Expectations of a surge in new small business growth this year was slashed by over 20 percent today amid worries about higher taxes, the pending "fiscal cliff," and sagging consumer confidence and spending.

According to the International Franchise Association, which represents hundreds of thousands of franchises around the nation, the dire economy made worse by uncertain tax and regulatory policy in Washington has cut the the growth of new small businesses forecast at 1.9 percent earlier this year to 1.5 percent.

The key reason, said the group's latest forecast: "The recovery has lost momentum." The association also forecast GDP growth in the second half to be 1.4 percent, way down from an earlier projection of 2 percent, driven by slackening consumer demand.

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In all 10 franchise lines it watches, from fast food restaurants to auto parts stores, the association said that even with the tiny growth predicted for this year, the numbers of stores and establishments will total less than when President Obama took office. At the end of 2008 there were 774,016 franchises and the industry group predicts there will be 747,069 at the end of this year.

Washington politics seems to be the reason franchises are not expanding faster, said the group. "There is a wealth of job creation waiting to be tapped in the franchise sector, but existing and prospective franchise business owners are waiting on the sidelines to open new stores until they have more certainty and confidence that Congress will not raise their taxes," said IFA President Steve Caldeira.

But he has hope. "A short-term deal that prevents the fiscal cliff at the end of the year would serve as a critical bridge and provide some much-needed short-term certainty, until lawmakers in the next Congress can consider a comprehensive overhaul of the tax system, so extending the current tax rates would be a great place to start," he added.