Posted 02.08.2009

Business braces for Obama tax changes

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“It may be that the first thing that they talk about at some point will be economic stabilization or a move toward a one-payer system in health care, but the idea that the new administration is going to say, ‘By the way, we’re going to take the capital gains tax from 15 percent up to 20 percent or 25 percent or 28 percent,’ in the context of a Dow that is down 34 percent, just isn’t going to happen.” Adds Truitt, “We are looking at anywhere from six months’ to a year’s delay in the implementation of a number of these provisions. There was a lot of rhetoric during the election and afterward about a lot of small-business tax cuts, a lot of pro-business, pro-small business moves, and then also a potential increase in some individual tax rates for higher income people. “The problem is, all of those are pretty expensive tax cuts and so in a bad economy they just can’t afford to implement those in the time frame that they want to,” he says. “So what we are anticipating is that there is going to be a delay in implementation of a lot of the small business tax changes and other tax changes.”
The critical ingredient in an economic recovery is a return of business and consumer confidence, Truitt says, and the D.C. regime “can’t afford to throw those big changes in on top of the already difficult economy.”

What is as certain as death and taxes is massive spending. “The day that Obama takes office he will announce formal details on an economic stimulus program somewhere between probably $700 billion and $900 billion,” Thredgold adds. “Nothing takes priority over that at this point.” The NFIB’s Rys says capital scuttlebutt hints at a package between $400 billion and $850 billion, by the way. While worried about the long-term impact of trillions more in deficit spending, the economists we spoke with were uniformly more concerned about the present chaos. Policy makers gave a choice between trickle-down economics and a bottom-up approach. Like the president, Patricia L. Silverstein, president of Littleton-based Development Research Partners, favors the latter policy. “Without consumer stimulus, there won’t be any demand anyway,” she says. “And we would still be looking at a deflationary scenario.” The NFIB’s chief suggestion for Obama’s tax policy, by the way, is a payroll tax holiday.

“We really think this is one thing the government can do that can really have a positive impact,” Rys says. “What we are seeing is a frozen small-business economy, and we need to get that unfrozen. That’s why we think a six-month payroll tax holiday can really help, because it helps on both sides of the economic equation. It puts money back into the pockets of employees so they can go out and spend; it also puts money back in employers’ pocket to help defer some of the costs of labor, so it creates an incentive to keep people on the payroll, and helps them make their monthly expenses, which are becoming more and more of a challenge.” Experts are relatively optimistic regarding the Colorado economy, largely because it never reached the bubbly heights of those in Nevada, California, Arizona or Florida. “Small businesses are extremely flexible, and if they’ve got their ducks in a row in terms of marketing, and they didn’t over-leverage, there is a lot of opportunity in the market,” Coet  says. “I think Colorado is in the catbird seat.”

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