Business Urges Clinton To Ease Up on Taxes
Entrepreneurs say new taxes may nullify gains of incentive program
BUSINESSMEN who gathered in Washington this week to hear President Clinton's pitch for his economic package questioned whether his efforts will improve prospects for small business development.
While the administration's plan to ease banks' constraints on lending is an encouraging sign to firms eager to expand, entrepreneurs worry that greater tax and regulatory burdens will set business back.
American Enterprise economist Allan Meltzer estimates that Mr. Clinton's promised tax credits will give business $15 billion, but he will take back $12 billion in a higher corporate tax rate.
Jackson Faris, president of the National Federation of Independent Business, says Clinton's tax proposals "could kill [economic] recovery" by shrinking the work force, productivity, and profits.
The nation's new chief executive, who likens the huge federal bureaucracy to a malfunctioning business that should have gone belly-up by now, claims more budget cuts, better-targeted federal programs, and prudent use of higher tax revenues will enable the government to create the conditions needed for business to flourish.
Small businesses, which account for more than half of American jobs and over 40 percent of economic output, have picked up the slack in job creation caused by permanent downsizing in the nation's top auto, aerospace, computer, and retail industries.
As Federal Reserve Board chairman Alan Greenspan cautioned this week, the lack of credit for small business threatens to disrupt economic growth.
To forestall this, Clinton promises to loosen federal regulations that limit banks' willingness to lend, and to help push down interest rates on loans by reducing the federal deficit.
Deno Macriocostas, owner of Photonics Inc., a Connecticut and California-based high-technology firm, echoes the small business community's calls for Clinton to ante up greater growth incentives.
Like many entrepreneurs - from established firms to start-ups - he is worried about the high costs of doing business, including labor, housing, and state and local taxes. He urges Clinton to make his offer of a temporary investment tax credit a permanent one.
Clinton implores business groups, and a host of other audiences, to consider his economic package in its entirety - from the higher taxes on top income earners to the long-term lower interest rates that will result from cutting the federal deficit.
But there are other elements that will impact the balance sheets of small business that are not readily visible in the plan.
AMONG those are government mandates that currently require business to comply with tighter environmental standards and family-leave policies as well as those in the future that could obligate business to shoulder employee health care costs or pay for job training.
Clinton's priority on job training hits home with many businesses that have trouble finding qualified workers.
"He understands our problems," says Rives Neblett, chairman of Shelby Die Casting Company, based in the depressed Mississippi Delta region.
"The literacy rate in our area is very low. And our only salvation is job training," he adds.
Because of low morale and poor production, "we were scheduled to close in December," Neblett says. "I don't think our plant could have stayed open without changes."
In order to compete with international producers in a realm where quality now matters as much as price, Mr. Neblett had to transform the company's reliance on unskilled low-wage minority labor. Employing 240 people in two plants with combined gross sales of $30 million, Neblett now works with a training curriculum supplied by a local college, to provide workers knowledge from basic adult literacy to highly technical skills.
But Neblett says Clinton's plan should do as much to promote small business purchases of machinery and equipment - by making the investment tax credit permanent - as it does to encourage investments in people.
Denis Mullane, president and CEO of the Hartford-based Connecticut Mutual Life Insurance Company, services mostly small business and weighs in with his own recommendation.
"The president wants jobs and he should give each company an incentive to create them," he says, "by driving down corporate tax rates with a credit for each new employee hired."
If Clinton honors his pledge to make budget cuts and put federal tax dollars to better use "we'll be motivated to pay more taxes," Neblett says. "It not, we'll be very disappointed."