Mid-Sized Businesses Report Higher Taxes From Fiscal Cliff Deal

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Peter Fricke Contributor
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More than three-quarters of mid-sized businesses reported experiencing tax increases in the past year as a result of the 2012 fiscal cliff tax deal, according to a report by the consulting firm McGladrey LLP.

The fiscal cliff deal, officially known as the American Taxpayer Relief Act of 2012, rolled back the Bush-era tax cuts for the highest earners starting in 2013. To alleviate concerns that the tax increases would hurt small business that are taxed through the individual tax code, the legislation also raised the top tax bracket to $400,000 for individuals and $450,000 for families. (RELATED: Senate Passes Fiscal Cliff Fix Hours After Midnight Deadline)

Ignored during the negotiations, however, were mid-sized business — those with revenues between $10 million and $1 billion—which make up about one-third of the U.S. economy. In a press release, McGladrey explained that, “middle market owners and partners are far more likely to exceed [the new threshold] than their small business counterparts.”

McGladrey surveyed 525 executives of middle market companies from a representative sample of industries, asking whether they had experienced tax increases in the past year, and if so, which policies were responsible and how the tax hikes affected their businesses. (RELATED: Does Obama Want to Push US Tax Policy to the Left of Sweden)

More than three-quarters (79 percent) of respondents claimed that their taxes had risen in 2013, with 77 percent of all respondents “reporting that their tax hikes had resulted from at least one element of the fiscal cliff deal.”

Moreover, 66 percent reported that “federal tax policies are limiting business growth,” and 56 percent of “companies that reported having reduced their workforce and cut expansion plans since the beginning of 2013 said that the 2013 tax reform law contributed to their decisions to do so.”

McGladrey says the survey results confirm that, “these tax code changes not only failed to protect mid-sized companies, but also created new burdens that are holding back the most prolific job creators of the past five years.” (RELATED: Study: High US Corporate Tax Rate Hinders Growth, Drives Jobs Overseas)

Jeff Johannesen, national tax leader at McGladrey, added, “This survey makes clear that Washington’s ‘big or small’ approach to tax policy has not only failed to help middle market businesses, but that it actually appears to be causing harm.”

The survey also asked respondents to rate “the likely effect of three major tax reform proposals” on their businesses: reducing the corporate tax from 35 percent to 25 percent, reducing the long-term tax on capital gains and dividends by 3 percent, and making the R&D tax credit permanent.

A majority supported the first two proposals, with 67 percent saying that reducing the corporate tax “would have a positive effect on their business,” and 57 percent saying the same about the capital gains tax.

Only 38 percent said a permanent extension of the R&D tax credit would be beneficial, though support was much higher, at 62 percent, among manufacturers (who are more likely to take advantage of the credit).

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