Small businesses are the engine of the Maine economy. Their contributions are critically important to the prosperity and quality of life in our state and in our local communities. Policymakers must do what they can to support Maine’s small businesses, which comprise nearly all of Maine’s private-sector employers. Strengthening our small businesses, encouraging entrepreneurship and taking advantage of the top-notch skill and productivity of our Maine work force are essential to our recovery from the great recession and to sustained future prosperity.
At the top of the Congressional “to-do list” is disposition of the 2001 and 2003 Bush tax cuts, which are set to expire at the end of this calendar year. Central to the debate will be whether to continue middle-income tax relief only or also to cut taxes for the wealthiest 2 percent of taxpayers — those making more than $250,000 per year.
The president and Congress already have signaled their intention to extend the middle-class tax cuts. Almost all taxpayers would benefit from this sound policy, including the small businesses that are the backbone of our Maine economy.
When it comes to extending the high-income tax cuts, the impact is quite different. The nonpartisan Center on Budget and Policy Priorities estimates that “only the top 3 percent of people with any business income, let alone income from a small business, would benefit.”
Virtually none of the taxpayers comprising this 3 percent with business income are what we in Maine consider small business. Rather, they are very large corporate law firms, Wall Street bond traders and those who are among the country’s 400 wealthiest individuals.
Although very few Mainers will benefit from extending tax cuts for the wealthy, the cost of extending them likely will be borne by all of us. The projected cost of extending the upper income tax cuts is $40 billion in 2011 alone. Over a 10-year period, the price tag for the upper income Bush tax cuts climbs to a whopping $1 trillion.
In the short term, the nation would benefit far more if Congress redirected those funds to provide a temporary payroll tax cut for small businesses that add jobs. This would help Maine and America’s real small businesses, encourage them to create new jobs, and strengthen our economic recovery. By allowing these tax cuts to expire, Congress could use the funds saved to reduce long-term deficits — a boon for everyone, including small businesses.
In the weeks ahead, Congress also likely will decide the fate of the estate tax. Maintaining an estate tax at 2009 levels (45 percent rate and a $3.5 million exemption per individual and $7 million exemption per couple) would affect virtually no Maine small businesses or family farms. In 2009, 0.6 percent of Maine estates were subject to the estate tax. Nationally, it would affect only about 110 taxpayers in 2011.
Eliminating the estate tax totally will create even more deficit red ink and make it more difficult to invest in infrastructure, education, health care, small-business loans and other programs crucial to future prosperity in Maine and the nation.
On a related note, unemployment benefits soon will expire for hundreds of thousands of people nationally. Maine Labor Commissioner Laura Fortman estimates that 21,500 Mainers will lose their unemployment benefits if Congress fails to act. Cutting the lifeline these benefits provide is not only bad for our unemployed neighbors; it is bad for our economy — especially the Maine small businesses gearing up for the holiday shopping season.
Congress must extend unemployment benefits to help fuel our economic recovery.
Congress must not adjourn until it completes this crucial, unfinished business. By extending middle income tax relief, eliminating the tax cuts for the superwealthy, preserving the tax on estates worth more than $3.5 million ($7 million for couples) and extending unemployment benefits, Congress can reward small businesses and our hardworking neighbors while giving our economy a much-needed boost.
Dan Coyne is the fiscal policy analyst at the Maine Center for Economic Policy.