On Tuesday, Congress approved a deal to help the nation avoid â€œfalling over the fiscal cliff.” The deal includes raising tax rates on the wealthy, extending unemployment benefits as well as avoiding government spending cuts. Many small business owners felt any deal that Congress would reach would sell them out by favoring big businesses, who already pay little to no taxes at all.
Of most pressing concerns regarding the deal is the tax rate on those making over $200,000. Congress decided that the tax rate will permanently increase for people with income above $400,000 and families making over $450,000. Many small business owners do not fall into this category so the number affected by this tax rate is minimal.
Congress will allow the tax on payroll to increase up to 6.2 percent, up from its current rate of 4.2 percent. Experts warned that this move would vastly reduce consumer spending, which in turn would hurt small businesses who are already seeing low customer demand. The Work Opportunity Tax Credit (WOTC) which was created to encourage small businesses to hire unemployed groups such as young people and veterans was extended through 2013.
Other notable aspects of the Fiscal Cliff deal are the extension of tax breaks for renewable energy technology, as well as the Section 179 tax break. This tax break helps small businesses purchase or lease software and equipment to help run their businesses.
The Campaign to Fix the Debt, a coalition that included top chief executives, said the compromise deal that prevented most of the automatic tax increases from taking effect was “a small step forward” in efforts to reduce the deficit.