Small business owners brace for fiscal cliff

Small business owners brace for fiscal cliff

By Melissa Quinn

For Joanne Sapp, the busiest time of the year is prom season. Her store, Dejavu Boutique, boasts racks and racks of dresses – floor length and cocktail, sparkles and silk – come spring, beckoning to Alexandria’s high school girls with the expectation of a night to remember.

But Sapp worries the looming fiscal cliff could have a substantial impact on her business, cutting into sales throughout the winter and into prom season.

“I just hope they realize they have everyone’s lives in their hands,” she said. “If there was a rise in taxes, it would probably put most of us out on the street and out of business”

Sapp isn’t the only small business owner worried about going over the cliff – some argue the impending tax increases will hit small business owners where it hurts the most – their pocketbooks.

“The increase in taxes would take a bundle of money out of the local economy,” said Stephen Fuller, director of the Center for Regional Analysis at George Mason University. “It would drive the region into recession, and it might night go negative.”

Congress has been working to come to an agreement on the impending fiscal cliff for months — with little headway. And that’s causing headaches for Sapp.

“They need to be cautious about what they’re doing,” Sapp said. “They’re going to topple a lot of people.”

The clock is ticking. On January 2, the Bush era tax cuts expire, raising taxes across the board. Democrats are pushing for an extension on the cuts for everyone making less than $250,000 a year while Republicans argue against raising taxes for the highest earners.

If Democrats win out, the consequences for small businesses could be substantial. Many owners claim the profits from their businesses on their tax returns, pushing them into a higher tax bracket – and oftentimes raising their income above the $250,000 threshold each year.

Experts predict the two top tax brackets face increases of 33 percent to 36 percent.

“People are worried enough so they’re acting like it might happen,” Fuller said. “But it will slow the economy and lessen retail sales.”

But if Republicans, who oppose any tax hikes, don’t compromise with Democrats, middle class families could face an increase in taxes, lessening their disposable income and, subsequently, money spent in Alexandria.

“I get the impression that folks are deeply concerned about what’s going to happen from a tax point,” said Ron Taylor, owner of Wheel Nuts Bike Shop. “We’re already seeing some belt tightening on businesses in Old Town.”

Though news of the impending fiscal cliff had little impact on holiday spending, Taylor vowed to act proactively to prepare for the possibility of diminished sales – if Congress raises taxes on the middle class.

Taylor and his staff began discounting products older in inventory, hoping to stimulate sales through the winter months. But he remains optimistic lawmakers will strike a deal.

“There is so little word coming out of Congress and that silence is a good thing,” he said. “Where there isn’t a lot of bickering going on, that silence means they’re working behind the scenes to get an agreement.”

While Taylor and Sapp are preparing for the fiscal cliff, other business owners in Alexandria are confident the support of the community will keep their businesses afloat, and believe the fiscal cliff is nothing more than an empty threat.

“I think they’ve got to stop putting such a name to that stuff and it’s not right to get everybody terrified when we all should be happy with the holidays,” said Kate Schlabach, owner of Why Not, a store specializing in children’s toys and clothing. “It takes effect before you even find out what’s going to happen.”

Craig Noah, owner of Helen Olivia, an Old Town flourist, is reliant upon the support of the community, and believes the loyalty of his clientele, cliff or no cliff.

“We’re so optimistic of our neighbors,” he said. “But people want to do their part and get through, but I’d like to see leaders do their jobs.”

If the January 2 deadline passes without a deal, not only do taxes increase across all brackets, but billions of dollars in spending cuts go into effect, threatening employment for government workers and contractors.

And while businesses differ on how the fiscal cliff will impact their businesses, they all agree Congress has no choice but to come to an agreement.

“I don’t really have a choice but to put my faith in these lawmakers anymore,” Sapp said. “And that’s the problem.”