Small business investors invest for the long haul and therefore need long-term tax certainty. Investments in publicly-traded companies can be made in seconds. Investments in small businesses can take months or years and will take even longer to earn their money back. Investors can deal with normal business uncertainty, but they cannot effectively manage uncertainty created by the changing political winds, regulatory whip sawing, or bouncing tax rates. Failing to provide clarity will reduce investment and thereby damage job creation.
The upcoming tax increases are painful and destructive. Taxes on capital gains and dividends will increase to 20% and 39.6%, respectively. And don't
forget about the new Medicare surtax of 3.8% on "investment income," which further raises rates to 23.8% and 43.4%. All of this is before state taxes are even considered. Is there any wonder why many investors, large and small, are concerned about making further investments?
Investments in small business must not be penalized by high tax rates because the economy needs individuals and firms to take risks in emerging
enterprises and expanding businesses. The more favorable the tax code is to small business investing, the more opportunities our small business partners
will have to access the financing they need to grow and create jobs. Small business investors need long-term certainty in the tax code to improve their
ability to make smart investment decisions. Jumping from short term tax regimes to short term tax regimes or to high tax regimes is not helpful. Low tax rates and long-term stability will help drive critical long-term capital investment to America's most promising and deserving entrepreneurial enterprises.
It is critical to understand that small business owners are our partners. They are relying on their life's work of growing their business to pay for their retirement, especially because, unlike public employees, they likely don't have a pension. When an entrepreneur sells her or his business they may have a one-time payday that has to sustain them for the rest of their lives. Business owners should not have to consider selling their businesses early to be able to save their retirement. If the tax code is used to punish these business owners with high tax rates, then Washington will be making a very clear statement to those who are thinking about starting a business - and it will be the wrong statement.
Clearly we need tax reform that simplifies the code and lets us pay the nation's bills, but in the interim, playing chicken with the economy and people's lives must stop. Congress should extend the existing tax rates immediately and continue to work on comprehensive, pro-growth tax reform.
Palmer is president of the Small Business Investor Alliance (SBIA).