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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