Pushed to edge of ‘fiscal cliff,’ small business owners worry about potential tax increase for high earners
By Shira Schoenberg | MassLive.com | November 28, 2012
Joshua Golden is not going to be devastated by a tax increase. But he is reconsidering buying a new condominium in Boston. He is holding off on hiring new agents for his real estate business. He wonders if he will have less money to spend on marketing, advertising and business expansion.
Golden, 38, owns Luxury Residential Group, a Boston real estate firm that represents clients looking to buy or rent luxury condominiums in Boston and the surrounding suburbs. He makes more than $250,000 a year, which means his taxes could increase under Democratic President Barack Obama’s budget proposals.
“Because of the uncertainty about how much my taxes are going to go up, I don’t know how to budget for the next 12 to 24 months,” Golden said.
What to do about tax rates for the wealthy is one of the central disputes between Obama and congressional Republicans as they struggle to reach a compromise on avoiding the “fiscal cliff,” a mix of tax hikes and spending cuts scheduled to go into effect at the end of the year. The uncertainty has generated concern among business people who say the proposed tax increase could affect their business decisions, in addition to their own income.
Obama’s tax proposal, laid out in his 2013 budget proposal, would raise an additional $849 billion over 10 years by not extending the 2001 and 2003 tax cuts implemented under President George W. Bush for high income taxpayers, according to an analysis by the non-partisan Tax Policy Center. This includes raising the tax rate on the top two income brackets, from 33 percent to 36 percent and from 35 percent to 39.6 percent. (That would impact individuals making more than $200,000 and couples making more than $250,000 a year.) It also includes raising the tax rates on capital gains and dividends to 20 percent and limiting deductions and exemptions for high income earners.
Republicans want to extend the Bush tax cuts for everyone, including those making more than $250,000 a year. They oppose raising rates, though they are open to reducing some deductions or tax credits.
Barry Bluestone, a professor of political economy at Northeastern University and director of the Kitty and Michael Dukakis Center for Urban and Regional Policy, said although he and his wife earn more than $250,000 a year, he would not mind the higher taxes. In fact, he has suggested raising taxes even more for the top earners.
“We are fortunate that our family is, because of two full-time earners, wealthy enough to have to pay additional taxes. To stimulate the economy, I don’t mind doing that,” Bluestone said.
Bluestone said what businesses need today are more consumers. And while the wealthy tend to save any additional money they make, those who are poorer tend to spend it. In a blog he writes for Boston.com, Bluestone argued that Obama should raise the tax rate on the top 5 percent of earners and give half that money to those in the lowest income brackets to boost consumer spending.
“When we need lots of money for investment, it’s good to have savers,” Bluestone said in an interview. “But right now…investment’s not the problem. What (businesses) are waiting for to make those investments is a surge in consumption.”
The Associated Industries of Massachusetts, a trade group that represents Massachusetts businesses, has not taken a position on the extension of the Bush tax cuts for specific income brackets. But Christopher Geehern, executive vice president for marketing and communication, said the group has urged caution regarding the potential impact of increases in personal income tax rates on the small businesses that pay individual rather than corporate tax rates.
“Sudden shifts in the current tax structure carry significant peril for subchapter-S corporations and other small businesses already struggling with an uncertain global economy,” Geehern wrote in an email to The Republican/MassLive.com. A subchapter-S corporation does not pay the corporate tax rate. Instead, profits flow through the company to its shareholders, who pay personal income tax on the profits.
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