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“In the Know”
FEI’s Private Company Roundtable Email Update
May 4, 2011
Many of you first heard of the Private Company Roundtable (PCR) during last year’s Summit. Over the course of a year, over 300 FEI members from 43 states and 62 chapters have joined in the roundtable discussions on issues impacting private companies. Those numbers continue to climb. While 2010 was a great inaugural year, 2011 is off to an even better start. The PCR will soon be unveiling new initiatives aimed at getting FEI members talking to one another on key issues of the day. FEI will also be introducing more webcasts that are tailored to private company executives as well as offering additional networking events.
We are also pleased to announce our new and expanded leadership team for the PCR’s second year. Starting July 1st, Ann Kaesermann, Vice President- Controller for Hilcorp Energy Company, will be taking over as Co-Chair. FEI has also designated seven additional leaders to serve on the Advisory Council, a group of PCR members that will assist with continued programming development, new member recruitment, and chapter outreach. Our new Advisory Council includes: Mike Hutson (IN) SVP, Finance and CFO, LDI, Ltd., Mark Anderson (MA) CFO, Granite City Electric Supply Company, Richard Roupe (PA) CFO, Zippo Manufacturing Company, Mary Cavarra (TN) EVP and CFO, Ingram Industries, Inc., George Beckwith (NC) CFO, National Gypsum Company, Michael Kenny (IL) CFO, Panduit Corp., and Barry James (WI) VP, Corporate Development, Wisconsin Wireless Communications Corp.
With Congress back from their spring recess, the focus of the Issue Analysis section of this email is on tax reform and the current debate in Washington. The Private Company Roundtable is planning to hold a tax reform themed telephone-town hall on May 25th at 2:00pm eastern. You should have received information regarding this event. If you have any questions, please contact Tyler Roberts in FEI’s DC office.
As always, suggestions and feedback involving the Roundtable are always appreciated. Please feel free to respond to this email with any comments.
Sincerely,
Tim Anglim
Co-Chair, Private Company Roundtable
Don Robillard
Co-Chair, Private Company Roundtable
Roundtable Recap: April 21, 2011 Teleconference
The PCR met for its fourth teleconference on Thursday, April 21. The group heard from Nina Olson, National Taxpayer Advocate of the Internal Revenue Service and Dr. Robert Carroll, a principal at Ernst and Young, private company expert, and former Deputy Assistant Secretary for Tax Analysis. The discussions focused around private companies, tax reform, and how FEI members can help influence many of the debates that are taking place in Washington. Ms. Olson actively campaigned against the onerous 1099 reporting requirement that was recently removed from President Obama’s health care law. Olson also stated that there are many complexities to the tax system, and that her office is available should our members have any questions or problems.
Dr. Robert Carroll focused his discussion on s-corporations and tax reform. Dr. Carroll stated that the time seems right for tax reform in the United States. He spoke of several motivations that might lead to tax reform including the U.S. business tax system being at a competitive disadvantage to American companies and that the United States has two major issues: a high corporate tax rate and a worldwide tax system. With many countries having moved to territorial systems and lowered the corporate rates, the United States is no longer in line with its trading partners.
As stated on the call, if you have any questions that you were not able to ask to either of our speakers, please feel free to contact Tyler Roberts in FEI’s DC office and he will pass them along.
Issue Analysis: Tax Reform: Rough Waters Ahead?
Tax and fiscal reform seem to be the topics on everyone’s minds these days in Washington and across the business community. With Republicans controlling the House of Representatives and Democrats controlling the Senate, it looks as though a controversial tax debate is on the horizon. It is looking more and more likely that the United States is headed for a serious tax reform discussion unmatched since 1986.
Both Republicans and Democrats in the House and Senate have made fiscal reforms the key issue facing Congress today. With the United States expected to reach its debt ceiling sometime in May and Standard and Poor’s issuing a warning statement that it could eventually lower its credit rating on U.S. debt, the race is on for immediate solutions to this complex problem. Congressman David Camp, Chairman of the tax writing Ways and Means Committee and Senator Max Baucus, Chairman of the Senate Finance Committee, have both made tax reform a key committee issue. Both leaders have scheduled weekly hearings to debate and discuss the issue.
Everything is on the Table - What Private Companies Should Be Concerned About
With hearings and discussions happening in Congress, the very nature of the debate seems to be founded on very partisan principles. What is known is that everything is on the table. The list is practically endless and many items will be of significant concern to private company members.
The Obama Administration is believed to be considering a plan which would require flow-through entities with $50 million in gross receipts to pay the corporate income tax rate (or apply an “entity level tax” to each of these flow-through entities). While there have been no formal announcements on this plan, many believe the Obama Administration is moving this direction as it plans to trim the corporate tax rate.
One that will lead the discussion going forward and certainly one of importance to the Private Company Roundtable, are the 2001/2003 Bush tax cuts. President Obama has made it a pledge to raise the rates of the top two tax brackets when they are due to expire in 2012, while Republicans have pledged to fight to keep them. Republicans have attacked the President’s proposal to allow some of the Bush tax cuts expire. According to a recently published study by Drs. Robert Carroll and Gerald Prante of Ernst and Young, flow-through businesses account for nearly 95 percent of all business entities. Raising the top two tax brackets could significant impact many of the nation’s smaller businesses. This will no doubt be a key discussion in the tax reform debate and a 2012 election issue. A vital focus for private company members is to make sure that corporate and individual tax reform are done concurrently.
The estate tax is an important issue to private companies and one that is a fundamental disagreement between the political parties in Washington. While proponents of the estate tax view it as a needed tax on the wealthy, opponents believe that it unfairly targets American families who might have to liquidate a business in order to pay the tax burden that would come with such a high tax rate. This would not only hurt families, but would also endanger countless employees who would find themselves unemployed during this period of economic recovery. Economists have determined that 170,000 to 250,000 jobs per year are lost because of the estate tax. This will be a serious debate when the estate tax again expires in 2012 and will likely be considered with fiscal and tax reform.
The U.S. international tax rules will likely be on the reform docket as well with the Obama Administration focusing its sights on reforming the international system. The Administration is currently discussing proposals that could drop the corporate tax rate to as low as 26%. In doing so, companies would no longer receive incentives for depreciation and domestic manufacturing. Many global corporations are also pushing for a change in the U.S. taxation system by advocating for a move to a territorial system, much like a majority of U.S. trading partners.
Debt and Deficit Plans are Being Proposed in Washington from All Sides
Various tax and fiscal proposals have been introduced in recent months. President Obama and House Budget Committee Chairman Paul Ryan (R-Wis.) have both submitted proposals that would cut the deficit by $4 trillion. Ryan’s proposal would cut individual and business taxes to a 25% rate, while Obama’s would do away with the top two Bush-era tax brackets. Both proposals are viewed with uncertainty by skeptics, however, with Obama’s being light on details, while pushing for deficit-neutral reform and Chairman Ryan’s called politically unfeasible.
Another major tax reform proposal to come out of Congress this year is the Bipartisan Tax Fairness and Simplification Act of 2011 sponsored by Senators Ron Wyden (D-Ore.) and Don Coats (R-Ind.). Provisions in the bill reduce the number of tax brackets for individuals from six to three- 15 percent, 25 percent, 35 percent while eliminating the Alternative Minimum Tax. It would also cut the six corporate rates and eight brackets down to a single flat rate of 24 percent. Wyden-Coats would also allow for a one-time, low-tax repatriation of foreign earnings.
While the intense focus has been on the partisan differences that often pepper the debate, there have been bipartisan negotiations going on with a group of six United States Senators. Dubbed the “Gang of Six”, this group of lawmakers has been meeting behind closed doors to discuss nonpartisan solutions to the debt and deficit problems. The Gang of Six has its fair share of critics. Members from both sides of the aisle have hesitations that a bipartisan group can lead the United States out of its current fiscal situation. If this group is able to stay together and come to an agreement, the likelihood of serious tax reform increases greatly.
While various tax reform proposals are beginning to take shape, there are strong disagreements between Republicans and Democrats on the best way to reform the tax code. What will happen is still yet to be seen. Recently, former Majority Leader Dick Gephardt (D-Missouri) and former Treasury Secretary James Baker, both key players in the 1986 tax overhaul, told the Joint Committee on Taxation that nothing will be accomplished without Democrats and Republicans working together. “You’ve got to be bipartisan, you’ve got to have a core group that really believes in this and is willing to do the heavy lifting to get it done,” said Gephardt. He went on to say, “I think it is important to try, if you can, to disassociate tax reform from the budget issue.” It is still yet to be seen if this is possible. Only time will tell.
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