Tax Hike Now Sends Wrong Message

We are towards the end of another summer and it still feels like a hint of stability in personal finances cannot come quickly enough. The “recovery summer” never materialized. It looks as though taking very small steps that are few and far between is going to be the hallmark of economic revitalization. There simply is no quick fix.

Yet this leisurely paced road to recovery is about to hit a major roadblock.

Lacking Congressional action, the maximum tax rate on dividends and capital gains will automatically skyrocket January 2011. The 15 percent maximum tax rate on dividends could increase by as much as 164 percent. The same 15 percent maximum tax rate on capital gains could jump up by 33 percent. This will carve up capital that is used for job creation and growth—which is the only way out of this mess.

On top of that, any economist can tell you that a healthy financial environment is a function of market stability. A tax increase now would convolute and weaken the impact of the current “small steps” aimed towards economic growth. It would send mixed messages in terms of savings and investments—acts that should be pursued now would be discouraged by a substantial tax increase.

Governor Chris Christie understands the negative impact that a tax hike would have on small businesses. Christie tackled this issue when he signed a bill this July that provided protection against a tax hike for employers who fund the Unemployment Insurance Trust Fund. This logic needs to be echoed in Washington to solidify our chances for recovery.

If we want to get serious about fixing the current economic environment, we will have to take necessary measures to best ensure job creation. Raising taxes does not foster job creation. Small businesses, such as restaurants, will be negatively impacted by an increase. The depth of such an impact could be gauged by job loss and this is precisely the opposite of what we need right now.

New Jersey, burdened with a rate at 9.7, is already above the national average for unemployment. There are 439,000 people in New Jersey looking for work here. Enacting a policy that could add to those numbers is careless. Instead, the message Congress should send is clear. Harming small businesses—that control the supply of jobs—is dangerous.

Hopefully, our leaders in Washington like our U.S. Senator Menendez will recognize that they need to stop the hike by maintaining the current 15 percent maximum. Only then would we be making another small step on the arduous path to economic recovery.

Deborah Dowdell is the President of the New Jersey Restaurant Association~