Tax Changes Targeting Small Business Owners Will Hit South Texas Hard
By Dr. Tony Magana
The Obama administration and the leadership in Congress sees taxing small business owners as the solution to the nation’s financial woes but in doing so will they not only be breaking a promise but also create more job loss?
On March 16, 2009 Treasury Secretary Timothy Geithner and President Obama addressed the nation about small business. The Secretary called small business “ the anchor of the economy which will lead us to recovery”. At the time the administration promised to give middle America a tax cut and direct the government in such a manner as to maximize the potential for small business growth.
Across the nation as a whole at least 50 percent of employees for private concerns work for a small business with less than 500 workers. The U.S. Department of Commerce estimates that as much as 80 percent of all new jobs created in America over the last ten years originated in these firms.
The State of Texas has over 2.1 million small businesses and counting. Almost 99 percent of the state’s employers are small business owners who provide jobs for half of the Texas workforce.
The greater McAllen area in the Rio Grande Valley has been a leader in economic progress over the past few years. Unlike most of the United States, the city has been able to maintain a positive percentage of economic growth and job development but has not totally escaped the national economic tide.
The proportional average age of the population under age 25 at 45 percent is higher than just about any other place in the nation and unfortunately there remains high numbers of Hispanics who make up 90% of the population that never finish high school. Despite this situation a strong cultural work ethic and a tradition of pro-business civic government have combined to create an economic juggernaut. The community had hoped to invest the rewards of economic success into better educational programs but now the future may be less bright.
Like the rest of Texas the business profile of the region shows the greatest number of jobs are in the retail industry. The health care industry and service industries have remained somewhat strong while manufacturing has decreased. Although trade with Mexico remains strong there have been significant decreases in trans-national commerce creating pressure on the Valley to intensify economic diversification. What the administration said about small business being key remains true for McAllen and the Rio Grande Valley.
Recently several initiatives being put forward by the President and influential Democratic members in Congress are threatening the vitality of small business and consequently the economic recovery of not just McAllen but of the nation.
To help pay for the massive government spending and new government health care reforms, the Democrats have proposed placing a surtax on the income tax of joint filers who make over $350,000 and single filers at $280. The surtax progressively increases beginning at 1 percent and extending to 5.4 percent for an adjusted gross income over $1 million. In an unprecedented move, the Congress would also surrender the power to set tax rates to the President’s Office of Management and Budget including a proviso to double the surcharge if they deem it necessary.
A new government mandate demanding additional taxes in support of national health care plan be paid by employers not just for their employees but to help fund others will require employers with a base income of $250,000 to come up with an additional 8 percent of the salary of each employee for the government’s benefit.
Unless Congress acts affirmatively to extend the Bush tax cuts, the combined effect of the new surtax and increased tax rates will be to place many small business owners into actual tax rates of over 50 percent. Rea Hederman of the Heritage Foundation has analyzed the data with the conclusion that the new tax plan would inflict arduous consequences to small business.
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Just the discussion of escalating the tax burden for small business has discouraged investment in expansions, new equipment, and most importantly the generation of new jobs. The costs will be born eventually by small business employees in the form of lower wages, less jobs, and fewer hours of work. There will be very few exemptions for about 1/5 of small businesses that have less than nine employees and a payroll of less than $250,000.
It is not hard to imagine that the robust economic miracle of the McAllen area could be stopped dead in its tracks by the Democratic plan. With unemployment hovering near the 10 percent level and rumors of coming anti-NAFTA measures, the prospect of a rapidly escalating job loss in the Rio Grande Valley could move from conjecture to reality.
Thanks for reading Contempo Magazine blog which discusses issues for McAllen, the Rio Grande Valley, and America from a conservative Hispanic point of view. Tony Magaña grew up in McAllen Texas, attended Texas A&M University, served as an officer in Army Reserve, and holds a doctorate from Harvard University. The co-founder of Contempo Magazine has participated in Valley business for over 20 years. He is a member of the National Association of Hispanic Journalists and also writes for the American Daily Review. Follow him on twitter http://twitter.com/contempomagazin
Copyright 2009, Dr. Tony Magana. Some rights reserved.
To reproduce or distribute, visit: drtonymagana.icopyright.com
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