Looming Tax Hikes Preventing Economic Recovery

Heritage Foundation
January 4, 2010

The danger of higher taxes in the future is thwarting economic recovery today. Businesses make investment and hiring decisions based on their expectations of future profitability. If they expect to be more profitable in the future they will hire. If they do not they hold back on expansion. They base their expectations of future returns on estimates of their sales and costs years down the line. Uncertainty in either makes predictions difficult and causes them to put off decisions until they have a better idea what their bottom line will be.

Taxes are a major cost for businesses and all year President Obama and Congress have threatened to raise them. This has had an especially large impact for small business and created a large degree of uncertainty for them. According to the National Federation of Independent Business’ (NFIB) monthly survey of small and independent business owners:

[A] major concern [for small businesses] is the level of uncertainty being created by government… The “turbulence” created when Congress is in session is often debilitating, this year being one of the worst. Themes includ[e] “tax more,” “tax the rich even more,” “VAT taxes,” higher energy costs due to Cap and Trade, mandates and taxes for health care…Uncertainly is the enemy of the real economy as well as financial markets.

The constant threats of higher taxes emanating from Washington are paralyzing small businesses and keeping them from investing and hiring. In fact, 24 percent of them in the NFIB survey report that taxes are the second most important problem they face. That is significant increase from one year ago when only 17 percent of businesses identified taxes as their most important problem. The increase makes clear that the potential tax increases threatened by Congress and President Obama are posing a major problem for small businesses because of the uncertainty they are creating.

Instead of spending billions more on a third sure-to-fail-stimulus, Congress and President Obama should take all tax hikes off the table for the foreseeable future – including the ones to pay for their take over of the health care system. Doing so would give small businesses the predictability they crave and help get the economy creating jobs again – all without spending a dime.

Comments are closed.