After President Barack Obama offered a vigorous declaration in his State of the Union speech that the American economy has rebounded and that "middle-class economics" is working, small business owners said Wednesday that the president's tax plan would have little impact and that they are more concerned about the ripple effect of higher wages and additional benefits.
Obama proposed new taxes on high-income earners, but entrepreneurs said they would have preferred broader tax reform, as many small business owners file individually.
"What's most important for our members would be reduced business income tax rates, as the majority of our members pay the top rates as individual filers," said Jack Mozloom, a spokesman for the National Federation of Independent Business. A local mom-and-pop hardware store "is paying more in taxes than the Home Depot," Mozloom said.
Small business owners also are wondering how calls for mandated sick pay and a federal minimum wage will impact their bottom lines, when many Main Street businesses are emerging from the recession. The small business optimism index recently rose 2.3 points to 100.4 in December, the highest reading since October 2006. The latest sentiment reading was released last week by the NFIB.
Much of the president's tax plan was aimed at the nation's top-earners. The proposal would raise the top capital gains tax rate. Obama also wants to levy a new fee on the largest financial institutions.
But many small business owners file taxes as pass-through entities. In other words, the owners are taxed directly to avoid being hit twice, as individuals and as entrepreneurs.
"We could have small business owners paying rates as high as 40 percent because many file as pass-through entities," said Grafton "Cap" Willey, managing director and shareholder at New England-based tax firm CBIZ Tofias.
Obama also called for legislation that would allow workers to earn up to seven days of paid sick time annually. The benefit change would impact employers, small and large.
The president again called for a federal minimum wage in Tuesday's night address. Roughly half the states have a minimum wages that are higher than the hourly federal level of $7.25.
"We know that more business owners plan to raise their employees' pay than at any time since 2007," Obama said during the address.
But Mozloom of the NFIB, a staunch opponent of mandatory higher benefits, says not all mom-and-pops can afford additional benefits. Some small company bosses can't afford paid sick time for themselves, let alone sick time for staff.
"If you're a landscaper, for example, and you aren't at work, you're not getting paid and you can't pay your workers," Mozloom said. "The president imagines that every employer in the U.S. can do what Costco, the Gap and Goldman Sachs can do. And it's not that way."
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