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Fiscal Cliff Poses Challenges for Family Businesses

Released: 5-Nov-2012 12:00 PM EST
Source Newsroom: Saint Joseph's University
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Newswise — The final presidential debate between President Obama and Mitt Romney briefly addressed a topic that Patrick Saparito, Ph.D., assistant professor of management, says has been weighing on the minds of family business owners: the fiscal cliff.

The term “fiscal cliff” refers to the $110 billion in automatic spending cuts and $440 billion in tax increases scheduled to take effect on Jan. 1, 2013. "Neither presidential candidate wants to touch this issue," says Saparito, "but the impact is huge for family business owners, who will most likely be affected by the following ramifications of the cliff:

• Increase in tax rate on dividends and capital gains
• Payroll tax holiday set to expire
• Expiration of 2001 and 2003 “Bush tax cuts”
• A return to a 55 percent estate tax rate with a $1 million exemption
• The elimination of the accelerated depreciation of business equipment
• An increase in Social Security taxes from 13.3 percent to 15.3 percent

If Congress doesn't act, Saparito says these increases will make it difficult for small, family businesses to hire new employees, potentially hindering growth and expansion.

The proposed changes are so sudden and deep that the Congressional Budget Office estimates the gross domestic product would be reduced by four percent in 2013, potentially leading to higher unemployment, with a loss of two million jobs.

According to a recent survey done by the U.S. Chamber of Commerce, nearly two-thirds of small businesses believe that the fiscal cliff will have a significant impact on their business. In Saparito's work as director of Saint Joseph's University's Family Business and Entrepreneurship Program, he's encountered business owners who have recognized the connection between the Fiscal Cliff and their survival. Saparito says he had one owner tell him: "I know I need to have a plan, but how can I plan for the unknown?"

A good strategy for what to do before Dec. 31 might be to make some moves now, says Saparito. In the meantime, "Keep a close eye on the outcome of the presidential election," he says. "This is definitely an issue that will take center stage after the election."

Saparito can be reached for comment at psaparit@sju.edu, 610-660-1157 or by calling University Communications at 610-660-1355.

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