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Letter from Ed: The Fiscal Cliff, Tax Policy and Their Importance to Small Businesses
America’s current situation requires a constant re-evaluation in order to know what to think and what beliefs to support.

By Edward C. Brindley, Jr.
Date Posted: 2/1/2013

          This Christmas my youngest son, Chaille, gave me an audio book titled “Being George Washington” by Glenn Beck. Although I had always had an appreciation for the first president of the United States, I don’t think I really understood his greatness until encountering this book.

          George Washington wasn’t just the founding father of the country; he was

a man with phenomenal principles, and a man with very strong spiritual beliefs. His moral principles contributed to the very foundation that built our great country.

          The book made me feel almost like I was George Washington. I really related to him. I became interested in our Constitution as never before and now daily carry a small pocket version of the Declaration of Independence and Constitution in my brief case. Our country is undergoing major shifts in the philosophy applied to our government. During this season of change, I am finding myself often wanting to go back to the Constitution and Bill of Rights to see for myself what it actually says. I no longer trust what is stated in the media, and I certainly do not trust the constant flow of statements coming out of political leaders in Washington D.C.

          Now that we have passed the recent fiscal cliff dilemma, there is a little more certainty in terms of tax policy. But the future of our federal government’s basic priorities and how we intend to pay for these initiatives remains in flux. America’s current situation requires a constant re-evaluation in order to know what to think and what beliefs to support.

          There are a number of things stemming from the fiscal cliff deal that are important to note. When it comes to family businesses, lawmakers have instituted permanent rules and policies for the estate tax. Congress set a five million dollar cap on inheritances before a tax is levied. Even if you don’t like the outcome, at least the new rules have lifted the fog of uncertainty that kept tax planners in the dark for years. A 40% tax rate seems fairly high, but the five million dollar cap is welcomed by many families with assets to pass on to the next generation. Many small businesses are also family businesses. I breathe a little easier knowing that Uncle Sam is not going to dip into every dollar that I ever made. My children have been intimately involved in building the business that our pallet and lumber friends have grown to respect. Now they will benefit from what we have built together. The same thing is true for so many of our readers. The wood industry is loaded with some of the best people and family businesses in the nation. We have a right to keep at least a reasonable portion of what we are able to acquire during our lives, especially since we have already paid taxes on these assets.

          Tax implications coming out of the fiscal cliff debacle are numerous. Thankfully, at least some of the results are considered to be positive by many small businesses. Most of the Bush-era tax cuts for individuals who earn less than $400,000 are being extended which impacts virtually everybody working in our industry and the vast majority of small business owners.  Of course, Congress reinstated the higher 6.2% Social Security tax that had been in effect for years until the recent recession when lawmakers temporarily lowered it. This tax hike hit most wage earners and certainly impacted the take-home pay of your employees. 

          A number of temporary tax cuts that businesses can benefit from were extended for varying amounts of time. Businesses have another year to expense $500,000 of equipment purchases. This tax break makes it easier for a business to justify making a major capital decision. You can deduct what you spend, an idea that I find attractive in my own business. This half a million dollar expense opportunity is not new this year, yet history dictates that you can’t expect this opportunity to last too long. This window to deduct what you spend on machinery is a good opportunity for many pallet companies and sawmills.

          Other tax relief areas include: extending the 50% bonus appreciation rules which allows a business to immediately write off the value of new investments to cover property placed in service before the end of 2013; the research and development credit for 2012 and 2013; extending the five-year built-in gains holding period for S-Corporations for tax years beginning in 2012 and 2013.

          While many of us are breathing a little sigh of relief, business people are practical. All of us are concerned about the levels of government spending. If Uncle Sam doesn’t put his head on straight and get his act in order, we have some real trouble ahead as a country.

          Of course the Obamacare situation has everybody concerned.  Now we are hearing that medical costs will go higher and that the reforms will contain many hidden or unpublicized taxes and regulations. For more coverage on this issue, read our extensive article on this issue on page 20.

          Our industry has challenges; it always has. Today our biggest challenges are outside of our own control. They are national problems. A cliff? It certainly seems like one to me. In many ways I am more optimistic now that the fiscal cliff is behind us, even thought it was a politically contrived issue.

          Our society and people still have a lot of hope, but trust in our leaders in Washington D.C. remains fairly low. Hopefully, our political leaders will stop kicking down the road for someone else to solve at a later date the key issue of excessive government spending. We need patriots and leaders who will dare to do make the hard choices so that our country remains strong. We need more George Washingtons in our political process. And it all starts with us demanding strong, responsible leadership from those we elect.

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