IHS Chemical Week


What small business needs for Christmas is relief from fiscal cliff


With Christmas just three weeks away, we’re supposed to be hearing about peace on earth and good will toward men, but that’s not the case this year. Like many of you, all I seem to hear is news about a fiscal crisis of historic proportions that will create dire consequences for all of us. And the odds of us going over this so-called fiscal cliff are greater with each passing day.

Why? Because there’s not much good will between House Speaker John Boehner, leading the GOP-controlled House, and President Obama. Republicans won’t budge on agreeing to higher tax rates for individuals making more than $250,000 (Obama has indicated this is a nonstarter), and Democrats won’t give on entitlement reform and additional government spending cuts. Knowing the fiscal cliff was coming, it’s a shame they’ve waited until the eleventh hour before having meaningful talks to broker a deal on an issue that could cripple our economy for years to come.

While it’s looking like the biggest present we’re getting for Christmas is higher taxes, Socma members, the chemical industry, and most small businesses appear to be getting the equivalent of a lump of coal in their stocking. This sector of the industry will be hit particularly hard by the fiscal cliff, because about 70% of manufacturers are small businesses paying taxes at the individual rate, lumping them in with those President Obama considers “the wealthy.”

Higher taxes will devastate our members and negatively impact their ability to create jobs and invest. A recent study by the Institute for Supply Management indicates the looming fiscal cliff is already having a negative impact on the economy and manufacturing. Manufacturers have already begun cutting back on expansion plans, and some are already reducing their workforce as evidenced by the survey's employment index, which contracted for the first time in three years.

So what can be done to help our small manufacturers, should Congress and the President fail to reach a compromise?

Last week, Senator Susan Collins (R., ME) asked the Senate to consider a bill that would impose a 2% surtax on taxpayer income of more than $1 million with a carve-out to exempt businesses with 500 or fewer employees. Collins said this is one way to ensure small businesses continue to grow and hire new workers. But there’s not been any movement on the bill so far.

The National Association of Manufacturers says lawmakers can help small businesses by making the lower tax rate permanent. Temporary tax relief creates hurdles for manufacturers and weakens the positive effect of the tax laws in place.

I tend to agree with the pundits who say there is just too little time for a Grand Bargain. There are too many complex and serious issues on the table to rush to any comprehensive agreement. Personally, I’d like to see a carve-out for S corps and LLCs as part of a tax reform bargain along the lines of what Senator Collins has proposed.

Whether Congress exempts small businesses from a tax increase, makes the lower tax rate permanent, or comes up with other options, these 200,000 small businesses that will be paying a near 40% tax rate—if the fiscal cliff happens—need tax reform. They can’t do business and remain competitive in the global marketplace with on-again, off-again tax relief.

What are the ramifications if we go off the cliff? In a November meeting at the White House, Socma learned the United States is expected to go back into a recession if no agreement is reached. And failure to come to a decision will impact manufacturers everywhere, not just in the United States, but globally. Going off the fiscal cliff sends a message to our trading partners that the US market is unstable, given our government’s inability to control finances and budget.

Now’s not the time for Congress or the President to do their best impersonation of the Grinch. It’s time for them to come together on a plan to avoid the fiscal cliff and get serious about negotiating meaningful tax reform. If it doesn’t happen before we ring in the New Year, there’s going to be pressure for them to come up with a solution early next year. Our leaders can’t afford to sit back and allow our economy to continue a free fall into a pit we can never dig our way out of.

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