Tax Increases Mean Bad News for the Economy

Dec 20, 2012

If you can predict how the fiscal cliff negotiations will turn out, let me take you to Las Vegas. Twists and turns are taking place daily—almost hourly. With such an uncertain swirl, it’s best to look at the big picture. Increasing taxes will not help to grow the economy. Here’s Stephen Calderia, president and CEO of the International Franchise Association:

For franchise small businesses, the overwhelming uncertainty of our nation’s fiscal policy is heavy, and the risk of higher tax rates will truly be too much to bear. In a recent International Franchise Association Survey, nearly 80 percent of franchisees and franchisors said any income tax rate hike will affect their ability to grow their business and create jobs.

One franchisee survey participant said, “Any increase in taxes affects economic prosperity for myself, my family, and my employees and their families.”

It’s not just business owners that will be affected. Employees will be affected, too.

Every dollar that Washington takes from your Main Street franchisee in the form of higher tax rates is one less dollar that goes into a new job being created. Whether it is the owner of your neighborhood chain restaurant, doughnut shop, hotel or automotive center, job creation in franchise businesses remains a bright light in a still tepid and uneven economic recovery. At a time when job growth continues to be more important than ever, something’s got to give.

Calderia reflects the views of many U.S. Chamber small business members who explain how impending tax hikes will hurt hiring and investment.

The notion of higher taxes harming the economy is backed up by William McBride at the Tax Foundation who reviewed economics literature on taxes and economic growth. Research by David and former White House economist Christina Romer found that (in McBride’s words) a “tax increase of 1 percent of GDP lowers real GDP by about 3 percent after about two years.” Also, International Monetary Fund research shows that a (also McBride’s words) “1 percent tax increase reduces GDP by 1.3 percent after two years.”

Both business owners and economists agree that higher taxes will not help our slow-growing economy. Washington should listen. 

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