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Fiscal cliff threatens small businesses still in recovery

Robert Jones President American Sale Corporatihome recreational products holiday decorations. Jones has concerns about fiscal cliff small business.  December

Robert Jones, President, American Sale Corporation home recreational products and holiday decorations. Jones, has concerns about the fiscal cliff of small business. December 27, 2012 I Scott Stewart~Sun-Times

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Updated: January 29, 2013 6:33AM

Small business owners in the Chicago area are worried that if Congress fails to reach a deal to avoid the fiscal cliff, they’ll feel the pain in the form of fewer customers.

“A lot of our customers my be impacted by the higher [tax] rates,” said Bob Jones III, co-owner and president of American Sale Corp. The Tinley Park business employs about 325 people and operates eight stores that sell home recreational products, including swimming pools, hot tubs, and pool tables, as well as holiday decorations.

If consumers are feeling squeezed, they’ll have less discretionary money to spend, he said.

“This is on top of a reduction in consumer’s discretionary dollars that’s already happened over the last three or four years,” in the wake of the Great Recession, he added.

The cliff refers to the simultaneous expiration of Bush-era tax cuts and automatic spending cuts set to go into effect next week if Congressional talks remain stalled.

“If the fiscal cliff creates a recession in 2013, that’s going to be a negative for the business, no question about that,” said Jones. “That’s going to cause us to make changes, which typically means that we have less employees.”

It also will curtail investment, he said, noting his company has been looking for opportunities to add another store.

At Keller Williams Realty in Hyde Park, operating principal and managing broker Ezekiel Morris said his business is up 28 percent from last year. The company began to see daylight this year as home sales increased, and it’s the first time in the past few years the company will end up in the black, he said. The fiscal cliff threatens that growth.

“As long as there’s uncertainty we’ll have problems in terms of people being able to make decisions [on buying homes]. It goes to the issue of stability. They want to feel comfortable with what is usually the largest purchase in their lifetime.

“Right now we’re looking for our government to be responsible in terms of their actual ability” to effectively govern, he said.

Mike Khalil, owner of two cigar shops, one in Countryside and one in Villa Park, is worried that his customers, especially those who make $250,000 to $1 million in yearly income, will drop their cigar luxury purchases because of the greater expenses they will bear.

“My customers are worried about it,” Khalil said. “I’m in the luxury business, and people start cutting their spending (when squeezed).”

Khalil said he may have to let one or two of his nine employees go if he has to pay a higher “S” corporation tax.

Khalil’s business is now in the 50-percent tax bracket, and he said he is already paying income, real estate, sales, tobacco and other taxes as it is.

The owners of Power2Switch, a Chicago website that helps people find cheaper electricity providers, are concerned about higher payroll taxes and an astronomically higher dividend tax if Congress slides off the fiscal cliff.

The payroll tax would increase by 2 percent, while the dividend tax could skyrocket from today’s 15 percent to up into the 40-plus percent range, said John Stanfield, owner of Stanfield & Associates accounting firm and tax counsel to Power2Switch.

“Theoretically, everyone’s pay will drop by 2 percent and with the change in tax brackets, everyone’s marginal tax rate will increase,” Stanfield said.

“But it’s the dividend tax (situation) that keeps me up at night,” Stanfield said.

Phil Nevels, chief operating officer of Power2Switch, said, “As a business owner, you never like to deal with any sort of uncertainty.”

John Meyer hopes an agreement is reached soon. The owner of BJ’s Market and Bakery, which operates three restaurants and employs 45 people, noted his business is still in recovery mode from the recession.

“We’re not back to where we were before,” he said. “We’re far away from that, so any little thing will hurt us. We’re just praying that everything will be OK.”

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