Tax Increases Add to Uncertainty for Business, Investment

By April 22, 2010Economy, Taxation

RMS McGladrey has released early results of a survey of top executives that reports serious concern about the effects on business and investment of federal tax increases. From the release, “RSM McGladrey 2010 National Manufacturing and Wholesale Distribution Survey finds significant concern among companies about potential tax increases“:

Distributed to more than 23,000 C-level executives at U.S.-based manufacturing and distribution companies, recipients were asked about the impact of potential various tax increases on their company as the federal government looks for potential revenue sources.

The results were significant enough that RSM McGladrey has released an early report on tax policy rather than waiting to include this information in the full survey report scheduled for release in early June.

“Increased taxes have a negative impact on cash flow and small and mid-sized companies, who don’t have the resources of large companies, are particularly hard hit,” said Tom Murphy, executive vice president of MWD at RSM McGladrey. “They are struggling to recover from the recent recession, and less cash flow is a barrier to investment in capital equipment and to the hiring of additional employees, both of which are needed to capture growth opportunities.”

Of the total 1,088 respondents included in the survey analysis, 91 percent were private companies and the remaining 9 percent were publicly owned. Of the private companies, 35 percent were structured as C-Corporations, 63 percent were pass-through entities (S-Corporations, LLCs, or Partnerships) and two percent identified themselves as “other.” Respondents reporting as pass-through entities are of particular importance since the earnings of these companies are “passed through” to individual shareholders, and taxed at individual tax rates, as compared with C-Corporations that are taxed at the corporate rate.

The NAM held a coffee for reporters with Murphy and our tax people earlier this week, and The Hill wrote an item. The point being made: Tax increases on the so-called wealthy are also tax increases on many small businesses.

That National Association of Manufacturers (NAM) on Tuesday urged lawmakers to extend the Bush tax cuts for upper-income taxpayers, saying the rate increase will hit small businesses that pay taxes based on individual rates.

Approximately 70 percent of firms belonging to NAM are taxed at individual rates, said Dorothy Coleman, VP of tax and policy at the organization.

NAM released a poll by RSM McGladrey today showing that 87 percent of manufacturers and distributors are concerned about the impending rate increase.

Every time you hear a politician talk about “a tax on the wealthy” just revise that to, “a tax on the wealthy and small business.”

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