Small businesses say tax-cut extension won't spur hiring

CHICAGO Wed Dec 8, 2010 3:53pm EST

U.S. President Barack Obama speaks during his news conference in the Brady Press Room of the White House in Washington, December 7, 2010. Obama's fellow Democrats on Tuesday questioned whether they would support his deal to extend tax breaks for all Americans, though analysts predicted it ultimately will pass Congress. REUTERS/Larry Downing (UNITED STATES - Tags: POLITICS BUSINESS PROFILE)

U.S. President Barack Obama speaks during his news conference in the Brady Press Room of the White House in Washington, December 7, 2010. Obama's fellow Democrats on Tuesday questioned whether they would support his deal to extend tax breaks for all Americans, though analysts predicted it ultimately will pass Congress.

Credit: Reuters/Larry Downing (UNITED STATES - Tags: POLITICS BUSINESS PROFILE)

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CHICAGO (Reuters) - Extending Bush-era tax breaks won't be enough to encourage business owners like Brad Schulman to begin hiring.

"They've got a noose around small business," said Schulman, founder of Northbrook, Illinois-based Green Planet Bottling (www.greenplanetbottling.com), a maker of eco-friendly plant-based water bottles. "I've got no money to reinvest."

Schulman is a proponent of extending tax relief across the board, arguing it would act as a psychological boost to the small business community. But he added other policy changes must occur before he expands his 10-man operation, which has been growing steadily despite the down economy and is set to post revenue in excess of $5 million this year.

Foremost, there must be substantial moves to improve small companies' access to capital at a time when banks are still reluctant to lend, Schulman said. A life-long Democrat, the 45-year-old broke ranks and voted Republican in last month's midterm elections. He added he won't be enticed to hire new employees now based on the prospect of better tax returns in the future.

"That thought process will remain front and center because we need to keep the lights on," said Schulman.

This week President Barack Obama unveiled a deal with Republicans that would extend the Bush-era tax rates for all Americans. The compromise followed a largely symbolic bill passed late last week by the Democrat-controlled House of Representatives that limited extended tax cuts to dual-income households earning below $250,000, the threshold originally promoted by the Obama administration.

HOT-BUTTON ISSUE

The tax issue has been an emotional one for many in the small business community, ranging from struggling mom-and-pops to the more well-heeled entrepreneurs that Democrats argued could afford floating additional tax dollars to the Feds.

Longtime small business advocacy groups such as the National Federation of Independent Business and the Small Business & Entrepreneurship Council lobbied for extended relief with no income limits. On the other side, a network of business owners called Business for Shared Prosperity is opposed to extending the cuts for those in the top income brackets.

"I think it makes financial sense and I think it's also the right thing to do in terms of my personal philosophy," said David Bolotsky, a Business for Shared Prosperity petitioner and the CEO of New York-based Internet gift retailer UncommonGoods (www.uncommongoods.com).

"We're focused on the long term in terms of growing the business, so a change in the tax rate is not going to alter what I need to do for competitive and strategic reasons to grow the business," said Bolotsky, 47, who declined to share financials. Others were less political but equally opinionated about what they perceived as an issue that would have little bearing on their day-to-day decisions.

They include John Jordan, a long-time Washington-based publicist who has run his own one-man shop since 2003. He said paying higher taxes would not have influenced his business decisions in the coming year. Jordan, who also supports letting the cuts expire for wealthier owners, said his combined household income exceeded the $250,000 Obama relief threshold.

"I don't gain or go after clients, or try to reach retainers with an eye toward marginal tax rates," said the 47-year-old. "You do what you gotta do. You don't worry about running the tax numbers."

MOVING PARTS

Tax attorney and small business expert Barbara Weltman is skeptical that members of Congress understand what it takes to keep a small company going in a rough economy.

"If a business owner has to pay higher taxes on net earnings, it's that much less available to do other things we want businesses to do - hire, buy equipment, expand," she said. "I just don't think they understand how businesses work."

Weltman, herself the owner of two small businesses, favors longer-term solutions that will remove the uncertainty plaguing many small companies. She supports making permanent extensions of the tax relief at all income levels and longer-term tax reform.

"These year-by-year extensions don't make it possible for people to plan," she said. "Congress has to meet and deal with this over and over again."

Schulman agrees there are still too many moving parts in the current economy to prompt significant capital outlays for his business. The value of his home - among his largest assets - dropped 30 percent during the recession. Meanwhile, Green Planet Bottling is facing higher healthcare costs and the first of his two teenage children is set to head off to college next year.

"Why would I want to invest money in a down market unless I know it's close to being an up market?" said Schulman. "I'm still not hiring anybody. They got to take the noose off of me."

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Comments (4)
essexed wrote:
Small business is simply waiting for the president and the houses of congress to get their houses in order. As a small businessman my confidence will come when I know that our government is shrinking and so is the deficit. Put those two things in place and the demand for products and services will grow, jobless claims will drop dramatically and business will be hiring. Not very hard to do… the hard part is getting these politicians to stop spending money.

Dec 08, 2010 4:33pm EST  --  Report as abuse
edgyinchina wrote:
For several months now, all we’ve heard in the news are stories that if the Bush tax cuts expire business will die off, and if they are extended, then businesses will hire again…. How anyone has believed this drivel is unbelievable.
These ‘tax breaks’ for the rich have been in place since 2001 and 2003 respectively, and unemployment has risen steadily. How can you NOT see that the dots DON’T connect?
I challenge anyone, anywhere to name one business leader who will say with a straight face: The reason I won’t build a factory in the US and hire US citizens is because I am worried about the Bush tax cuts not being renewed. Any takers???? …. I thought not.
You all need a lesson in economics. Start with Econ 101. Get schooled, it’s educational.
http://apps.edgyinchina.org/Blog/

Dec 08, 2010 7:46pm EST  --  Report as abuse
essexed’s comments do not make any sense… what is the relation between budget deficit and small businesses… most european countries live with budget deficits 100% of their GNP… maybe we should cut all subsidies that these small business owners have… such as why do we subsidize gas in this country… government shrinking is a myth and it does not have anything to do with overly leveraged american’s buying power… maybe we should not have unnecessary wars also… you can not go around and say shrink the government and put stickers on your car which say “Support Our Troops”… small business owners only cry…

Dec 09, 2010 9:40am EST  --  Report as abuse
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