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Higher Taxes For Wealthy Could Impact Small Business Budgeting Process

The prospect of increasing taxes on the wealthy has potentially been made more likely by the ongoing U.S. federal budget negotiations and a Congressional Budget Office (CBO) report stating that doing so would not significantly impact economic growth. If taxes are raised for high wage earners, it could easily affect the financial planning process of many small businesses.

Taxes and GDP

The CBO stated in the document that whereas extending all existing tax cuts in 2013 would increase the year's growth in gross domestic product (GDP) by less than 1.5 percent, increasing taxes only on individuals who earn $200,000 or more and married couples who make at least $250,000 per year could result in GDP growth rising 1.25 percent.

People operating firms of this size might benefit from using corporate budgeting software to compare their situations with and without the tax benefits.

Fiscal Cliff 

U.S. federal lawmakers have been working toward resolving their budgeting disputes in order to prevent the fiscal cliff from happening. If they do not succeed in making these agreements, more than $600 billion worth of higher taxes and spending cuts will be automatically triggered.

Substantial visibility has been drawn to this potential event, as market experts have predicted that it could have a significant negative cost for various market participants. The CBO stated recently in a report that if the fiscal cliff does indeed occur, the U.S. economy will likely fall into recession in 2013.

The concerns surrounding the fiscal cliff were increased when credit ratings agency Standard & Poor's recently said that the United States now has a higher chance of experiencing this event. The credit ratings agency also predicted that lawmakers will most likely resolve their differences in time to avoid this problem.

Although companies have faced substantial headwinds in the event that the fiscal cliff happens, they can help mitigate their risk by using expense management software to evaluate how this problem would impact their budgeting.

Future of Economy 

Small businesses that could potentially be impacted by the higher tax rates on high wage earners might benefit from being informed about the general state of the economy.

"Output would be greater and unemployment lower in the next few years if some or all of the fiscal tightening scheduled under current law—sometimes called the fiscal cliff—was removed," the CBO report states. "However, CBO expects that even if all of the fiscal tightening was eliminated, the economy would remain below its potential and the unemployment rate would remain higher than usual for some time."

The document added that "if the fiscal tightening was removed and the policies that are currently in effect were kept in place indefinitely, a continued surge in federal debt during the rest of this decade and beyond would raise the risk of a fiscal crisis."

Harvard economist Martin Feldstein recently predicted that even if the fiscal cliff is averted, the budget adjustments required to achieve this result could combine with already-tepid economic growth to push the U.S. into recession in 2013.

What are you doing to prepare your company and its finances for the prospect of the fiscal cliff? 

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