Higher Taxes Threaten Small Business Owners

$18.6 billion per year—that’s how much small business owners will pay in additional taxes next year if Congress doesn’t act.

The Big “I” strongly opposes any effort to raise taxes on individuals and small businesses and is very concerned that the 2001 and 2003 tax cuts (often referred to as the “Bush tax cuts”) will expire at the end of 2010 if Congress does not act this year. The association is urging the Obama administration and Congress to extend the individual income tax rates and permanently reform the estate tax.

Many Main Street businesses, including thousands of Big “I” agencies and brokerage firms, are organized as Subchapter S corporations and pay individual income tax rates after earnings flow through to the owner. If the individual tax rates are not extended, the top two tax rates for ordinary income will increase from 33% to 36% and 35% to 39.6% respectively.

Further burdening America’s small businesses could have a domino effect on the already weakened economy. The economic recession has forced many small businesses to cut their operations and in some instances, trim their workforce.

The non-partisan U.S. Congress Joint Committee on Taxation estimates that these increased rates would cost small business owners approximately $18.6 billion per year. Such a tax increase would have a staggering negative effect on small business expansion and job growth. As the debate over tax reform rages on, the Big “I” continues to caution Congress to carefully analyze the potential consequences to small businesses and the greater American economy. Small businesses are the backbone of the economy and the engine of growth that will help jumpstart a new decade of American prosperity.

For too long, the estate tax has harmed the ability of family-owned farms and small businesses to pass their businesses on to the next generation. Last year, the estate tax had a rate of 45% with a $3.5 million exemption, and this year the tax is currently zeroed out. However, beginning next year, the estate tax is scheduled to snap back and brandish a 55% rate and a $1 million exemption. In an attempt to deal with this uncertainty, the House passed H.R. 4154, titled the “Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Act of 2009,” sponsored by Rep. Earl Pomeroy (D-N.D.), which permanently sets the estate tax rate and exemption amount at 2009 levels. The Big “I” hails H.R. 4154 as a step in the right direction, but believes that Congress must do more by decreasing the 2009 estate tax rate and/or increasing the exemption amount and also indexing the tax for inflation. The Big “I” has specifically encouraged Congress to act in the spirit of the bipartisan proposal by Senators Blanche Lincoln (D-Ark.) and Jon Kyl (R-Ariz.) that would strike an appropriate balance by reducing the top rate to 35% and increasing the exemption to $5 million. Without real permanent relief, family-owned small businesses will be unable to plan ahead and make important business decisions to protect their futures.

There has also been discussion in Congress of decreasing the itemized deduction limit for individuals in the top two tax brackets from 35% to 28%. Under current law, individuals in the top brackets may deduct up to 35% of their mortgage interest, charitable contributions and state and local taxes. Any decrease in the itemized deduction limit will effectively serve as a tax increase on many small businesses, and the Big “I” urges Congress to refrain from imposing such measures.

Margarita Tapia (margarita.tapia@iiaba.net) is Big “I” director of public affairs.


Crop Insurance Program Vulnerable to Cuts

The Obama administration recently submitted its Fiscal Year 2011 budget, which proposes to cut nearly $11 billion from USDA programs. These cuts are proposed to offset spending increases contained elsewhere in the budget—not for the sole purpose of deficit reduction. In its Department of Agriculture summary, the administration said it expects to save $8 billion over 10 years as a result of the Standard Reinsurance Agreement (SRA) renegotiation process which takes place every five years and is currently underway.

Further cuts to the farm safety net will undermine the program’s affordability to farmers across the nation and compromise the program’s purpose. Independent insurance agents have been the sales force of the Federal Crop Insurance Program (FCIP) for more than 25 years and play a critical role in protecting America’s crops and farmers.

The Big “I” has called on Congress and the Risk Management Agency (RMA) to continue to provide appropriate FCIP funding during the SRA renegotiation process.

It is important to note that the proposed cuts to the farm program come on the heels of more than $7.6 billion in cuts that were already made in the 2008 Farm Bill. The Big “I” and many in the business and farming communities believe that further cuts to the budget baseline for the farm safety net, of which crop insurance is a critical component, will undermine the program’s affordability to farmers across the nation. These cuts also risk further destabilizing an already fragile rural economy and compromising the program’s efficient and effective delivery of services.

–M.T.