Noted Economist Holtz-Eakin: New Taxes Will Hurt Small Businesses

Economist Douglas Holtz-Eakin, a former director of the Congressional Budget Office and the president of The American Action Forum, a Washington policy institute dedicated to keeping America strong, warned technology solution providers two years ago at Everything Channel's XChange conference that the government stimulus response to the economic crises missed the mark.

In an interview with CRN Monday regarding the debt ceiling gridlock in Washington, Holtz-Eakin said if elected officials try to tax their way out of the deficit crises, small businesses will be in "big trouble." Below are excerpts from the interview with Holtz-Eakin.

Two years ago you predicted the government response to the economic crises was inadequate. What impact is the debt ceiling gridlock in Washington having on technology solution providers and small businesses?

Getting through the debt limit increase (without market disruption) is dealing with the symptom of the problem. If you get market disruption, small businesses lose. We saw that in 2008.

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The question is: how do you address the real problem which is the fact that we have projected so much debt in our future. If the solution is that we are going to tax our way out of it, small businesses are in big trouble.

They (small businesses) just really have to keep their eye on the degree to which (Washington) is willing to address the spending problem. The greater the willingness to address it the better it will be for small businesses.

What is your business advice for technology solution providers trying to maintain their own businesses in the midst of the debt ceiling talks.

I think we saw a fairly important moment today when both the House and Senate came out with alternative plans that had no new revenue. That is a start. The question is: will that stick going forward? That is what they have to keep their eye on.

Next: What Needs To Be Done To End The Economic Crisis

What has got to be done to settle this economic crises once and for all?

I think at this point the growth imperative has to trump everything else. We need to grow. We need to grow rapidly. There are millions of people out of work. And so at every point you have to make a decision between say an environmental objective or a growth objective, you pick growth. You pick growth instead of the green agenda. You pick growth instead of the union agenda. You pick growth instead of the health-care agenda. They didn't make those calls that way over the past couple of years. We just have to change that.

What needs to be done to get job growth to kick in in this country?

You have got to see Washington start making some sensible decisions. They have created a lot of uncertainty. They have got to take something off the table. They have got to get a debt deal. They have to modify health-care reform. It doesn't make sense as it was passed. They are going to have to do a tax reform that is pro-growth that doesn't penalize people.

Those are the fundamentals. Dealing with entitlements. Dealing with tax reform. And getting Washington's house in order. And then people like growing businesses. They like to make a buck. It'll take care of itself.

What needs to be done with tax reform to get business moving?

You do two things. Number one you push (tax) rates down and broaden the base. And number two you take away a lot of the special provisions in the corporate (tax) code which help large businesses at the expense of small ones, and level the playing field a little bit.

What is your advice for both sides in the debt ceiling debate?

I think they need to do what is best for the country. That means at this point you deal with spending. They have agreed to do that. And then over the next couple of years they have to deal with entitlements and tax reform. Don't pretend you will get it all done in eight days. You won't. Make a sustained effort to do the right thing.

What is your mood as an economist as you look out over the economic and political landscape

Cautiously optimistic. But you know I start every day off with a stick and drink every night.

What is your economic prediction from where you sit now?

I think at this point we have made all the mistakes that we can afford to make and now it is time to put in place solid growth, pro-growth policies and get back to business. Period.