach was that getting an unemployed person into a job regardless of the pay would also raise the per capita income of the state.  But apparently our economic development leaders were only interested in raising per capita income from the top down, not bottom up.  Fortunately we prevailed in a House-Senate Conference Committee.

While we all would like more high-paying jobs in our state and pursuing clusters can yield rewards, we must get back to focusing on creating JOBS.  As Dr. Woodward’s research has clearly pointed out, we should start focusing on the business sector that is creating the most net new jobs already—our small businesses.

Main Street Matters

Almost 7 years ago, The South Carolina Small Business Chamber made an economic development proposal to a S.C. House Rural Caucus. Extend the job tax credits available to big businesses that add 10 new jobs to small businesses that create just one new job.


Our argument was very simple. A job is a job. Ten small businesses adding one new worker each is just as important for economic development as a big business adding 10.

The following year, the S.C. Legislature went almost that far. They made job tax credits available to any small business hiring at least two net new workers with the value of the tax credits being dependent on the economic status of the county.

Since that time our national and state economies collapsed. Now more than ever, every job is important.

At yesterday’s opening of the 20th National Microenterprise Conference, the message was clear.

If just one in three microbusinesses hired a single employee, the United States would be at full employment.

The Association for Enterprise Opportunity, which sponsors the conference, picked “the Power of One in Three” as the theme because, with the proper attention, our nation’s microbusinesses (0-4 employees) have the power to rebuild our economy because they represent 88% of all the country’s businesses.

Instead states and counties spend most of their time and money trying to recruit big business away from other states and counties. We’re not usually increasing net new jobs—just moving those jobs around on the map.

Our small and microbusinesses aren’t moving. Any job they create is a net new job for the state and the nation. That’s building sustainable economies. Main Street Matters.