Mike Pratt expected a federal tax increase in 2013.
What Mr. Pratt — co-owner of Pratt Hearing Aids in Toledo — didn’t know was how much taxes would increase and whether that increase would throw a wrench into his business projections. Bracing for the worst, Mr. Pratt said he had a plan for what he would cut and how he’d manage his company if the tax rate jumped.
“There was going to be a question of ‘Is it going to impact us business owners?’ ” he said.
Mr. Pratt was delighted when Congress enacted legislation to avoid the “fiscal cliff,” but said the tax increases included in the bill will alter the way he does business. An increased payroll tax means less money in Mr. Pratt’s pocket and less money in the pockets of his customers.
“It’s less take-home [pay], and if it gets to the point where we have to cut advertising, that’s always a concern,” he said. “The last thing we’d have to do is raise prices, and that’s the last thing we want to do.”
Uncertainty over tax rates makes it hard for businesses to plan their finances, said Rhett Buttle, government affairs director of Small Business Majority, an advocacy organization.
Passing the legislation that avoided the fiscal cliff will allow firms to create solid financial plans, he said. It is especially beneficial for businesses that make quarterly projections, he added.
“It provides businesses with some certainty. Certainty is important to the business community small and large,” Mr. Buttle said. “The middle class is really small businesses’ customer base. The extension of middle class tax cuts is important because it will get money flowing into the economy.”
Charles Ballard, an economics professor at Michigan State University, said businesses dodged a bullet, and the country could have plunged back into a recession if Congress had not passed the legislation.
This is good news for most people and business owners, he said.
“It was made to be more an emergency than it was. It was often portrayed that if we didn’t have a deal by midnight on New Year’s Eve, the world blows up,” Mr. Ballard said. “If some taxes go up on New Year’s Day and go down a day later, it’s no big deal. It’s only a big deal if that continues for months. Then it would have pushed the economy into recession.”
Although the fiscal cliff was avoided, there are other issues on the horizon that could affect businesses as 2013 progresses, he said.
“We’ve avoided the worst possibilities, but of course we will have ongoing negotiations about the debt ceiling,” Mr. Ballard said. “The circus in Washington did not shut down last night, and we will be dealing with this for weeks and months to come.”
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