Congress Punting and Impact on Small Business

Ray Keating

It's football season, so it's inevitable that the pigskin metaphors are going to creep into politics and policy. The big news: Congress is punting on taxes.

Specifically, Democratic congressional leaders are leaving town before voting on what to do about the expiring 2001 and 2003 tax relief measures at the end of this year.

If nothing is done, sweeping tax increases will be imposed, including higher personal income, capital gains, dividends and death taxes. If Congress follows the President's lead, big tax increases will be imposed as well, but focused on upper-income earners - at least directly.

Now, with members of Congress heading home - and all House seats and a good chunk of Senate seats up for election this November - taxpayers, including small business owners and investors, are left wondering what exactly is going to happen on the tax front. Despite knowing that this was coming for more than seven years, our elected officials will wait for a lame duck Congress to make critical decision at the very last minute.

Of course, the best case scenario is that congressional leaders, along with the President, come to their economic senses, and make the 2001 and 2003 tax relief measures permanent. But barring a miracle, that's an unlikely outcome with those now in charge.

Next best would be that the President and enough Democrats in Congress come to realize that hiking taxes in a bad economy is a very dangerous idea, as economists from most schools of thought would agree. This might lead to a one or two-year extension of the current law.

But then we get to the more likely scenarios. One would be that Congress follows the President's lead, and jacks up taxes on upper-income earners. As explained in last week's SBE Council Cybercolumn (
"The True Impact of the Looming Year-End Tax Increases"), that would be a huge problem for small business given impact on small business income, and on the incentives for entrepreneurship and investment.

And if Congress does nothing, the bad news gets even worse with a bigger tax increase.

But why has Congress elected to punt? If leaders think the President's idea truly is a good idea, then they should have already moved for passage. If they think this talk of tax hikes is bad for the economy, then they could lay it all to rest by making the 2001/2003 tax measures permanent, or at least extend them further into the future.

However, they are doing neither. Instead, they are simply pushing the issue beyond Election Day. And that speaks volumes. Apparently, congressional leaders see political negatives in their effort to increase taxes even on upper-income earners, but they still plan to impose these tax hikes. Therefore, politics dictates pushing the tax increases beyond the elections.

It's cynical. It's bad economics, as uncertainty persists, with the threat of destructive tax increases still looms large. This is the dismal state of public policy in our nation today.

It's not a matter of punting. Instead, it's all about fumbling the policy football, and thereby doing more damage to entrepreneurship, small business and investment.

Raymond J. Keating, chief economist for Small Business & Entrepreneurship Council.
Copyright 2010, Small Business & Entrepreneurship Council. All Rights Reserved.

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