Employers Grateful for Proposed Tax Breaks, But Still Scared

Struggling business owners, fearful of the onset of another prolonged recession, will take anything they can get at this point.

An array of tax breaks included in President Barack Obamas massive jobs bill aimed at coaxing employers into adding new hires seems to fall into that category.

While grateful for relief from what many business owners view as an overly burdensome, overly complex tax structure, the feeling is that the measures included in the $450 billion jobs proposal may not be enough to jolt the U.S. economy out of its malaise.

Even if payroll-tax cuts and specific incentives targeting the long-term unemployed and new investments in capital allow companies to add a few new hires, business owners say there are still fundamental problems plaguing the economy.

In no particular order those problems include frightened U.S. consumers whose reluctance to spend has crimped demand for goods, stubbornly tight credit markets which stifle the ability to expand, and political gridlock in Washington, D.C.

Economic data released Tuesday backs up the mountains of anecdotal evidence provided by business owners across the county. Small business confidence tumbled for a sixth consecutive month in August, down almost two points to 88.1, the lowest since March 2010, according to the National Federation of Independent Business.

The U.S. Small Business Administration estimates that companies with fewer than 50 employees generated 65% of new jobs over the last 17 years.  But they dont have much hope for an economic upswing any time soon.

Frank Fiume, founder and CEO of youth athletic league company i9 Sports, said potential franchise owners are reluctant to take the risk of opening a new business amid all the economic uncertainty. And even if they werent scared, many of them cant get loans to help with the startup costs.

People would rather take a job to get a steady paycheck than open a business on their own. Its too risky, he said.

Meanwhile, at i9 Sports home office in Tampa, Fla., where Fiume employs 44 people, the CEO said he doubts a 50% reduction in the employers portion of the payroll tax will be enough for him to hire anyone new next year.

Im not certain that when we do our 2012 budget the payroll tax cut is going to have a big enough impact to allow us to hire new employees, he said. I dont know whether its going to be the difference maker in whether we hire a new person.

The presidents proposal would cut the share of the payroll tax paid by employers to 3.1% from 6.2%. The reduction would be applied to the first $5 million of a companys 2012 payroll, a caveat that specifically targets small businesses.

Other incentives include a $4,000 credit for hiring people who have been out of work for six months or more, and tax breaks on capital purchases.

Edward Kaloust, founder of Medi-Weightloss Clinics, said he already knows who he will hire if the jobs bill passes and the incentives are approved.

A company pediatrician who specializes in childhood obesity badly needs an assistant, but the business has been under a hiring freeze since January basically because were nervous about the economy, he said.

I think with this tax break well be able to change that and maybe add a couple of other people, Kaloust said.

The credit targeting the long-term unemployed could also be beneficial, Kaloust suggested.

Employers are generally wary of hiring people whove been out of work for six month or more for fear they lack the motivation and the skills to compete in a competitive environment.

But that stigma has likely softened as unemployment rates have hovered stubbornly near 9% for months, making it difficult for even the most qualified candidates to find a job.

One aspect of the White House jobs bill bothers Kaloust: raising taxes on couples who make more than $250,000 a year.

Thats me, he said. Were the ones who take on all the risk and that takes away the desire to do that. The president needs to address that.

Peter Ross, the founder and CEO of Senior Helpers and co-founder of Doctors Express, two nationally franchised health care companies, sees the incentives as a growth opportunity if politics dont get in the way.

Heres why: while the economy has soured since the 2008 financial crisis, both Senior Helpers and Doctors Express have prospered such that the company through its franchisees now employs about 10,000 caregivers. Franchise owners have been reluctant, however, to hire support staff, trying instead to do all the heavy lifting themselves, according to Ross.

I see these hiring incentives as helpful because theyll allow the franchisees to hire the infrastructure people that will help grow their business, he said. You need to build capacity and you cant do it yourself. Growing their business helps them hire more caregivers. Its a self-fulfilling prophecy.

Nothing will happen, of course, if Congress fails to pass the bill, an increasingly likely prospect as Republican opposition grows to the tax hikes being sought by the Obama administration to cover the massive price tag.

The months-long battle that ended in August over a debt reduction package tied to raising the U.S. debt limit has left many business owners fearful that partisan politics takes precedence over sound policy in Washington, D.C.

Congress tendency to spend beyond its means is also worrisome.

The view of most Americans is that if we did things like they do them in Washington wed all be broke, said Ross, adding, I hope theyll get together to get something done. Waiting for the next presidential election isnt going to be beneficial to helping create jobs.