Small Businesses Need Customers, Not Tax Cuts for the Wealthy

November 3, 2010By Jim Houser

I’m an auto mechanic, not an economist. But I know that small businesses like mine form a vital jobs engine for the nation.

Today that engine stands idle. Small businesses are not hiring, and the overall economy is suffering for it.

With that in mind, I have a message for Congress, one that I ask other small business owners to join me in delivering: small businesses need customers, not additional tax cuts for the wealthy.

The Bush-era tax cuts are scheduled to expire at year’s end. There is broad congressional agreement on extending the tax cuts for middle-income Americans, but not on whether to continue the added tax cuts benefitting only the wealthiest households — those whose yearly income starts at $250,000 but can reach into the tens of millions.

At a time when our nation’s infrastructure begs for an upgrade, when we have historic levels of income inequality, and when the nation faces long-term deficits, extending the tax cuts that benefit only the wealthiest Americans is a wrong choice.

Thus, I find it maddening when I hear those who favor extending the Bush-era tax cuts for the wealthy do so in my name — in the name of small business owners.

Allowing the tax cuts for the wealthy to expire would have no impact on 97 percent of taxpayers with any business income, much less those with income from a “small business.” I put quotes around the phrase because, as used in this context, “small business” owner can include a lawyer at a big corporate law firm, or a Wall Street banker who derives a bit of income from an investment or a real estate partnership.

If you’re a business owner and you file your business income on your personal tax return, you report the net profit you took out of the business. You don’t report the gross income of the business.

The auto shop my wife and I own grosses over $1 million annually, but the net profit we take home is far less than $250,000. If our business is doing well, we plow back any additional income into equipment or hiring. That money doesn’t pass through onto our taxes.

So whether the top marginal tax rate goes up matters not a penny to us. But if the higher tax rates affected me, it would give me an incentive to reinvest more in my business.

And if I ended up paying more in taxes, I’d be happy that my contribution would strengthen public structures that have helped my business prosper. Extending the Bush-era tax cuts for the wealthy would add another $1 trillion onto the nation’s debt in the next ten years. That would make it harder for the country to invest in the community colleges that train my workers, in physical and technological infrastructure and a host of other public efforts that help small businesses succeed.

More maddening still is the fact that many of the same folks who would squander precious resources on a tax cut solely for the wealthy oppose extending unemployment insurance benefits, which will begin to expire on December 1 for millions of Americans. Never since the end of World War II has our country failed to extend unemployment insurance when the unemployment rate was above 7.2 percent.

Unemployment insurance keeps struggling families afloat, but it also helps small businesses by putting money in the pockets of our customers. Without an extension of unemployment insurance benefits, many Americans won’t have the cash to put gas in the car, buy clothes for the kids or pay the mortgage. That would wreak havoc on families and send ripples of pain to small businesses.

The tax cuts for the wealthy won’t spur small businesses to hire new workers. That will only happen when our customer base grows — when our nation implements policies that strengthen the economic hand of ordinary Americans.

Jim Houser is co-owner of Hawthorne Auto Clinic in Portland and a board member of the Oregon Small Business Council.