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Tax Coalition to Target Members This Month

A sleeping giant is stirring on K Street.

With less than six months until President George W. Bush-era tax cuts are set to expire, the small-business community is preparing for a nasty election-year fight.

“We’re ready,” said Jade West, the Tax Relief Coalition’s executive secretariat. “The small-business impact of those tax hikes cannot be overestimated.”

On Jan. 1, a revenue package enacted during Bush’s first term will sunset, raising the marginal tax rates individuals pay on their wages and investment income, as well as what wealthy families pay in inheritance taxes. Although it still has five months to decide, the Obama administration appears inclined to let the levies for wealthy earners lapse, while keeping tax rates steady for middle- and lower-income brackets.

Making the rounds on Sunday shows last week, Treasury Secretary Timothy Geithner said tax rates will remain the same except for “the highest-earning Americans,” or those with incomes in the top 97th or 98th percentile.

Such rhetoric is exactly what worries West and her allies, a coalition that includes the U.S. Chamber of Commerce, National Federation of Independent Business and National Association of Manufacturers.

In a July 23 letter to Members, West wrote that Congressional Democrats and the White House have “embarked on an ill-advised course of government expansion, massive tax increases, huge deficits and job-destroying regulations.”

West and her coalition have an ally in House Minority Whip Eric Cantor (R-Va.).

“The reality is taxes are going to be hiked on everyone,” Cantor said in a statement Friday. “[W]hat you’ll also see is 50% of the people who are going to have a tax hike are small businesspeople and right now we’ve got to get jobs going again. Who in the world thinks it’s good policy to be taxing job creators when we’re looking for them to get the economy going again so people can get back to work?”

Grover Norquist, president of Americans for Tax Reform, another group that signed on to West’s letter, said in an interview last week that his organization has already begun messaging on the tax expirations. And it’s a PR blitz that is drawing more attention than he anticipated.

Norquist said business is brisk for ATR’s $5-a-piece anti-tax memorabilia “Obama Tax Hike Exemption Cards.” And a recent tax-related press release linked to by the Drudge Report drew 600,000 Web hits and crashed the ATR’s servers — twice.

“It wasn’t clever, we didn’t have pictures of naked people,” Norquist said.

He added that his group and others are beginning to “beat the drum” on the potential tax hikes, launching a public relations campaign that focuses on small-business owners who show high incomes on their tax forms, but whose take-home pay is actually relatively low.

While still in the planning stages, Norquist predicted that the PR campaign likely will peak in the final weeks before the November elections. He is also betting that Democratic tax writers will be unable to anticipate all of the loopholes, caveats and unintended technical consequences that such a massive revenue overhaul would entail.

It will be inevitable that “a scalpel will hit an artery,” he said, if Democrats attempt to raise rates on only those making $250,000 or more.

“Small businesses are the puppies of American politics,” Norquist said. “Everybody likes puppies, everybody loves small business — even the Democrats have to say they like the stinking puppies.”

West reckons a bill of tax extensions for middle-income families could come to the floor as early as September, when Members return from their summer recess. She also said Democrats, particularly the party’s embattled moderate ranks, face a “conundrum” over the tax issue.

“No economic theorist known to mankind thinks raising taxes in a recession is good policy at any level of income,” she said. “It’s suicide politically.”

Bill Rys, an NFIB tax lawyer, said members of his trade association are already complaining about the Jan. 1 deadline.

The NFIB estimates that 75 percent of small businesses pay taxes as individuals, potentially exposing them to the $250,000 threshold. He said Members should be ready to hear about it when they leave town later this week.

“There’s a lot of concern,” Rys said. “We’re going to do as much as we can to keep highlighting how this will impact small businesses, in particular over the August recess.”

The Associated Builders and Contractors is also getting ready to do battle with the White House and Congressional Democrats over the possible tax hikes. Many of its members are also small, privately owned firms whose proprietors declare business income on their individual tax returns. Brewster Bevis, an ABC lobbyist, is predicting a major confrontation this fall.

“We’re going to be out there supporting an extension of these cuts for our guys,” he said. “It will be very big.”

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