Listening to the Democrats this summer, you're unlikely to hear about an impending tax increase. In an effort to sanitize their historically irresponsible decision to raise tax rates in the midst of a struggling economy, President Obama and the congressional majority say they are merely "allowing the Bush tax cuts" to expire.
Skillful messaging perhaps, but cold comfort to the millions of Americans and small businesses who aren't concerned with what their effective tax rate was in 2001. For them, on Jan. 1, one of two things will happen: Taxes will go up, or taxes will stay the same. Coming to grips with this reality will be crucial to jumpstarting the economic recovery. Decisions on whether to buy an appliance, invest in a company, or expand a business are made by taking into account after-tax returns in the future — not in the past.
Democrats want Americans to believe that by letting tax rates rise they have discovered religion as deficit cutters. But after a two-year assault on the federal trough in which Congress passed the notoriously wasteful stimulus and added a new health care entitlement, few Americans are even bothering to listen. In reality, the harm this tax increase will inflict on jobs and gross domestic product will strongly outweigh any presumed boost in tax revenues.
American businesses are sitting on top of a record $2 trillion in cash — money that could be spent hiring more workers, funding new projects or paying out dividends to investors. But right now these dollars remain stuck on the sidelines.
Already grappling with weak demand for goods and services, businesses of all sizes have five main costs and expenses that impact their bottom lines. Thanks to the agenda in Washington, all are going up, turning the White House's much-touted "Recovery Summer" into the "Summer of Uncertainty." Here's a look:
•Taxes will jump next year on everything from ordinary income, capital gains, dividends and estates. And with our national debt soaring, the prospect of even more tax increases in the future seems more likely.
•Health-care costs are growing as a result of Obamacare's mandates and inflationary impact on premiums.
•Energy costs remain in limbo as leading Democrats, led by Sen. John Kerry, float the idea of passing cap-and-trade during the lame-duck session of Congress.
•Credit is becoming more expensive and is increasingly out of reach for most small businesses, partly because the 2,300-plus page financial regulatory bill encourages banks to horde their capital rather than lend it.
•Labor costs also threaten to climb higher as labor unions dig in their heels and gear up for another push to pass card check.
In this environment, it's understandable why businesses — which have pared their expenses by laying off over 2 million workers since Congress passed the stimulus in February 2009 — would be reluctant to start hiring again. Hence the disappointing 71,000 jobs created by the private sector last month — a figure too small to keep up with the growth of the workforce, let alone take a bite out of the 9.5% unemployment rate.
No matter how much money President Obama borrows and spends, our economy simply will not recover until small, medium and large businesses have the confidence to put Americans back to work.
Republicans categorically oppose hiking taxes in times of economic crisis. For the past 19 months, we have offered better alternatives to the stimulus, cap-and-trade and the health care overhaul that keep the growth of government in check. We have taken a scalpel to the budget and offered up hundreds of billions of dollars of spending cuts. I don't believe any American thinks that this $3 trillion is being well spent.
Next year, President Obama is going to preside over one of the largest tax increases on families and small businesses in American history. How his administration has convinced itself that this is a good idea right now is beyond comprehension.
Mr. President, the federal budget is teeming with waste. If you want to rein in the deficit, Republicans welcome you to sit down with us and go line by line through the budget to cut needless spending. But don't impose sweeping tax hikes that will only make a bad economic picture much worse.
Rep. Eric Cantor, R-Va., is the Minority Whip in the House of Representatives.
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