Fiscal Cliff Deal ‘Could Have Been Better’

Lawmakers waited until the last second to strike a deal on the fiscal cliff Tuesday, and the small business community is none-too-pleased with the resulting legislation. President Obama is expected to sign the deal late Wednesday.

Ray Keating, chief economist for the Small Business and Entrepreneurship Council, said the deal being made so late in the game shows a lack of regard for the people attached to those hotly-debated tax brackets.

“It was a matter of how bad the deal was going to be,” he said. “You can say, ‘it could have been worse.’ But if these guys in Washington were concerned about the economy, it really could have been better.”

Any time that personal income taxes, capital gains taxes, payroll taxes and death taxes go up, the economy suffers, he said. But, raising the income taxes on individuals and households making more than $450,000 annually, rather than the originally-proposed $250,000 bracket, does bode somewhat better for small businesses.

“Raising the level means fewer businesses and investors will be affected by this, but it still not good news in terms of businesses that will be impacted by it,” Keating said.

Keating also noted that factoring in capital gains and personal income taxes, along with taxes seen in ObamaCare, 17 states and the District of Columbia now have a top tax rate of over 50%. These same 17 states will have a combined capital gains tax rate of over 30%.

There are several bright spots in the deal for small business, he said, albeit small ones. Section 179, which allows businesses to write off 100% of their investments for the year, up to $250,000, was extended through 2013 and made retroactive for 2012. Also the Alternative Minimum Tax patch was made permanent, and tax credits for research and experimentation were also extended for several years.

“Those things are good, but they don’t upset the overwhelming negatives in the mix here,” Keating said. “We are moving in the wrong direction here. It’s all tax increases and no reform on spending or serious efforts to rein in the size of government or spending.”

Molly Brogan, vice president of public affairs for the National Small Business Association, said the group was also disappointed that lawmakers waited so long to hash out a deal.

“They had a year-and-a-half to work on a deal, and waited till the very last minute, just as they did with the debt deal,” Brogan said. “The deal is very targeted in a lot of measures, and also disappointing. People were hopeful that this could be a deal to lead the country in the right direction.”

The NSBA has been signed on with the ‘Fix the Debt’ campaign for several months, and names it as a top priority amongst its members, along with broad tax reform. Brogan said it would have been nice to see Congress act bolder in pushing for debt reduction and tax reform.

While the group is also pleased that the upper-income bracket was moved to $450,000, she said for a small business filing as a pass-through entity the number is still too low. Businesses and owners that are filing in that group are those who are growing, and would be likely to hire if it wasn’t for higher rates.

“At the end of the day, it’s not the majority of small businesses,” Brogan said of those in the $450,000 and up annually group. “But they are key to be instituting some kind of growth.”

John Arensmeyer, president of the Small Business Majority, said the deal is a good first step toward dealing with the nation’s fiscal woes, but is far from perfect.

“We are happy that tax cuts were preserved for 97% of small businesses, and that tax credits for things like clean energy and wind power were extended,” he said. “We are sorry the payroll tax didn’t’ get extended, and are still concerned that policies should be more focused on economic recovery and deficit reduction.”

The fact that lawmakers worked in a bipartisan fashion was also encouraging, Arensmeyer said, despite how long it took to hash out a deal.

“We are ready to roll up our sleeves, and hope bipartisan efforts continue,” he said.