Businesses need a sound fiscal environment and a sense of certainty before they can commit to creating new jobs. Washington isn’t offering us either.
All planning begins with a firm knowledge of where the journey starts and at least a general knowledge of the journey’s end point or goal. Starting or expanding a business enterprise, the by-product of which is job creation, is such a journey.
If an entrepreneur were to start this journey today, she would start in the present tense; that is, she would be focused on what “is,” not what “was,” or “might”, “should,” or “could have been.”
But what might a potential job creator see when they survey the landscape before them? They must look at potential taxes and regulatory regimes (federal, state, and local) through the lens of what is “on the books.” While we can speculate at what the future may bring and hypothesize as to different alternatives, so that we are prepared for likely changes, we can only plan based on what “is.”
And what we know is that at the end of this year, our maximum marginal tax rates will rise by 5 percent, our payroll taxes will be increased by 2 percent, and investment income will bear a new 3.8 percent Medicare tax included (among other tax hikes) in Obamacare. The total capital removed from the private economy through these and other tax increases to take effect as of Jan. 1, 2012, will be approximately $500 billion dollars a year, or more than 3 percent of our GDP.
Now, all of this additional taxation must be “baked-in” to a job creator’s planning–this is what is on the books, and an entrepreneur could not start the business creation journey without taking all of this into account. But the reality is that all of these looming tax increase will result in fewer net dollars being available to each enterprise for reinvestment. Does anyone doubt that job creation requires that capital investment? Does anyone truly believe that raising taxes will create a single job?
All of this will have an impact–both broadly and on a micro-economic level. With higher costs associated with creating jobs and sustaining businesses, there will likely be fewer people working, smaller payrolls, and reduced weekly hours and hourly earnings. As a result of that, there will be fewer buyers and smaller markets for produced goods and services.
On the other end of the spectrum, for those who have already established businesses, they might look at the landscape and start preparing for lower volumes and business contraction, not expansion. In order to be proactive and stay ahead of the curve of higher taxes, more regulations, and Obamacare, perhaps they might reduce staffing, hours, or wages. And as for making more capital investment in the short term, that job creator would probably hold onto his cash.
And all of this is based on what we know today–what “is,” not what “might be,”–so prospective job creators might take a look around and conclude that holding off on any business expansion or growth plans in order to bide their time for more policy certainty. I’m not sure how it could be any clearer to policymakers in Washington that we need to prevent falling off the fiscal cliff–but that even getting so close to the edge is stalling the job creation we so desperately need.
Ron Lazof is a Job Creators Alliance member and Managing Director at Prism Advisors, LLC, a management advisory and consulting organization focused on emerging growth businesses. He is the former President and CEO of Behr Processing. This article first appeared in US News & World Report.