Business Loves Obama Today

President Barack Obama found himself in an unusual situation today: Republicans and the business community were much happier with him than many of his fellow Democrats.

That’s because of the tax-cut deal he made with Republicans, which would provide wealthy Americans with another two years of low tax rates along with everybody else. Democrats, including Obama, have insisted the wealthy don’t need a tax cut, particularly at a time when the federal government is running huge budget deficits. Republicans, however, have argued that it’s not a good idea to raise taxes on anybody when the economy is weak, and they’ve demanded that high earners be included in any extension of the tax cuts enacted during President George W. Bush’s administration.

“Republicans were unwilling to budge” on this, Obama said during a press conference today.

Fearing that an impasse over this issue would result in a tax increase for everyone January 1, Obama let Republicans have their way on tax cuts for the wealthy—for now.

In two years, he promised, “I will fight to end them.”

Waging that battle now, he said, would lead to “collateral damage”—tens of millions of struggling Americans would see their taxes go up in January, and 2 million Americans would run out of unemployment benefits by the end of this month. The deal would extend unemployment benefits for 13 months.

“It’s tempting not to negotiate with hostage takers, unless the hostage gets harmed,” Obama said. “In this case, the hostage was the American people. I was not willing to see them get harmed.”

Many Democrats, however, hate the deal. House Democratic leaders made it clear they still want to allow tax cuts for the wealthy to expire. Representative John Larson, Democrat of Connecticut, who chairs the House Democratic caucus, told Politico that it would be “very difficult” to move Obama’s deal through the House.

The business community, however, rallied behind the compromise. Extending all the tax cuts, including for high earners, "is one of the best steps Washington can take to eliminate the uncertainty that is preventing our employers from hiring, investing, and growing their businesses," said Bruce Josten, executive vice president of the U.S. Chamber of Commerce.

Rick Rodenback, tax practice leader at CBIZ MHM, agrees that uncertainty over taxes “has clearly put many decisions on hold” at businesses.

“Hopefully, this will encourage entrepreneurial risk taking and a willingness to invest in the future,” Rodenback said.

The tentative agreement between Obama and Republicans also calls for reinstating the estate tax for two years with a 35 percent rate and a $5 million exemption—the levels sought by most groups representing family-owned businesses. Businesses would be able to expense 100 percent of their capital investments next year instead of depreciating them over time. The research and development tax credit would be extended for two years.

Workers would benefit from a one-year reduction in their payroll-tax rate from 6.2 percent to 4.2 percent. This will help boost consumer spending, said Matthew Shay, president of the National Retail Federation.

The deal was endorsed by groups ranging from the National Federation of Independent Business, which fights Obama on almost every issue, to Small Business Majority, which supports the president on almost every issue.

NFIB would have preferred making the tax cuts permanent, but “this compromise gives all small business owners some much-needed certainty over their tax liability for the next two years and includes a workable estate tax compromise,” said senior vice president Susan Eckerly.

John Arensmeyer, founder and CEO of Small Business Majority, still thinks high-income Americans don’t need a tax cut since few of them are small-business owners. But he said small businesses would benefit from tax certainty, as well as the investment incentives. Plus, the package will “put more money in consumers’ pockets, which can translate into more sales for small businesses.”

Economists at Wells Fargo Securities boosted their outlook for economic growth next year as a result of the tax-cut deal, predicting gains in both consumer spending and business investment. Businesses finally may get “the consumer demand and capital needed to start expanding payrolls,” they said.

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Kent Hoover is the Washington bureau chief for bizjournals.