Allowing the Bush tax cuts to expire at this point is an understandable reaction to a growing deficit. But it’s a gut reaction that doesn’t consider the consequences.
One thing I continually tell my employees here at SurePayroll is to slow down before you speed up. Rush jobs come up, but in almost every case, taking the time to gather the facts, analyze the issue and double check your work yields a better result than shooting from the hip.
I'm offering this advice to the federal government. Slow down the impulse to raise taxes. Allowing the Bush tax cuts to expire at this point is an understandable reaction to a growing deficit. But it's a gut reaction that doesn't consider the consequences it will have on the economy, especially small business owners operating under an S-Corp structure.
With the prospect of higher taxes looming in the air, uncertainty spells paralysis. Wondering if taxes will raise or remain the same leaves consumers and business owners hesitant to touch their reserves because they may need it to pay Uncle Sam. And if the tax cuts are not renewed, Americans won't gain the confidence to make big decisions in a volatile economy.
The thought of what people might cut next if their incomes shrink even more is worrisome. Whatever they decide to cut will only result in less spending. Less spending by consumers means less business on Main Street. And less business on Main Street means no job creation from the small businesses, not to mention even more difficulty keeping small businesses operating as-is.
Nearly everyone has been dealt a tough blow over the last couple years, and raising taxes at this time would kick consumer spending and the entrepreneurial spirit while they're already down. And that's not what I'm saying, it's what my customers are saying.
In September, we surveyed over 4,000 of our small business customers about the Bush tax cuts. Fully 94 percent answered that the cuts should be extended in some way. Only 6 percent favor allowing the Bush tax cuts to expire completely.
By raising taxes now, the deficit may shrink. Then in a short matter of time unemployment will rise. What then? Another stimulus that may lower the unemployment rate but will surely increase the deficit? Taking the time to slow down and create a well-researched plan to address the deficit is the only way we'll escape a vicious financial cycle.
MICHAEL ALTER is president of SurePayroll, America’s leading online payroll service. He received an MBA from the Harvard Business School and holds a bachelor's degree in economics from Northwestern University. @michaelalter