Obama supports tax cuts for all. Franchise associations applaud. photo/WH

WASHINGTON, D.C. – President Barack Obama announced an agreement reached with Republican leaders Monday night to sign into law a two-year extension of tax cuts not only for the middle class, but also for the rich. The agreement with the GOP would also cut payroll taxes by reducing social security taxes by 2 percent for every American worker until the end of next year. It includes the continuation of unemployment insurance benefits into 2011.

The negotiated agreement that seems to be angering many Democratic leaders came shortly after Friday's government announcement that unemployment had increased from 9.6 percent to 9.8 percent in November.

The President emphasized that he was concerned that if an accord could not be made before Congress recessed for the holidays, American families would find a substantive tax increase facing them on January 1. The President declared, “Two million people will lose their unemployment insurance at the end of this month if we don't get this resolved. Millions more of Americans will see their taxes go up at a time when they can least afford it. And my singular focus over the next year is going to be on how do we continue the momentum of the recovery, how do we make sure that we grow this economy and we create more jobs.”

Franchise groups were quick to applaud the President.

Misty Chally, director of government relations for the Coalition of Franchisee Associations, says that her organization and its franchisees are pleased that a compromise has been reached in which all franchisees will benefit. Chally lobbies on Capitol Hill for the interests of members with such chains as Burger King, Hardees, Pizza Hut, Meineke and others. She emphasizes that extending the tax rates for some while failing to do so for others would have only punished job creators and discouraged investment in our economy. “An extension of the 2001 and 2003 tax cuts will help franchisees provide more jobs, increase cash flow and reinvest in their businesses,” declares Chally.

The National Automobile Dealers Association, representing the nation’s automobile franchisees, issued this statement: “We are greatly encouraged by the framework for a bipartisan tax agreement outlined by the President.” NADA, which was established in 1917 and is one of the country’s largest lobbyists, added, “This will help restore consumer confidence and speed economic recovery. Anything that boosts consumer confidence will also help the auto industry. We are particularly pleased with two provisions: 1) the NADA-supported 35 percent estate tax rate and the $5 million per-spouse exemption; and 2) the proposal to allow businesses to expense 100 percent of their investments in 2011. If Congress approves the estate tax proposal, this would avoid the draconian snap-back 55 percent rate and $1 million exemption, which is due to go into effect at the end of the year. It’s important to note that the President recognizes failure to act this year is not an option. We look forward to seeing the specifics of the legislation as it moves through the House and Senate."

“This bipartisan agreement between President Obama and congressional leaders would provide much-needed economic certainty for the $2.3 trillion franchise industry that is struggling to recover from the recession,” said Steve Caldeira, CEO of the International Franchise Association, a lobbying group representing the interests of franchising firms. “However, as the best solution going forward, IFA supports permanent extension of the current tax rates, so that small business owners can assess long-term business options to help them grow and create new jobs across the country.”

Key Democratic leaders, including House Speaker Nancy Pelosi, were not happy with what they perceived as the President caving in to the demands of the GOP and, said the California Democrat, “holding the middle class hostage.” Representative Pelosi said in a written statement, “The Republican demands would provide tax cuts to the millionaires and billionaires, fail to create jobs, and increase the deficit. And to add insult to injury, the Republican estate tax proposal would help only 39,000 of America’s richest families, while adding about $25 billion more to the deficit.”

But Professor Scott Shane, a professor of entrepreneurship at Case Western University, thinks data indicates otherwise. He says that increasing taxes to the rich actually discourages entrepreneurial activity. “Businesses that have the potential to generate wealth and jobs through rapid growth often need external capital. Much of this money comes from informal investors – friends, family, and business angels. When taxes rise, these sources are less inclined to finance growth-oriented entrepreneurs,” he wrote in his blog on Small Business Trends.

In explaining the reason for his giant leap in accommodating the GOP, the President said, “I'm not willing to let our economy slip backwards just as we're pulling ourselves out of this devastating recession.” The President added, “I'm not willing to see 2 million Americans who stand to lose their unemployment insurance at the end of this month be put in a situation where they might lose their home or their car or suffer some additional economic catastrophe.”

Related Reading:

• Deal Struck on Tax Package, WSJ
• Obama Confronts Pushback from Democrats over Tax Deal, Bloomberg
• Obama, GOP Reach Deal to Extend Tax Breaks, Washington Post
• Obama Press Conference on Tax Breaks [with video], White House blog