Dunkin' Donuts, McDonald's Franchises Warn of Job Cuts
Paul Bedard

Franchise group warns of Obama tax increase

President Obama's new goal of raising tax rates to nearly 40 percent would kill small businesses and force others to dump employees onto unemployment lines, warns a trade association that represents franchises like Chick-fil-A, Dunkin' Donuts, RE/MAX and McDonald's.

"Uncertainty by small business owners does not lend itself to job creation and future investment," warned the International Franchise Association, which is the nation's largest trade group for small franchise operators. "The majority of our members will not be able to create jobs until business conditions improve," the group said in a letter sent to the so-called Super Committee that's looking at ways to trim $1.5 trillion in spending and cut the deficit.

Since many franchise owners file as individuals or "S corporations," warns association President Steve Caldeira, they would get hit on one side with the elimination of corporate tax loopholes and on the other with a higher individual tax rate. Under the Obama plan, corporations would benefit from the loss of tax loopholes by paying a smaller tax, something that wouldn't be extended to individuals. Caldeira urged the panel to make an adjustment for little business owners.

"As the Special Committee debates comprehensive tax reform, it is essential that corporate tax revisions not be enacted that would impede or stifle small business growth, especially given that many of our country's small businesses file taxes as individuals," wrote Caldeira.

In his letter he also put the number of unemployed combined with those part-timers who have given up looking for work at 16.2 percent.

The key paragraph in his ominous letter details the hurt of higher taxes on small businesses. "One issue to be resolved is whether comprehensive reform will encompass both individuals and corporations. The administration has pushed for corporate reform, which will result in significant tax increases on IFA members, who file taxes at the individual rate. If most or all of the business deductions are eliminated in an effort to lower the overall corporate rate, it will leave all the so-called "pass-through" taxpayers (including S corporations and partnerships) exposed to significantly higher taxes without the benefit of a lower rate," said the letter. "In fact, many franchisees could find that their taxes will increase by losing these deductions. They also face the prospect of the higher tax rates after 2012 when individual tax rates could be as high as 39.6% and in 2013 when the 3.8 percent surtax on 'unearned' net investment income takes effect to help pay for Medicare."