The Bangor Daily News reported recently on a small group of local business owners that argues that raising income taxes on the so-called wealthy would result in more federal aid for Maine that could be used to prevent layoffs in the public sector. The National Federation of Independent Business, which represents more small business owners in Maine than any other organization, disagrees.
Taking money away from the private sector in order to finance more government spending is precisely the wrong approach for restoring jobs lost in the Great Recession and creating a strong economy for the future.
At the heart of the debate is President Barack Obama’s campaign promise to allow the Bush income tax cuts to expire at the end of the year for people making more than $250,000. He made that promise, keep in mind, when the national unemployment rate was still below 8 percent, and he qualified himself by assuring Americans that he would reconsider his pledge if the economy remained weak.
Two years later, the national unemployment rate hovers at roughly 10 percent. The effective unemployment rate, which includes people who have given up looking for work, could be as high as 16 percent. And while Maine’s unemployment rate is slightly lower than the national average, 56,000 residents — our family members and neighbors — are without jobs.
Despite his own former budget director’s recent caution against raising taxes in the midst of a recession, President Obama remains stubbornly committed to his plan. This is a dangerous course.
What makes it especially unwise is that small businesses, which produce two-thirds of all new jobs, would be hit hardest.
According to a survey of NFIB members, who number in the hundreds of thousands, 75 percent of small businesses report business income as personal income. That means that while an owner may be reporting income of more than $250,000 per year, he likely is paying himself only a fraction of that amount. More commonly, small business owners reinvest their income in new equipment, supplies and employees. They use it, in other words, to make purchases from other businesses and to create jobs for people who need them.
Siphoning away that income now, in the depths of the most severe recession in decades, is precisely the wrong policy. That’s why economists from across the spectrum agree that the president’s plan to raise taxes in December will rob the country of thousands more jobs. The president seems alone in his view that taking money from the private economy would be somehow beneficial.
Our friends in Bangor seem lonely as well in the belief that Washington will send us more money if it can raise taxes in December. That sounds a lot like the rationale for the federal stimulus, a $750-billion boondoggle that was supposed to have rescued us already from the recession. Beyond that, the president and his supporters in Congress have made clear that their objective is not to bail out the states but to prop up a federal budget that is crashing beneath its own weight.
If the economy is to recover it will do so on the strength of small businesses. Our members, including thousands in Maine, want merely the freedom to work hard, take risks and invest their own money in ways that will create more business, more jobs and more revenue for everyone.
It may be worth noting that a bipartisan group of U.S. senators and representatives also supports an across-the-board extension of the tax cuts.
Dewey Martin, CPA, provides accounting services to numerous small firms and is a member of the NFIB Maine Leadership Council.