Craft serious approach to ‘fiscal cliff’
September 5, 2012
Barry L. Kennedy
On the road to America’s economic recovery, there is an obstacle. We see it. We know it’s there. And we know it’s approaching quickly.
It is a massive, daunting “fiscal cliff” — the scheduled expiration of the 2001 and 2003 tax rates coupled with indiscriminate sequestration budget cuts.
The problem is that neither political party in Washington, D.C., at least for the time being, seems to be taking it seriously. Instead, both sides are using the issue as a political football. By doing so, federal policy-makers are creating more uncertainty for employers, including for businesses in Nebraska. This lingering uncertainty is significantly contributing to the country’s low hiring rates and high jobless numbers.
In the best-case scenario, Washington’s failure to act threatens to stunt the recovery; at worst, it could derail our U.S. economy, sending us back into recession — or worse.
Time is running short. Unless the House, Senate and President Barack Obama reach an agreement before Dec. 31, the United States will experience its highest tax increase in history as the following actions would be implemented:
>> The top rate for individual income taxes — including the rates for many small- and medium-sized businesses — would increase to nearly 40 percent.
>> Tax on dividends would soar to a maximum 43.3 percent.
>> Tax on capital gains would go as high as 23.8 percent (of which 3.8 percent is due to the new health care law).
>> The estate tax would explode to 55 percent, as the exemption drops from $5 million to $1 million.
We have arrived at this situation because policy-makers in Washington, for years, ignored their out-of-control spending while disregarding the federal debt. Even though our association and many others have long advocated a balanced budget amendment, the concept has been unpopular inside the Beltway.
Instead of making tough decisions to balance the budget — as our state and local leaders do in Nebraska — Capitol Hill and the White House have instead elected to kick the can down the road. Analysts now predict the federal government will hit its $16.4 trillion debt ceiling between this November and early January 2013.
Late last year, when both sides finally agreed to address the debt crisis, they disagreed on how to do it.
That is how this fiscal cliff was created. Now it poses the single biggest economic threat to America’s economic recovery.
The U.S. Chamber estimates that 940,000 U.S. businesses would be hit with considerably higher taxes if current rates are allowed to expire. That means less money for private businesses to invest in capital assets, fewer resources to hire new workers and less ability to grow our economy.
The nonpartisan Congressional Budget Office spells out the cost of inaction: a recession with 2 million jobs lost in 2013. If the Bush-era tax rates expire and automatic spending cuts are implemented, unemployment would rise from 8.3 percent to 9.1 percent, the CBO estimates.
The Nebraska Chamber has joined our two national affiliates — the U.S. Chamber of Commerce and the National Association of Manufacturers — in urging federal lawmakers and the White House to avoid the pending fiscal cliff. A letter signed by all three of our or- ganizations, as well as others, will be sent to President Obama and congressional leaders in early September.
In the letter, the State Chamber and other cosigners will urge immediate action to avoid the fiscal cliff by taking these steps:
>> Extend all of the 2001 and 2003 tax rates for all taxpayers, including small-business owners and job creators.
>> Extend vital business tax provisions.
>> Find spending cuts to replace a sequestration (indiscriminate, across-the-board cuts) that was never meant to go into effect.
>> Firmly commit to comprehensive tax and entitlement spending reform in 2013.
The State Chamber urges all Nebraskans to get involved on this critical issue.
You can get up to speed by visiting the U.S. Chamber’s Fiscal Cliff Countdown website, FriendsoftheUSChamber.com/fiscal-cliff. There, you will find a tax calculator to estimate how much your taxes would increase if current rates expire.
Then take a moment to urge your U.S. senators and congressmen to act to prevent the largest tax increase in U.S. history.
Tell your representatives to do everything in their power to steer clear of the fiscal cliff. Tell them that your community, your business or employer and your family are counting on fundamental tax and spending reform to fuel American competitiveness and growth over the long haul.