Payroll tax hike worries small business

After months of incessant droning about ‘the fiscal cliff this, the fiscal cliff that,’ the phrase alone is almost enough to make one just go ahead and jump off.

Because a long-term deal still eludes lawmakers, the quick-fix deal pushed through in the eleventh hour provided no relief — but its effects will be felt immediately.

Sure, the income tax provisions in the agreement won’t affect most people — higher rates were installed only for those earning $400,000 or more ($450,000 for couples) — but every working American will receive smaller paychecks in 2013 than they did last month.

For that, they can thank the expiration of a payroll tax cut. Rates are now 6.2 percent, up from 4.2 percent for the past two years.

About 77 percent of Americans will be have emptier pockets after handing over a collective $115 billion, according to estimates by the nonpartisan Tax Policy Center.

Nicole Selhorst in her shop, Red Canoe Bookstore Cafe, on Harford Road in Lauraville.

Payroll taxes, which fund Social Security, were cut two years ago in hopes of boosting the economy by giving people more take-home pay. Lawmakers then extended the cuts through the end of 2012.

Economists anticipated the cuts would expire because there was little support in Washington for extending them for a third year.

But expected or not, the increase will be painful. Just ask the nearest small business owner.

Nicole Selhorst, who owns Red Canoe Bookstore Café in Lauraville with her husband, Peter, said she worries if people have less disposable income, they’ll scale back on extras, like buying a cup of coffee.

Those small cutbacks have harsher effects on a sidewalk coffee shop with a small customer base than on a major chain business, she said, because at locally owned shops, each customer and each transaction holds greater weight.

A handful fewer muffins sold here, a couple fewer drinks served there and small business owners really feel the crunch, she explained.

The Selhorsts posted a note on Red Canoe’s website and emailed those on their listserv reminding customers of the small business predicament.

“When you think about cutting out some extras please don’t cut us,” the letter reads. “And consider adding in a few extras and patronizing your local neighborhood places. Honestly? We cannot do it without you.”

Selhorst said she thinks Baltimoreans love living in “a city of neighborhoods” and would be saddened to see those local business communities disintegrate.

“People love their neighborhood places, and I just wanted to write this letter as a reminder that we love them too,” she said. “It’s a two-way street, and if things get really tough for [consumers], they get really tough for us, too.

“So maybe we can find ways to better support each other,” she continued. “Like for example, I could not raise my prices if they can continue stopping in, or something like that.”

That’s a common theme among other small business owners who are trying to find unique ways to add value for the customer, Selhorst added.

“What can we give you so that you feel that what you give us is a fair trade?” she said. “That’s what we’re talking about as a group.”

Red Canoe is tucked between several other small stores on Harford Avenue, one of Baltimore’s designated Main Street business districts. A set of rustic wooden steps lead to a charming seating area inside, with high tables and low armchairs.

The café doubles as a bookstore or, in reality, a community hub for families and literary enthusiasts to congregate, either around the (electric) fireplace or in the garden out back.

Selhorst said she knows she’s lucky to have loyal customers and that she thinks they understand the importance of their dollars.

“Right now our government has us all feeling pretty powerless, and I think that by sharing our stories we empower each other,” she said. “So even though it might seem like I’m just saying, ‘Help your small local business,’ what I’m doing is saying, ‘You do have power, and your decisions do count.’”

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