Small business may be safe from federal hikes for now – but beware action from the states.

Fortune Small Business reports that it appears that the new administration and the Democrat-controlled Congress are unlikely to raise taxes, at least in the short term. Doing so would be a disastrous move, given the deep recession and the need for economic stimulus, says tax expert Ken Goldstein, an economist with The Conference Board, a not-for-profit research firm in New York City. And President Obama has publicly supported small business tax breaks.

Unfortunately, the tax picture isn’t so pretty at the state level. Every state but Vermont has a balanced-budget requirement – meaning that, unlike the feds, state governments can’t engage in deficit spending to goose the economy.

“States are getting slammed, and they will have to make some ugly choices,” says James Horney, a researcher at the Center on Budget and Policy Priorities, a Washington, D.C., think tank.

Look for cash-starved states to try to land a big chunk of federal stimulus aid. But they’re still bound to fall short of their fiscal requirements and will likely raise taxes and cut spending to make up the difference.

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