Coffman: Don't raise taxes during a recession
By U.S. REP. MIKE COFFMAN, R-AURORA
Colorado's 6th Congressional District
Don’t raise taxes during a recession
Unless action is taken by Congress and the president, tax rates will increase for nearly half of all Americans — all of those who pay federal taxes, on January 1, 2011.
The president has proposed a solution that will raise taxes selectively, including raising rates on small businesses throughout Colorado and all across the country because many small business proprietors file taxes as individuals. This would impact those small businesses with an income greater than $200,000 a year if filing as an individual or $250,000 a year if filing as a couple.
While that may appear to just be a tax on employer profits the reality is far more damaging to economic investment and job creation. Any profits above that threshold are taxed at the highest rates even if the business owner intends to reinvest that income to buy new equipment or hire more employees. Simply, these taxes will mean fewer capital investments and fewer new jobs at small businesses in our communities.
Supporters of the president’s plan argue that only a small percentage of people with small business income bring in amounts above those thresholds. As a former small business owner, I find this line of reasoning simply stunning. According to the congressional Joint Committee on Taxation half of all small business income nationally would be hit with tax increases under the president’s tax plan.
The plan proposes to penalize the successful small businesses, the ones employing people and the ones most likely to create more jobs because they’re turning a profit. This in turn will further weaken an already sputtering economy.
Having been a small-business owner for 17 years, I know firsthand what an incredibly difficult struggle it can be to become profitable and grow in uncertain times. There are few things more damaging to small business growth than an uncertain regulatory environment and stifling tax rates.
Real, sustainable growth will come from enacting pro-growth economic policies, cutting marginal tax rates, and creating a regulatory environment that encourages businesses to invest, grow, and create jobs. That is not happening under the current economic policies.
There are four memorable times in the last century that marginal tax rates were cut during economic recessions and all four times there was subsequent economic growth. In 1945 a Democratic controlled Congress cut marginal tax rates as part of the Revenue Act of 1945 despite strong opposition from President Truman and an economic boom followed. Again in the 1960s during a time of recession President Kennedy slashed marginal tax rates and a prolonged period of strong economic growth followed. In the early 1980s President Reagan cut marginal tax rates as a “stimulus” program. He did so despite running a budget deficit and the nation saw a marked uptick in economic activity, job creation, and tax revenue to the federal government. Most recently, President Bush cut marginal tax rates in 2001 and 2003 and again, our nation’s economy surged.
On the other hand, what tax increase has ever created a job?
Just this week the National Association of Manufacturers released their annual Labor Day report which stated, “Small businesses are America’s job creators, responsible for 60 percent of the net new jobs created in the last decade. But uncertainty about looming tax hikes has stunted employment growth and until Main Street begins to hire, the unemployment rate will remain unacceptably high.”
Currently there is more than $2 trillion in capital sitting on the sidelines because businesses do not have the confidence they need to put that cash in play and grow the economy. The uncertainty alone surrounding what will happen with tax rates come January is inhibiting economic growth and having an adverse impact on employment and job creation.
Come September we’ll likely see Democrat leaders in Congress move a bill that will tax only the top two income brackets. Democrats controlling Congress and this administration have been wrong on the stimulus, wrong on the taxes and regulatory burdens included in Obamacare, and wrong in their attempts to raise the cost of energy during this recession through their “Cap and Trade” proposal. They’ve got it wrong on raising marginal tax rates too.
As this debate heats up remember to consider the impact these new taxes will have on the small businesses that employ our families, friends, and neighbors.