AEO Comments on Fiscal Cliff Agreement

Last week, the Congress and President Obama agreed to a plan to avert the Fiscal Cliff.  The Association for Enterprise Opportunity (AEO) is pleased that both parties came together to avert going off the cliff.  However, AEO had called for a solution that ensured that our nation’s entrepreneurs would continue to have access to the tools and resources they need to start and grow their businesses, while responsibly reducing our nation’s debt.  The New Year’s Day Fiscal Cliff vote was the least desirable path forward, barely addressing the scale and scope of the long-term fiscal problems confronting our country.

The deal did not address the pending spending cuts (“sequestration”) but rather put them off for two months.  Similarly, the deal extends a number of small business tax credits for just one year, including: Sec. 179 expensing, the New Markets Tax Credit, 50% bonus depreciation rules for property placed in service before the end of 2013, and the 100% exclusion on the gain from small business stock.  While AEO is pleased to see these extended, the one-year extension will limit options for businesses trying to plan for the medium and long term.  Furthermore, the deal does little to address the long-term effects on our nation’s debt.  Every additional dollar that the federal government borrows increases the cost of borrowing, while reducing the availability of credit for businesses.  Microbusinesses are the most vulnerable to shifts in the economy and this type of short-term solution seeking does little to create certainty and enhance confidence for microbusiness owners looking to grow their businesses.

AEO was, however, pleased to see that the deal extended the current Earned Income Tax Credit rate for five years, something AEO has advocated for.  This important tax credit allows low-income entrepreneurs to reinvest their EITC credit back into their microbusiness.  The deal also included a permanent “patch” to the alternative minimum tax (AMT), pegged to the rate of inflation, meaning business owners will no longer need to worry about changes to the AMT tax every year.

AEO believes that Congressional leaders and the President missed a ripe opportunity to craft a long-term economic plan.  Instead, the stage has been set for a series of showdowns over the Budget, annual and long-term spending priorities, and the need to raise the debt ceiling in early 2013.  AEO will continue to urge the Congress and the President to work together to produce an economic plan that strengthens the economic environment necessary for microbusinesses to thrive.