Small Business and the Fiscal Cliff

The approaching fiscal cliff is expected to have a major impact on the economy. The President and congress are working through the end of the year to minimize the damage, but whether they can come to any agreement will be determined in 4 days. If they do, they cannot save every industry from financial troubles. What will happen to small business?

In a recent Chamber of Commerce survey, 93 percent of small business owners said that they were concerned about the fiscal cliff. Many of these business owners have stated that they will not increase the growth of their company, until congress has decided on a plan. In one of the proposed plans, individuals making over $250,000 per year will have to pay higher taxes. If a small business owner happens to have to pay higher taxes, it will be much more difficult to open other stores and hire more workers. Over time, this could deepen the current recession.

This will not only affect larger small businesses, but local mom and pop shops as well. For example, Small local businesses that currently buy from a local supplier that are affected by the tax increase. In order for the supplier to make the same amount of money as they previously did, they will have to raise their prices. This, in turn, goes back to the small local business which can not afford to pay these higher prices and must raise prices on their products as well. Most local stores products already cost more than big chain stores. An increase in the price of their goods will deter many current and potential customers, who will ultimately go elsewhere for their products. The small business cannot afford to lower their prices back to the original price, without sacrificing an aspect of their company. The business would most likely look for a cheaper supplier. In many cases, a cheaper supplier is found offshore, a scenario which could create a snowball effect for other businesses in the community.

With the rise of globalization & ecommerce, more businesses have found alternatives offshore. Still, many are skeptical about taking their business offshore. Luckily, there are law firms out there that provide legal help for offshore incorporations.

One of the possible changes would include a payroll tax increase of one-third, to 6.2 percent. A payroll tax increase would mean that the amount of money workers take home will be significantly less. In turn, the workers will have a harder time supporting their families. Americans feel as though their time is very valuable, especially in comparison to countries overseas. If they are bringing home less, they will expect to make more to compensate. If not, they will look for a better paying job. If a small business cannot afford to pay a higher wage and is losing workers, their only option is to outsource for cheaper labor.

There are many possible outcomes for the fiscal cliff. Many business owners are worried that no matter what solution is agreed upon, the effect on their small businesses will be negative. If congress does not reach a solution, then many companies will have little choice but to look elsewhere for lower labor and product prices. In turn, this could have an effect on the entire nation and start a trend of outsourcing.