Small business owners have a lot to consider when casting their votes this upcoming election season. The last year alone has seen a wide range of political actions that could significantly affect small businesses: tax cuts, the Affordable Care Act, the JOBS Act and the creation of the Consumer Financial Protection Bureau. As small businesses look toward the future, perhaps the foremost consideration is the state of the economy.
Which of these candidates has what it takes to lead small businesses out of the recession? For small businesses sick and tired of the economist’s mixed signals and Washington’s savvy one-liners, let’s take a hands-on look at Obama versus Romney’s economic plans, and how they will affect small businesses.
How Obama vs. Romney’s Plans Will Affect Small Businesses
Buffett Rule vs. Bush-Era Tax Cuts
This is basically another way of saying Obama vs. Romney, respectively. Barack Obama’s recently introduced “Buffett Rule” would establish a minimum 30 percent income tax for people earning over $2 million annually. While the tax hike recently fell through in the Senate, Obama will likely pursue this course if elected.
Meanwhile, Romney intends to extend Bush-era tax cuts, according to the Huffington Post. This policy would eliminate estate taxes and continue tax cuts for the wealthiest in the nation. In light of the election, reports Bloomberg, George Bush himself recently supported his tax cuts, equating raising taxes on the rich to raising taxes on job creators.
Obama advantage: Most small businesses unaffected by tax hike
A lot of the hubbub around the Buffett Rule is due to its effect on individual income tax—which most small business owners file. However, the tax hike is not particularly likely to affect most small businesses at all. Very few small business owners earn over $2 million annually, and those who do are likely already paying the 30 percent tax rate, reports the New York Times. The tax hikes would primarily affect people who earn millions from stock dividends or capital gains, reports. In an incredibly ideal world, these tax hikes would generate revenue that can jumpstart the economy’s stagnant growth.
Obama disadvantage: Increased taxes on capital gains
Critics are concerned that increased capital gains tax might deter investment. Small businesses that pay out earnings as dividends are most likely to be affected. Additionally, any sale of a company that earns over $1 million will result in a higher tax rate. Because of these higher taxes, some very successful small business owners may have to rethink their exit strategies and retirement plans.
Romney advantage: Tax cuts across the board
Romney’s plan hopes to cut tax rates at every level, which would greatly benefit many small business owners. The top earners would have their income tax levels slashed from 35 to 28 percent, while the lowest tax rate would be reduced from 10 to 8 percent. Small businesses should always seek out lower tax rates, as less money paid toward taxes means more cash at hand. Romney’s plan would also cut corporate tax from 35 to 25 percent, as well as trim capital gains tax.
Romney disadvantage: Tax plan appears unfeasible and unfair
These Bush-based tax cuts may not actually help balance the budget. The latest extension of expiring tax cuts cost the country over $850 billion of revenue in the last decade, reports Businessweek. Critics argue that the Romney campaign places too much faith on feedback from tax cuts. There is no bulletproof correspondence between tax rates and economic growth, and Washington has a questionable track record on investments. In addition to its potential effects on the national deficit, these tax cuts may just expand an already unfair tax system. According to a recent poll by the Small Business Majority and others, many small business owners big corporation and millionaires pay less than their fair share of taxes. Many small business owners also responded favorably to letting the Bush tax cuts expire.