Will The Tax-Cut Package Help Small Businesses?

At a factory outside Boston, a small business owner reacts to the news that Congress likely will extend existing tax cuts and provide additional cuts. Business owners say they need all the cuts they can get, but economists question whether these particular tax breaks will really do much good.

RENEE MONTAGNE, host:

Business owners are watching closely to see what Congress will do with the tax deal struck this week, between President Obama and Republican lawmakers. Many economists think the deal will encourage businesses to create more jobs, but there are plenty of questions and controversy.

NPR's Chris Arnold reports.

CHRIS ARNOLD: The compromise package of tax cuts would free up more money for businesses. And as you might expect, that sounds like a pretty good thing to many business owners.

Mr. CARL PASCIUTO (President, Custom Group): It is promising. It actually looks like it may work in our favor.

ARNOLD: Carl Pasciuto runs his family business called the Custom Group. Its one of the manufacturers we've been following during the downturn. Their factory outside Boston employs about 90 people.

You make parts for airplanes, parts for...

Mr. PASCIUTO: We make parts for the aerospace industry, the medical industry, alternative fuel industry.

ARNOLD: Workers here use big, expensive, computer controlled machines to cut aluminum, or steel, or other types of metals into precise shapes and dimensions. Pasciuto says that means to stay competitive he's constantly reinvesting in new equipments. And the tax package in Washington could give him better tax breaks when he buys that equipment.

Mr. PASCIUTO: The more we get to write off, the more we get to re-invest in our company.

ARNOLD: The government is hoping that that will translate into businesses like this one, spending more money on equipment and, of course, hiring more people.

If this goes through would you say, oh look, yes, we'll have enough capital, we'll definitely hire another guy or is it a little mushier for your business?

Mr. PASCIUTO: Yeah, it's a little mushier than that. Its - yes, if we are able to write off more we can do more with the money, but consumer demand has to be there, yes.

Mr. MICHAEL LINDEN (Economist, Center for American Progress): I think that the best thing we could really do for small businesses is get them more customers.

ARNOLD: Michael Linden is an economist with the Center for American Progress. It's a think tank in D.C. that is often aligned with the Obama administration. But, as is the case with many Democratic lawmakers, Linden does not like the president's compromise to extend the Bush tax cuts for the highest earners.

Mr. LINDEN: Right, look. At the end of the day what we really care about -small business, large business, whatever - what we really care about is creating jobs. That's the goal and the tax cuts for the very, very wealthy are incredibly inefficient at creating jobs.

ARNOLD: The Congressional Budget Office studied this question. It looked at 11 different ways to stimulate the economy, and extending the Bush tax cuts came in last at number 11.

Mr. LINDEN: Those have a very, very low bang for the buck.

ARNOLD: Linden would have rather seen bigger tax breaks for lower and middle income people, he says they're more likely to actually go out and spend the money. Or, he says, more spending on infrastructure - repairing the nation's roads and bridges would create jobs. But he does like that the compromise in Washington could get unemployment benefits extended.

Mr. LINDEN: So you're talking about real small businesses, and I mean, you know, the hardware store on the corner, the little bodega - many of their customers are people who are unemployed because there are a lot of unemployed people out there right now and we know that those unemployment benefits go straight back into the economy through the mechanism of groceries, and laundry and fixing their car.

ARNOLD: In the end, Linden sees enough to like in the compromise that he supports it. And some more conservative economists see enough that they like too.

Professor MATTHEW MITCHELL (Economist, George Mason University): In the short run, I think that this is probably pretty good.

ARNOLD: Matthew Mitchell is an economist at George Mason University. He likes the payroll tax cut. And the tax cut for equipment purchases. He also actually likes extending the Bush tax cuts. But he does have one problem with the deal. Most everything about it, he says, is temporary.

Prof. MITCHELL: So if you're thinking about hiring a new employee, buying a new factory, expanding into a new market, what you really want is certainty. And tax cuts with expiration dates, basically sow a lot of uncertainty.

ARNOLD: So, Mitchell says the compromise in Washington will likely just kick the can down the road for a year or two when it comes to making some tougher permanent decisions.

Chris Arnold, NPR News, Boston.

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