To begin to grasp how "fiscal cliff" uncertainty is paralyzing Main Street business owners, just talk to Charlie Arnold, who has been running a power-washing business in Lewes, Delaware for 13 years.
"Whenever the news is about the government and the economy, it scares the seniors and the phone stops ringing," said the owner of Arnold Powerwash, among whose jobs was the Lincoln Memorial steps in Washington, D.C. Roughly a third of residents in Arnold's coastal community are over 55, and many are on fixed incomes. Lured to Delaware by its lack of state sales tax, they worry when they hear noises about debt levels and changes to the tax laws.
"Since October, my business has dropped off 80 percent and I attribute that directly to the 'fiscal cliff' discussion and the economy," he said, adding local business owners "really are scared. They don't know what to do."
Anxiety over the "fiscal cliff" isn't just affecting Wall Street. Many entrepreneurs report slower activity as uncertainty swirls about how tax hikes and government spending cuts will affect them. Faced with unanswered questions, entrepreneurs are stuck contemplating trimming costs and laying off workers—not creating Main Street jobs, which has traditionally fueled economic recoveries. (Read more: Four Reasons Why Companies Are Still Reluctant to Hire)
Arnold said there's a "huge gap" between entrepreneurs' economic reality and the stalemate between Congress and President Barack Obama. "The longer they bicker, the worse my business is," he said. (Read more: The Fiscal Cliff Explained)
Tax Implications for Entrepreneurs
Changes to tax laws is the major overhang for entrepreneurs. The National Association for the Self-Employed or NASE estimates a self-employed individual making between $60,000 to $88,000 a year would see a tax hit of $2,700 to $3,700 annually if a debt deal isn't reached by year's end. That's when the current tax rates, compliments of the Bush era, expire.
While that figure may appear small at first glance, that's a lot of money for a self-employed individual or small-business owner. In their world, robust monthly cash flow can mean the difference between staying afloat or drowning financially.
Roughly $2,700 to $3,700 more in taxes a year, "is huge," said Katie Vlietstra, director of government affairs for the self-employed association. "That is one or two paychecks they won't see in the course of a year," Vlietstra's group includes micro businesses with 10 employees or less. "The self-employed, small businesses, we're not being addressed." (Read more: November Private Sector Jobs Growth Misses Forecasts)
Vlietstra adds that the "fiscal cliff" debate has largely focused on taxing the rich; specifically, whether to raise the tax rate on incomes exceeding $250,000. But self-employed and small-business owners would also be affected by raising the tax rate for the wealthy. (Read more: More than 300,000 Millionaires Would Go Off 'Cliff')
That's because many business owners combine their business and personal incomes. And if you happen to a run a business with a spouse, it's not that difficult to exceed the $250,000 mark.
"There's no black and white between household income and business income. It's funneled through as individual filers," Vlietstra said. About 2.2 million Americans are self-employed or operate micro businesses and earn more than $250,000 annually, according to the NASE.