After an impressive second-quarter rally, the markets appear to be taking a breather to avoid overheating. Small-cap names gained more than 20 percent, and only short-term Treasuries were in positive territory once government intervention convinced market participants to assume more risk. With investors snapping up initial public offerings and additional equity issues from the nation’s most troubled banks, it’s clear that trading had become more speculative in nature.

At these levels, a pause is welcome. If the prospects for a national health care plan weren’t unsettling enough, newly proposed business taxes add another degree of uncertainty to the markets.

Currently, overseas revenues generated by US-based companies largely avoid taxation, assuming those profits aren’t repatriated. That could change under the Obama administration’s proposal to tax all corporate revenues regardless of origins. Although the plan aims to encourage US companies to “reshore” jobs, odds are that the plan will backfire–the country sports the second-highest corporate tax rate in the world.

The second suggested tax change deals with the way businesses account for their inventories, requiring companies to account for goods on a first-in-first-out basis rather than a last-in-first-out basis. That change could make companies appear more profitable on paper, effectively increasing tax liabilities.

Finally, whatever carbon emissions limits come down the pike will also eat into companies’ earnings.

Although it’s encouraging that the government is examining how to repay the largest single expenditure in its history, now isn’t the best time to threaten already strained businesses with additional taxes.

By all indications, the economy’s green shoots remain fragile and are months away from blooming. The nation’s unemployment rate continues to rise–it currently sits at 9.5 percent, a 26-year high–and there are signs that the tentative recovery in real estate may be stalling.

Although the government has taken unprecedented efforts to stimulate the economy, these new tax proposals would counteract some of that progress. Now is the time to foster an environment that encourages businesses to invest in growth and put Americans back to work; if businesses stand pat until they see how the tax changes shake out, any recovery will struggle to pick up steam.

Higher taxes are an inevitable consequence of the government’s intervention in the economy;
Now is a good time to brainstorm about the most equitable way to spread that burden. But trying to bring some semblance of balance to the budget now will blunt the effects of the stimulus.