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Tax-cut extension would prevent tax hikes on families, small businesses

By U.S. Senator Susan Collins

(r-maine)

Unfortunately, the national unemployment rate in November rose to 9.8 percent, the highest level since April. In addition, the economy added only 39,000 jobs that month—far fewer than had been predicted and a sharp decline from October.

This is devastating news for the 15 million Americans seeking work who cannot find jobs.

This continued bad economic news underscores the need to invigorate our economy and get people back to work. One of the most important ways to do is for Congress to pass a two-year extension of the 2001 and 2003 tax relief laws.

If these laws are allowed to expire as scheduled on January 1, the New Year will begin with a massive tax increase for most American families and small businesses. They will face an automatic tax increase of nearly $2.7 trillion, one of the largest tax increases in our history.  This tax increase will hit all American earners, regardless of their income level and regardless of whether they are married or single, retired or working or salaried or hourly employees.

If these tax-relief provisions are not extended, the average middle-income family in Maine will see their taxes increase by about $2,900 next year.

It is essential that the 2001 and 2003 tax relief laws be extended for all Americans for two years. As the November jobs data show, now is not the time to raise taxes on anyone. Some argue that those with incomes of $250,000 or more should not be protected from this tax increase. But that argument ignores the fact that a tax increase on top earners is a tax increase on small businesses.

It would take away capital that these businesses need to grow and add jobs. It would be a tax on jobs at a time when we should be doing everything possible to stimulate the creation of more jobs. I have met with many small-business owners in Maine who tell me their ability to grow, compete, innovate, and hire would be hurt by this tax increase.

D&G Machine Products is a precision design machining and fabrication operation in Westbrook. Founded in 1967, the company now has more than 130 highly skilled and dedicated employees. D&G competes with companies all around the world for markets and customers.

Without constant innovation and investment in cutting edge technology, D&G would lose its customers, and the jobs of its employees would be in jeopardy. The tax increase that would hit D&G on January 1 would take money out of its bottom line—money that is needed to upgrade equipment and stay ahead of foreign competition.

Pottle’s Transportation, a trucking company headquartered in Hermon, was founded in 1972 and now has more than 200 employees with 150 trucks. Pottle’s needs to buy 25 to 30 trucks every year just to maintain its fleet. In recent years, the cost of a new truck has escalated from $100,000 to $125,000. The tax increase would make it difficult, if not impossible, for the company to make these investments.

Since its founding 16 years ago, Allagash Brewing Company, a craft brewery located in Portland, has grown to 28 employees and established a reputation for uncompromising quality. Like most small businesses, Allagash relies on its retained earnings to finance growth. As Rob Tod, the co-owner of Allagash, told me: “There’s plenty of demand for our product, but we can’t fill demand without equipment, and we can’t buy equipment without money.”

Rob also told me that every one percent increase in Allagash’s tax rate means one fewer worker for five full years. Stated another way, the January 1 tax increase would wipe out jobs for five workers for five years at just at this one brewery. Imagine what the impact would be on jobs lost nationwide.

When small businesses can’t invest and grow, they can’t add jobs. And that’s what the focus should be on: the creation of policies that will help the private sector create jobs.

By leaving these tax hikes hanging over small-businesses’ heads, Washington creates the greatest enemy of investment: uncertainty. As one Maine entrepreneur told me: “I am not investing in my business. I am not hiring workers. I am not considering starting anything new. I am waiting. There is no way to know what Washington is about to do to me, but I expect it will be nasty and brutally unfair.”

Those are powerful arguments for extending these tax-relief laws. But there is another reason: a tax increase on top earners would reduce consumer spending dramatically, cutting demand and costing jobs at a time that our fragile economy can least afford it.

This view is supported by many economic experts, including Peter Orszag, President Obama’s former budget director. He has stated that raising taxes in a stagnant job market, “would crimp consumer spending, further depressing the already inadequate demand for what firms are capable of producing at full tilt.”

Economist Mark Zandi estimates that earners in the top brackets account for one-fourth of all personal spending and says that a pullback in spending by these taxpayers would derail the recovery and cost 770,000 jobs.

Zandi recommends a middle ground between those in Congress who want to make the 2001 and 2003 tax relief laws permanent and those who want to want to let them expire for the top earners: increase no one’s taxes until the recovery is firmly in place.

I have consistently urged my Senate colleagues to extend the 2001 and 2003 tax relief for two years. That compromise would get us through this recession and send a strong and positive signal to the business community to invest and create jobs. This two-year period also would give Congress the opportunity to undertake comprehensive tax reform to make our system fairer, simpler, and more pro-growth.

The American people have every right to expect Washington to create the conditions for economic recovery. A two-year extension of tax relief for everyone would remove uncertainty, encourage hiring, stop penalizing small businesses and not dampen consumer spending at this critical time.

Combined with a much-needed revision of our tax code, this common-sense compromise would put our nation on track for recovery now and for prosperity in the future.

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One Response to “Tax-cut extension would prevent tax hikes on families, small businesses”

  • Dan:

    Sorry Senator, but the the definition of insanity is doing the same thing and expecting a different result. You have NOT shown any proof that giving tax breaks to wealthy people will increase job production. It hasn’t in the last ten years that these cuts have been in effect, and there is no reason to expect it now. In fact the opposite is true, the competition by the government to borrow to fund the tax giveaway to the wealthy, competes with the small time borrower and is actually stifling expansion. But then you get yours so the heck with the rest of the country, right?

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