One thing is certain as Congress returns from recess: tax issues will lead the agenda. Many Americans are rightly concerned with the financial impact of President Obama and his allies in Congress enacting a de facto tax increase by failing to extend the 2001 and 2003 tax reductions in their entirety. The loss of these vital taxpayer relief provisions, combined with moves to impose harsh penalties on the energy industry, will be a one-two-three punch on Americans: less disposable income, more job losses, and a spike in energy costs.
The President boasts that his tax plan will relieve the burden on low-wage earners, but his approach misses the mark. By singling out higher-income brackets for tax hikes, the President is aiming the equivalent of a haymaker directly at the small businesses whose owners declare profits and pay taxes using the personal 1040 tax form. The consequences of suspending tax relief for upper-income Americans would be shouldered by the very same low-income earners the President claims he wants to protect.
It doesn’t require an economics degree to realize that raising taxes on those who make capital investments that bring about job growth will hurt the economy as a whole. As Nebraska Senator Ben Nelson, a Democrat, told the Lincoln Journal Star earlier this month, extending all the tax relief laws is important because: “Small businesses are holding back and I think we need to give them some confidence. Suddenly, higher taxes could impede their plans to grow and hire employees.”
According to a survey by the National Federation of Independent Business, firms averaging between 20 and 250 employees would be the most likely to take a hit from boosting rates in the top two income tax brackets. President Obama’s supporters counter by saying that most small businesses and self-employed Americans won’t fall into the two highest-taxed categories. The trouble is, as the Census Bureau reports, about one in four American workers directly depend on their jobs from companies employing between 20 and 299 people. In addition, when those businesses suffer, so do their subcontractors who aren’t on the permanent payroll — often the very same folks further down the income scale who supposedly “won’t be affected” by the new tax hikes.
Yet, in an effort to fund the expansion of their massive legislative agenda, Congressional Democrats continue to raid the private sector to fund their pet projects. With the failure of cap-and-trade legislation, the majority party is eyeing energy industry coffers again, proposing new taxes on an industry that employs or supports more than nine million Americans. Specifically, the Obama administration and Democratic leaders are looking to repeal the foreign tax credit for American oil companies that do business overseas — a provision extended to all other industries. Currently, under U.S. tax law, American companies receive a credit for the income taxes they pay to foreign governments, so as to avoid double taxation. These proposals would result in higher prices at the pump for working families and seriously endanger more jobs when unemployment is already affecting millions of Americans.
Additionally, an amendment to the deceptively titled “Small Business Jobs Act” targets the industry with a tax hike on the five largest oil companies. The proposal would repeal Section 199 of the Tax Code, which permits these firms to deduct six percent of their income derived from oil and gas production from their tax liability. At this critical time in our economic recovery, an important ingredient for growth is establishing an environment that encourages firms to hire Americans into stable, well-paying work. This legislation will only deter investment in domestic energy production, killing economic expansion when we need it the most.
While the populist tone of “tax the rich” and demonizing the energy industry might win votes, there is growing evidence that these efforts serve only to prolong the economic pain of sluggish expansion and slow hiring. Instead of seeking ways to tax job creators, government should be helping them adjust to the shifting global economy. Congress should stimulate job growth by extending all the current tax rates, thereby giving our economy a fighting chance to get back on its feet.
Pete Sepp is Executive Vice President of the National Taxpayers Union.