Cedar Lane, Pa. – Sally Danciu, who has operated Sally’s Flowers in suburban Philadelphia for 33 years, thinks President Obama is making a terrible mistake by pressing to raise her taxes. While Danciu is financially well off compared with most Americans, she is by no means one of the millionaires or billionaires that Obama frequently cites in arguing that Congress should exclude the wealthiest 2 percent of Americans from an extension of the Bush era tax cuts.
Obama this week declared at a televised townhall meeting in Washington that the country can ill afford continued tax breaks for wealthy Americans in the face of record deficits and the rising costs of entitlement programs. He and many other Democrats are insisting that the tax cuts be denied to families making over $250,000 a year and individuals earning over $200,000. Capital gains income, like profits from the sale of stock, would be taxed at 20 percent rather than today’s top rate of 15 percent.
But Danciu, 61, who is divorced and the mother of a teenage son, warns that if her taxes go up next year, she will likely have to lay off some of her 14 employees and postpone plans to invest in a new awning and façade for her storefront. “I think the tax cut should remain,” Danciu said. “It would put a burden on business owners. You need to decrease government regulations and lower the taxes. It’s businesses that create jobs, not the government.”
Danciu, who typically votes Republican in her Main Line district, is making the same argument that many GOP leaders are making: that raising taxes on high-income Americans in the midst of tough economic times could lead to a worsening of unemployment and a continued decline in business investment.
That’s because her small business is incorporated as a subchapter S, which means her business income is subject to personal income rates, and would go up under the Obama plan. Any of her combined business and personal income that exceeds $250,000 a year after deductions would be taxed at a higher rate.
Even though the increase affects only 2.5 percent of small businesses, the impact could be much larger. According to the Tax Policy Center, the number of companies affected would be 894,000—not exactly small change.
It’s not just Republicans concerned about the potential impact of a sudden tax increase. Stefan Laessig, a Democrat who runs a motorcycle repair parts business, worries that his taxes already are “astronomical” without another hike. “It does throttle how rapidly I can grow the company,” he says, ruefully.
is an excessively high number, especially when they
are paying their taxes, have home expenses and kids
in college, and who are funding their businesses.”
The battle over what to do about the expiring tax cuts is playing out in a very practical way here in Pennsylvania’s 13th congressional district, which includes one of the wealthiest counties in the country and has many upscale leafy neighborhoods with multi-million-dollar homes and estates.
Rep. Allyson Y. Schwartz, a three-term Democrat, is battling Republican challenger Dee Adcock, a swimming pool distributor who has seized on the tax cut controversy as a defining issue between Republicans and Democrats. “People in the upper income bracket don’t believe $250,000 is an excessively high number,” Adcock said. “Especially when they are paying their taxes, have home expenses and kids in college, and who are funding their businesses.”
“There are those who say ‘the rich can afford it,’” Adcock added. “That’s when I explain an S corporation, a small business, that if those tax cuts expire it’s going to hurt them and the people who work for them.”
Schwartz doesn’t sound overly worried — and says she believes there is a compelling argument to make in her marginally Democratic district that if the country is serious about reducing the $13.4 trillion national debt, then this is no time to be extending tax cuts to the wealthiest Americans that would add about $700 billion more to the debt in the coming decade.
Terry Madonna, director of the Center for Politics and Public Affairs at Franklin & Marshall College, noted that Schwartz’s district had a majority of registered Democrats for the first time in its history in 2008, when Obama carried the district. He says it’s a swing district, though Schwartz does not seem to be in as much trouble as several other Democratic incumbents in Pennsylvania this election.
The Franklin & Marshall College Poll found recently that the budget and deficits are the second highest priority for voters in the state at 11 percent, behind the related overall “economic issues and employment” at 29 percent. Because of that, and with the struggling economy, Madonna said the issue of extension of the tax cuts “has the potential to become an issue, a game changer” in the November election.
Schwartz' district has a history of being drawn into divisive budget and deficit fights. In 1993, then-Rep. Marjorie Margolies Mezvinsky, a freshman Democrat, cast the deciding vote to pass President Bill Clinton's budget, which included tax increases designed to address the budget deficit. Republicans hooted at her on the House floor that night, shouting "bye-bye Marjorie," and predicting she would lose her seat — which she did in the next election despite Clinton's campaigning for her.
The 13th Congressional District of Pennsylvania includes much of southeastern and central Montgomery County and most of Northeast Philadelphia. Many of the residents are highly educated and affluent. By putting Northeast Philadelphia into the district during redistricting, it became more Democratic, though the Northeast has a strong Republican tradition as well and there are still some very Republican strongholds in Montgomery County – the 20th wealthiest county in the country. The median income for a family in the district is $61,108, and the median household income is $49,319, according to the Almanac of American Politics.
“My district includes modest income folks, and higher income folks in the suburbs,” Schwartz said in an interview with The Fiscal Times. “They are concerned about the deficit and they are hearing about the deficit and spending and that also includes tax cuts. They understand that the Bush tax cuts for the wealthiest cannot be maintained.”
During a recent Democratic “Friendraising” festival sponsored by Schwartz, residents voiced a broad range of views on the tax-cut controversy.
the brass ring. I’ve grabbed it. It feels good. And now I’m being
penalized [if the tax cut is scrapped] and it makes me angry.”
Gary Volpe, 58, of Volpe Enterprises, a home improvement company in the district, said he has been discouraged from expansion by worries that his taxes will soon be going up. His business is one of the few that has benefitted from the recession, since people are renovating or adding onto their homes instead of buying new ones.
Volpe said he’s reluctant to purchase another property he’s had his eye on for expansion. And he feels he deserves to enjoy his success after being in business for 40 years, without having to worry about higher taxes. “For the first time in my life, I’ve reached the point where I can see the brass ring. I’ve grabbed it. It feels good,” he said. “And now I’m being penalized [if the tax cut is scrapped] and it makes me angry. They are taking my incentive away to go ahead and it doesn’t make sense to me.”
river because you don’t get your tax cut
and I’m worried about keeping my house.”
That argument didn’t ring true for Eve Keame, of East Greenville. Keame, a music teacher, has been out of work for a year. “Do I care?” she said, animatedly, when asked if the better off people should pay more. “I can’t find a frickin’ job. Cry me a river because you don’t get your tax cut and I’m worried about keeping my house.”
Shirley Weiss, 77, who owns and leases apartments in Jenkintown, Pa., said that she would go along with increasing taxes on higher income Americans even on her, if that’s what it takes. “I’m willing to pay my fair share because I need the services they provide,” she said, mentioning for example Medicare prescription drug insurance.