Family Businesses at Risk in the Face of Tax Hikes

By July 24, 2012General

Thirty years ago Phil Tredway, with 3 employees in a warehouse, built Erie Molded Plastics, Inc., a custom injection molded parts manufacturer, into a thriving business. Today, with his son, he employs 42 long-time workers (the first employee is still there!) and has played a role in bringing hundreds of products to market in industries ranging from electronic connectors to household goods. Mr. Tredway now runs the company with his son.

In recent years, Mr. Tredway has worked to expand his company – investing in both capital equipment for his plant and skilled workers. As he noted, “My business is capital intensive – we can only grow if we buy equipment and then hire and train people to run it.”

He has invested significant amounts of his own money into Erie Molded Plastics to ensure that his company stayed at the top of their industry. Mr. Tredway makes far below the proposed $250,000 cap for the maximum tax rate, but because he files as an S Corp, he finds himself paying at the maximum rate. And unfortunately for him and thousands of other small business owners, without action from Washington, we’re about to see a massive spike in their tax rate.

Mr. Tredway has a matter-of-fact way of looking at the impending fiscal cliff, “It’s not complicated. I buy capital equipment and grow with after tax dollars. The more money I am required to invest in Washington leaves me less to invest in our company. Recently we’ve started a new product line and have seen some nice growth, but the tax increases we’re facing put that growth potential at risk.”

A recent survey of manufacturers found that over 71 percent of manufacturers that file as S Corps indicated that the tax increases will impact business investment, job creation and retention and employee benefits. This is precisely the opposite of what the economy needs right now. Washington needs to understand the simple fact that manufacturers are best able to grow our economy when they are free to invest in themselves.

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