Could end of time prophets have been right all along when predicting the Armageddon for 2012?
The ‘Taxmaggedon,’ or fiscal cliff, as it has been labeled by doomsayers from both ends of the political spectrum, has topped the national agenda since the Nov. 6 elections. In Queens, too, the looming disaster is on many minds.
A study released by the Tax Policy Center last month found that with its median income of $55,291 in 2010, the average Queens household would pay $1,231 in additional taxes, or an increase of 4.1 percent, if Congress does not take action to resolve the so-called “fiscal cliff” by the turn of the New Year.
That has local businesspeople worried. Charlie Omar, 50, owns an automotive services company in Ozone Park with 25 employees. Most of them are mechanics, but the staff also includes two tow truck drivers, a secretary and a manager. He has been following the news on a possible increase in payroll taxes that could ensue if Congress doesn’t act before the end of the year.
For now, employees are enjoying a temporary payroll tax cut which has reduced the share they must pay to support Social Security from 6.2 percent to 4.2 percent. But the rate cut is set to expire at the end of the year.
“The payroll tax is going to be a killer,” Omar said. “I might have to lay off 10 people.”
Gary Carbo, a certified public accountant in Forest Hills, has been in the business of interpreting tax laws for 20 years. He says the fiscal cliff brings back nightmarish memories of the sudden spike in state taxes that took place some 10 years ago, when Albany lawmakers let tax cuts expire.
“That was kind of frightening,” Carbo said. “And I hope the same thing doesn’t happen with the fiscal cliff.”
One way or another, his clients are bracing for impact.
“If everything stays the same, there’s still going to be a 3.8 percent increase for the higher-end tax payers,” he says. “So if they’re planning on selling property or stock, I’m advising them to sell their stocks to get the capital gains done this year. It’s better to do it in December than in January.”
Roberto Mendoza, 45, immigrated from Mexico 25 years ago. He says he worked hard as a bartender for two decades in order to open his own business.Â
Five years ago, the Rapture Lounge in Astoria, opened its doors. It now employs six people, and brings in around $5,000 in profit a month to its owner. But Mendoza says a tax hike might disrupt his business.
“It’s really bad for business. Now we might have to increase the price on our liquor and food. Why don’t they go for big corporations?”
Queens has 43,305 businesses, according to the 2010 Census, 68 percent of which employ nine or fewer people.
“What people fail to realize is that the vast majority of the Bush-era tax cuts went to the middle class,” says Rob MacKay, of the Queens Economic Development Corp., a non-profit organization that aims to assist small businesses and promote tourism and business development in Queens.
MacKay’s concerns focus on the expiration of the Alternative Minimum Tax (AMT) exemptions. The AMT is a parallel tax system that applied to 4 million upper- and middle-income taxpayers in 2011. Unless Congress acts, the AMT will expand to include more taxpayers, raising the total number to 30 million- one fifth of taxpayers - according to a Congressional Research Service report published two weeks ago. In turn, this would create $125 billion of additional tax revenue. The AMT is calculated based on total income, without taking many expenses or deductions used for regular tax returns.
“You might own a pizza place and make $250,000 per year,” says MacKay. “But the fact of the matter is, you are also paying your rent, buying your cheese and soda, hiring different people that make the pizza, paying fines. You actually end up making $50,000; but you are taxed based upon the original $250,000. All this uncertainty makes businessmen afraid to move.”
If businesses are on edge because of the fiscal cliff, so are politicians, since all options come with their share of negative consequences. Renewing tax cuts, on the one hand, would require Congress to reach an agreement on the increase of the debt ceiling. Congress is current in a lame-duck session, due to end around Christmas.
Leading lawmakers in Washington have warned, however, that this will be challenging in view of the Congress’s failure to achieve such an agreement last year. The stalemate then prompted the credit rating agency Standard & Poor’s to downgrade its rating of the federal government.
On the other hand, eliminating the cuts could throw the economy into a recession. According to the Tax Policy Center report, 90 percent of American households would see a tax increase.