The U.S. Senate July 25 voted 51 to 48 to pass the Middle Class Tax Cut Act of 2012 (S. 3412), which, if enacted, would result in a massive tax increase on business income, capital investment and family succession. In addition, the Senate voted 45 to 54 against the ABC-supported
Hatch-McConnell Amendment to S. 3412 that would have forestalled the looming fiscal cliff facing America’s job creators.
In letters sent to all members of the U.S. Senate before the votes, ABC offered support for the Hatch-McConnell Amendment and strongly opposed
S. 3412 because of the negative impact it would have on ABC member businesses.
Specifically, ABC cited statistics by the National Federation of Independent Businesses that showed 14 percent of small business employers
will see a double-digit rate increase under S. 3412. In addition, a new study by Ernst & Young
showed that the tax increase could cost more than 700,000 American jobs and reduce the economy by 1.3 percent while diminishing wages and capital investment. With roughly 80 percent of commercial contractors paying business income taxes at the individual level, this scenario disproportionately harms the construction industry, ABC noted in its letter.
The resurgent estate tax burden enabled by S. 3412 also would harm family businesses across the spectrum, ABC pointed out. Without congressional action, business owners will face an escalated 55 percent rate and a severely diminished $1 million exemption. According to the National Small Business Association, one-third of all small business owners could be forced to sell outright or liquidate a significant portion of their company to pay this punitive tax. “In a capital-intensive industry such as construction, with a large proportion of closely held and family-owned businesses, a reversion to pre-2001 estate tax levels would be nothing short of disastrous,” ABC wrote. “Rather than exposing nearly one in seven job creators to a perilous fiscal cliff, Congress must act swiftly to extend current tax policies as a bridge to comprehensive tax reform.”
According to the Constitution, revenue-raising measures must originate in the House of Representatives, leaving S. 3412 with no legislative path forward. The House is expected to vote next week on H.R. 8, the Job Protection and Recession Prevention Act of 2012 – a bill that roughly mirrors the Hatch-McConnell alternative.