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COLUMN: The looming tax and regulatory threat

By Rep. Mac Thornberry (R-Clarendon)

Washington, July 31, 2012

The American people have always been resilient, especially during tough economic times.  Our nation’s small business owners always find new and innovative ways to create and grow our private sector.  The products and services they produce and the jobs they create are what drive our economy to prosper in good times and to recover in times of recession.  In order to power our economy, though, our small businesses need an economic environment free from uncertainty about the regulations and taxes they will soon face.  Unfortunately, that is not what the government has given them these last few years.

Many of the provisions of the current tax law are set to expire this December, resulting in a significant tax increase for everyone who pays income taxes.  This increase would be the largest nominal tax hike in American history.  If this happens, the Congressional Budget Office estimates that we will see our economy shrink by 1.3 percent, or $200 billion in the first half of next year.  Even if we allow tax rates to go up only on those making over $250,000 a year, which would affect 2.1 million small business owners, it could cost the United States an estimated $200 billion in economic output and 710,000 jobs.  Those workers who don’t lose their jobs under these circumstances would see their wages trimmed by nearly two percent.

The damaging economic effects of raising taxes would be another blow to businesses that are already struggling under the weight of burdensome federal regulations.  Since 2008 we have seen a 52 percent increase in regulation that has cost our economy $100 million annually.  Instead of focusing their resources on growing their businesses and hiring new employees, our small business owners are forced to keep up with the rapidly expanding amount of regulation coming out of Washington.  In fact, the Small Business Administration has said that while small businesses have created 65 percent of net new jobs over the past 17 years, per employee, they face regulatory costs 36 percent higher than large businesses.  Those costs can be as high as $10,585 per employee.

The threat and uncertainty of tax increases and rising regulation is currently making it difficult for business owners to make decisions vital to their growth.  According to a recent Harris Interactive poll, 78 percent of small business owners are looking for government to “get out of the way,” while noting that decisions in Washington impact their businesses.  Many of them are reluctant to hire new employees or expand their businesses until they know what type of financial and regulatory burden they will face in the new year.  However, Congress and the President can change that by creating an environment for them to thrive and grow in by eliminating such uncertainty.

We can do so today by setting aside election year politics and working together to extend all of the current tax law and stop the regulatory onslaught on our small business owners.  In an effort to do so, last week the House passed the Red Tape Reduction and Small Business Job Creation Act.  This is a step in the right direction, but I also believe that Congress should make a serious effort to reform the tax code to make it simpler, flatter, and fairer for everyone.

The combination of reducing burdensome regulation on our nation’s job creators and reforming our tax code to make it simpler, flatter, and fairer would help our economy grow, make our businesses more competitive in the global market place, and lift some of the burdens of compliance off of the shoulders of taxpayers and business owners.

Rep. Mac Thornberry (R-TX) serves as the Vice Chairman of the Armed Services Committee where he leads the subcommittee on Emerging Threats and Capabilities.  He also serves as a senior member of the House Intelligence Committee, and recently chaired the House GOP Cybersecurity Task Force.