2001 tax rates Archives - Shopfloor

In the President’s Budget: These Tax Increases Look Familiar

By | Small Business, Taxation | No Comments

We read somewhere that President Obama had started reaching reaching out to business, recognizing  that you can’t have employees without employers, jobs without job creators. But the outstretched hand gets pulled back in the budget released today, at least on taxes.

From AP, “Obama budget resurrects rejected tax increases“:

WASHINGTON (AP) — President Barack Obama’s budget proposal resurrects a series of tax increases that were largely ignored by Congress when Democrats controlled both chambers. Republicans, who now control the House, are signaling they will be even less receptive.

The plan unveiled Monday includes tax increases for oil, gas and coal producers, investment managers and U.S.-based multinational corporations. The plan would allow Bush-era tax cuts to expire at the end of 2012 for individuals making more than $200,000 and married couples making more than $250,000. Wealthy taxpayers would have their itemized deductions limited, including deductions for mortgage interest, charitable contributions and state and local taxes.

We had this alternative headline in mind: “Obama budget message to business: ‘Psych!'”

And as stated many, many times during the lame-duck session, a majority of small manufacturers files as individuals under the tax code, meaning the proposed increases in the top bracket would in fact be a tax increase on small business. See our Nov. 16, 2010, post, “The Realities of Tax Increases on Small Business, Manufacturers.”

Senate Approves Tax Package by 81-19 Vote

By | Economy, Small Business, Taxation | One Comment

The vote on H.R. 4853 (or more precisely, the motion to concur in the House amendment to the Senate amendment with Amdt. No. 4753 to H.R. 4853) was 81-19 in support. The margin of victory should provide momentum for passage as the House takes up the bill Thursday.

This is good legislation, a compromise with many more plusses than minuses in terms of jobs and economic growth. As the National Association of Manufacturers’ “Key Vote” letter in support of the bill summarized:

Manufacturers strongly support extending the 2001/03 tax relief to all Americans. Over 70 percent of U.S. manufacturers file as S-corporations or other pass-through entities; most would be significantly and adversely impacted by the higher tax rates that will take effect without congressional action. The non-partisan Congressional Budget Office estimates that fully extending the 2001/03 rates would add between 600,000 and 1.4 million jobs in 2011 and between 900,000 and 2.7 million jobs in 2012. Moreover, lower tax rates on capital gains and dividends will boost capital investment and economic growth.

The NAM has consistently called for repeal or significant reform of the estate tax. For small and medium-sized manufacturers (SMMs), business owners and families, the estate tax is more than a one-time tax. In a 2009 survey of our SMM members, respondents said they spent, on average, $94,000 annually on fees and estate-planning costs in preparation for their estate tax bill. This is money that could have been used to grow businesses and add jobs.

Renewal of the research and development (R&D) credit and other business extenders is critical to manufacturing competitiveness and should be extended. Manufacturers claim nearly 70 percent of the R&D credit, and R&D fuels innovation that translates into new products, increased productivity and jobs. Similarly, extension of deferral for active financing and the look-through rules will help U.S. competitiveness. Other extenders promote energy efficiency and make permanent important employer-provided education assistance. Moreover, the 100-percent expensing provision will create a positive ripple effect in the economy by encouraging investment and creating demand for machinery and equipment.

Update: From The Business Journals, “U.S. Senate approves Obama tax-cut deal“:

“The bill is a good first step to eliminate much of the uncertainty that has been holding back investment and job creation by manufacturers and the broader business community,” said Jay Timmons, executive vice president of the National Association of Manufacturers.

The Voice of Small-Business Owners on Extending the Tax Rates

By | Small Business, Taxation | 2 Comments

If politicos and pundits are going to keep up the incessant attacks against “tax breaks for millionaires” and “tax cuts for the wealthy,” we’re going to continue to repeat the reality: More than 70 percent of manufacturers file as individuals under the U.S. tax code and could be hit by higher taxes if the 2001 and 2003 rates are allowed to expire.

That’s just a trade association spinning? Well, consider these owners of small businesses across the country, speaking from knowledge of their businesses and personal tax status. (Thanks to the office of soon-to-be Speaker of the House John Boehner for compiling these accounts.)

  • “If the tax cuts went away, [W. Shane] Reeves [co-owner of Reeves Sain drugstores] would have had to pay more in personal income taxes on his company’s profits. That would’ve affected plans to invest in information technology, add more space and expand the company’s delivery fleet.  ‘Overall, the environment we’re all in right now has got everybody nervous,’ Reeves said. ‘But with (expiration of) the tax cuts looming, it just felt like it was going to get worse.’” (The Tennessean, 12/9/10)
  • “For small business owners, the uncertainty and stakes are even greater.  … It takes capital to run a business, said Tom Mercier, owner of BOPI, a 60-employee printing and marketing logistics company in Bloomington.  …  With printing industry margins only in the 2 to 3 percent range, higher taxes complicate decisions on whether to give pay raises, and how to cover rising health care costs, he said. … The tax cuts are a hot topic for business and individual clients at Henning, Strouse, Jordan and Stephens, a tax and accounting firm in Bloomington, said managing member Mark Nicholas.  He said months of uncertainty — a bipartisan agreement was roughed out Monday — have delayed important decisions by businesses: Can we expand? Can we buy new equipment? Can we hire?  ‘People are definitely holding off on the answers to those questions,’ Nicholas said…‘The uncertainty — that’s the real problem.’” (The Pantagraph, 12/8/10)
  • “In Fort Myers, Rustin ‘Rusty’ Je Read More

Correcting the President’s Terminology on Taxes

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In his interview this morning on NPR, President Obama continued the populist talking points that gain no more persuasive power just because he repeats them. Excerpt:

The issue here is not whether I think that the tax cuts for the wealthy are a good or smart thing to do. I’ve said repeatedly that I think they’re not a smart thing to do, particularly because we’ve got to borrow money, essentially, to pay for them.

Let’s edit those comments for accuracy.*

The issue here is not whether I think that the tax cuts extensions of  the current tax rates for the wealthy for small business are a good or smart thing to do. I’ve said repeatedly that I think they’re not a smart thing to do, particularly because we’ve got to borrow money, essentially, to pay for them.

Later in the interview the President outlines his plan of talking about the tax system in  2011:

What I’m saying is, is that the general concept of simplifying [the tax code] — eliminating loopholes, eliminating deductions, eliminating exemptions in certain categories — might make sense if, in exchange, people’s rates are lower. That may end up being a more efficient way of doing business.

But that would mean tax cuts for the wealthy, wouldn’t it?

* For a discussion of the impact of the 2001 and 2003 tax rates on small business, see the Wall Street Journal op-ed by John Engler, president of the National Association of Manufacturers, and Jerry Howard of the National Association of Home Builders, “Tax Hikes and the Small Business Job Machine.”

Raising Taxes on Manufacturers Worries Their Employees, Too

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Dyke Messinger is the head of Power Curbers Inc., a manufacturer that makes and sells concrete paving equipment. The family-owned busineess was founded in 1953, grosses $20 million a year, and employs about 130 workers at facilities in Salisbury, N.C., and Cedar Falls, Iowa. A member of the National Association of Manufacturers’ board of directors, Dyke today explains what the pending expiration of the 2001 and 2003 tax rates means to businesses and employees.

From The Washington Times,Tax hikes aimed at the rich hit everybody“:

there is a perception among politicians and pundits that letting the top-tier tax rates expire and revert to the higher, pre-2001 levels will simply increase taxes on the wealthy. That is not true. Seventy-three percent of manufacturers file their business taxes at the individual rate – including Power Curbers Inc. Let there be no doubt, these burdensome tax increases will hit small manufacturers like us, and they will hit hard.

As a result, instead of reinvesting, hiring and expanding, employers are going to make more cuts. This concern is not unique to us but something I hear from other manufacturers as well – forcing difficult choices regarding wages, benefits and other actions that could have negative consequences for employees. As hard as the tax increases will be on employers, they will hurt employees just as much.

My employees understandably are very concerned — not just about the tax increases they may face if Congress fails to act — but about their jobs, especially when they hear news of policies that will burden their employer with more costs. Charles Lamb, a Power Curbers employee and a talented metalworker, shared his thoughts on this issue with me. He and his co-workers are worried about pay-rate freezes, reduced work opportunities, from 36 to 32 hours per week, and rumors of downsizing. They understand that tax increases and policies that add costs hurt businesses and their employees and only contribute to more uncertainty.

The NAM has prepared a ManuFact sheet that lays out the facts and figures about the impact of the looming tax increases on smaller manufacturers.

On Taxes, What’s Needed is a Simple, Pro-Business Agreement

By | Small Business, Taxation | No Comments

Thanks to Jason Becker of Orlando Florida for his letter in The Wall Street Journal today, reacting to last week’s op-ed by John Engler of the National Association of Manufacturers and Jerry Howard of the National Association of Home Builders on taxes. Letting business owners keep their income is NOT a cost to the federal government, Becker reminds us. From his letter, “They’re Not Taking Money Away From the Government“:

Democrats have suddenly become creative in generating ideas that let tax rates on the rich go up in exchange for other tax “giveaways.” Virginia Sen. Mark Warner, for example, proposes letting upper-income rates increase, but he dangles in front of business owners a more generous research-and-development credit, more generous business expensing and fine-tuning of depreciation allowances (in effect, giving businesses back the $65 billion that the federal government takes in higher income taxes). Other bipartisan groups are proposing more fundamental tax reform, with one group urging a 6.5% national sales tax in exchange for lower income tax rates. However, as Mr. Engler and Mr. Howard argue persuasively, what’s most needed right now is a simple, pro-business agreement to let all income tax rates stay exactly where they are for at least another two years.

Tax-planning certainty is a prerequisite for small-business confidence and the side benefit of keeping $700 billion of private earnings out of the hands of Washington isn’t so bad either.

The Engler-Howard op-ed is “Tax Hikes and the Small Business Job Machine.”

If the Goal is to Help Small Business, Extend All the Tax Rates

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John Engler, president and CEO of the National Association of Manufacturers, and Jerry Howard, president and CEO of the National Association of Home Builders, have an op-ed in today’s Wall Street Journal (subscription), “Tax Hikes and the Small Business Job Machine“:

Speaking at his first cabinet meeting after the midterm election, President Obama repeated his familiar call for extending the current tax rates for middle-class families. He also vowed to support business. “We’ve got to provide businesses some certainty about what their tax landscape is going to look like, and we’ve got to provide families certainty,” he said. “That’s critical to maintain our recovery.”

If Mr. Obama wants to help families, businesses and the recovery, then his course of action is clear: He should support the full extension of the 2001 and 2003 personal income tax rates that are now set to expire at the end of this year.

The Realities of Tax Increases on Small Business, Manufacturers

By | Small Business, Taxation | 2 Comments

The populist talking points keep repeating themselves: No tax cuts for “the wealthy.”

The reality is that allowing the current tax rates to return to their pre-2001 levels will mean a major tax increase on many small businesses and manufacturers. From our ManuFacts sheet on the tax rates.

  • About 73 percent of all manufacturers are organized as S-corporations or other entities taxed at the individual rate.
  • Small and medium-sized manufacturers employ more than 9 million workers. Since 2007, these companies have lost more than 850,000 jobs – 42 percent of the total jobs lost in the goods-producing sector.
  • The Administration’s proposed 2010 budget blueprint would increase individual tax rates to nearly 40 percent.
  • Increasing taxes would deal a painful blow to small businesses recovering from the economic downturn and facing higher energy costs.
  • Manufacturers will lose an additional 238,000 jobs by 2019 if these tax increases are enacted, according to the NAM’s economic models.
  • In a March 2010 survey of small and medium-sized manufacturing firms, 86 percent said they were concerned about the expiring tax rates – of those, 62 percent said they were very concerned.

As for taxes generally and business taxes especially, here’s a letter the National Association of Manufacturers and other major business trade associations sent to Sen. Max Baucus (D-MT), chairman of the Senate Finance Committee, on Friday, Nov. 12. Excerpt:

During this time of widespread economic uncertainty, proposals to increase taxes on U.S. companies – including small businesses, domestic companies, worldwide American companies and U.S. subsidiaries of companies headquartered abroad – could have significant negative repercussions for the struggling American economy. Given the urgent need for new private sector jobs, adding to the tax
burden would only undermine vital economic recovery efforts now under way throughout the country.

President’s Adviser Affirms Plans to Raise Taxes on Small Business

By | Small Business, Taxation | 5 Comments

Two versions of the same story …

Bloomberg, “Obama Rules Out Permanent Tax-Cut Extension for Top Earners, Axelrod Says“:

President Barack Obama has ruled out a permanent extension of tax cuts for the richest Americans while seeking to extend breaks for the U.S. middle class, a top administration adviser said.

“The bottom line is he wants to sit down and talk about this,” senior White House adviser David Axelrod said today on NBC’s “Meet the Press” program. “There’s no bend on permanent extension of tax cuts for the wealthiest Americans.”…

“‘The president still believes we have to move forward with these tax cuts for the middle class,” Axelrod said. “But we can’t afford to borrow another $700 billion to pay for tax cuts for millionaires and billionaires.”

Shopfloor.org’s version, “Obama Sticks By Plan to Raise Taxes on Small Business”:

President Barack Obama will continue to push for higher taxes on small businesses and manufacturers while seeking to extend breaks for the U.S. middle class, a top administration adviser said.

“The bottom lime is he wants to sit down and talk about this,” senior White House adviser David Axelrod said today on NBC’s “Meet the Press” program. “There’s no bend on permanent extension of tax cuts for the wealthiest Americans.”

The Obama Administration’s definition of “wealthiest Americans,” is an elastic ones, stretched according to political needs. The pending expiration of the 2001 and 2003 tax rates on Jan. 1, 2011, dwould in fact mean major tax increases on thousands of small manufacturers — S Corporations and other pass-through entities — that file their business taxes at the individual rate. Under the President’s plan, the top marginal rate for many of these employers could jump from 35 to 39.6 percent. Read More

Congress’ Inaction on Taxes Will Be Quickly Felt in Withholding Rates

By | Taxation | No Comments

Most of the conversation around the expiration of the 2001 and 2003 tax cuts has circled around how it would affect the top brackets, since the President’s budget calls for extending the tax rates for the bottom brackets. 

We’re glad that discussion is taking place.  But, considering that it’s almost November and Congress still hasn’t passed ANYTHING, it’s probably important to talk about what will happen if all of the taxes go up.  Most people will operate under the assumption that it won’t affect them right away, but they’re in for some serious sticker shock come January due to changes in withholding rates.

Bloomberg has a great story discussing the repercussions, “Employers in U.S. Start Bracing for Higher Tax Withholding“:

If Congress fails to act, income tax rates will revert to higher levels dating from June 2001.

For a married couple with an income of $80,000, that would drain an extra $221.48 in withholding from a semi-monthly paycheck, according to calculations by the Tax Institute at H&R Block. Married individuals earning $240,000 a year would lose an additional $557.78 to withholding in a single semi-monthly paycheck.

That $200 per paycheck is real money. Let’s hope that Congress has the foresight to recognize the impact.