As tax reform hangs in the balance, many self-employed and small business owners are hoping for a wide-ranging deal that focuses on both corporate and individual taxes.
According to results of a tax reform survey released yesterday by the National Association for the Self-Employed (NASE) 82 percent of respondents feel it is "very important" for Congress to address comprehensive individual and corporate tax reform. What's more, 78 percent said both these areas should be the highest priority. The results are based on roughly 300 surveys completed between September and Election Day by NASE members who are self-employed or own businesses with 10 or fewer employees.
The survey results come as efforts to avert the so-called fiscal cliff are underway. More than $600 billion in tax hikes and spending cuts are set to go into effect on Jan. 1 if President Obama and lawmakers don't strike a deal.
If a compromise is not reached, the self-employed community will be hit particularly hard, according to Katie Vlietstra, director of government affairs at NASE, a trade group for entrepreneurs.
A self-employed individual making $60,000 to $88,000 a year will see a tax hit of $2,700 to $3,700 if nothing is fixed by the end of the year. "That's a full pay check, and for some individuals it's a full month's business," Vlietstra says.
Nearly half of survey respondents favor a one-year extension of current tax rates for households making less than $250,000. Thirty-four percent support a one-year extension for all income brackets. Only 7.6 percent of respondents do not support a one-year extension. Sixty-one percent of respondents indicated they would be amenable to giving up a significant number of deductions, if the individual tax rate were dropped to an acceptable level.
There are many ideas being floated to avert the fiscal cliff, and it remains unclear what the final outcome will be. One idea is to lower individual income tax rates but eliminate deductions. Under this scenario, respondents were asked to choose three deductions that should remain in place. Health care deductions received 63.7 percent of responses, followed by the mortgage interest deduction at 58.7 percent and contributions to retirement accounts at 41 percent.
Business owners were divided on increasing the corporate tax rate in an effort to reduce the individual tax rate: more than a third said it would depend on the level of increase and decrease. Thirty-five percent were against the proposal and twenty-six percent were for it.
President Obama has spent the week meeting with labor leaders and the business community and is planning to meet with congressional leaders on Friday to kick off negotiations on the looming tax and spending issues. Later this week, the NASE is planning to send comments to Washington laying out its position on behalf of constituents.
"People want long-term solutions, not one or two-year extensions," Vlietstra says.
Cheryl Winokur Munk is a freelance writer and editor in West Orange, NJ. She is a former reporter for Dow Jones Newswires and American Banker where she covered the financial services industry. She earned a B.S. in journalism from Boston University.