4 'Tax' Increases That Could Affect Your Business These expected new costs to business courtesy of Washington could be cause for concern. By Gene Marks, featured educational speaker at NetworkASA 2014, Sept. 9-11 at the Bellagio in Las Vegas Small-business confidence remains significantly below prerecession levels. Why? It isn't just the cold winter, the uncertainty and the sluggish growth. Ask any of my more than 500 small and mid-size clients and one common theme will come up: taxes. Between Social Security, Medicare and corporate or individual taxes, most business owners I know pay anywhere from 20% to 30% of their net income to the federal government. And this excludes state, local, sales and other taxes. It's a big number for all of us. And we're concerned that it's going to only get worse. There's good reason to be concerned. The past year saw a slew of taxes hitting both individuals and small businesses. O Social Security taxes were restored to their original rate after years of "stimulus." O Medicare taxes increased. O A new tax on unearned income was imposed. O Rates on higher earners increased to levels not seen in decades. O Capital-gains taxes went up. O The ceiling for itemized deductions was raised. O The tax advantages of certain employee benefits, such as health savings accounts, were reduced. As I write this, those higher taxes are being calculated by our accountants who are putting together our corporate and personal returns and bringing us bad news: We owe more than before. This hurts. But we're not done yet. Many of you are business owners. Your money is at stake. Pay close attention to what's going on in Washington this year. The following are four enormous new costs to businesses potentially on the way, particularly if some of President Obama's proposals become law. In my view, they amount to taxes on business. They are: Research and investment costs. OK, these are not compulsory costs, but they're necessary for growing businesses. At the end of 2013, two enormous business tax benefits effectively went away. The first was the ability for small companies to take accelerated depreciation (or, in other words, write off an asset faster) for capital purchases up to $500,000. That amount is now down to only $25,000 in 2014. In addition, the popular credit that businesses could earn by spending money on research and development also expired at the end of last year. The result is a double-edged killer: Businesses have less incentive to invest in capital equipment or spend money on research and development. And the amounts they do decide to invest are providing much less tax benefit to them than in the past. The proposed minimum-wage increase. In my view, an increase to the federal minimum wage would be a tax. But as taxes go, it isn't a bad one. Actually, the money goes straight to the employee instead of to the government. The president is campaigning hard to increase the federal minimum wage to $10.10 per hour, up from $7.25 per hour. Right now, a full-time employee making minimum wage earns about $16,000 per year, which is sadly low. A person at this income level likely receives welfare, food stamps and medical help from the government. The government cannot afford to pay more in these tight budgetary times. What to do? The president is effectively turning to businesses. He wants to require us to pay our people more. Business owners hate to be told what to do by the government. Most business people I know can not only afford to pay this extra amount, but concede that no one working 40 hours a week should be earning such a small income in 21st-century America. Whatever your opinion, the increase is unlikely to happen. But this potential "tax" is out there and it erodes business confidence. The federal deficit. The president's just-released proposed budget continues the strategy he set out in his state-of-the-union address of ignoring our growing federal deficit and national debt. Many feel that our deficits are not a political issue in 2014 because they're going down. But many economists, even the Congressional Budget Office, forecast deficits creeping back up toward $1 trillion a year in the next few years as the cost of entitlement programs comes due. And even deficits that are "going down" still are $500 billion dollars a year (they were "only" $174 billion in 2007) and are adding to our unsustainable level of national debt at a frightening pace. How will this be solved? The president (and many members of Congress on both sides of the aisle) is counting, among other things, on tax reform and the closing of loopholes that businesses are legally using to save on taxes - in other words, an enormous tax increase. Health-care reform. No, it isn't what you think. The employer mandate, which requires any business with more than 50 full-time-equivalent employees to provide health insurance to their full-timers starting in 2015, is not a big deal for most of my accounting clients. They already provide health insurance. The penalty for not providing this insurance is a tax, in my opinion, but it In my opinion, the penalty for not providing this insurance is a tax, but it isn't the tax my clients are concerned about. The concern is that they will be required by law to provide a minimum level (i.e., "bronze") of health insurance going forward. As rates inevitably go up (and some are predicting significant increases), the ability of the business owner to share these costs with employees is significantly limited because of the federal law. More taxes are here. More taxes are coming. That doesn't make me (and many other small-business owners) optimistic at all. ASA and Unleash WD Announce Spirit of lnnovation Award As you drive south on Interstate 65 leaving Indiana and entering Louisville, immediately to your right is Louisville Slugger Stadium. A two-storyhigh message on the outside stadium wall reads "Louisville. It's Possible Here." As we enter 2014, this is a great reminder that "It" is possible. Throughout the PHCP and PVF industry, there are leaders at all levels of the organization that have their own version of this two-story-high message that says "It's Possible." INNOVATION, OPTIMISM AND THE FUTURE In a similar light, innovation is about the future - the act of improving things to make things better. In fact, I believe there is no innovation without optimism. This is why I'm thrilled that UnleashWD has partnered with ASA to bring the Unleashing the Spirit of Innovation Award to the industry. The Unleashing the Spirit of Innovation Award will recognize innovators who are breaking through challenges and seizing opportunities as they create a new, brighter and stronger future. As I recently spoke to a distribution CEO about the confluence of megatrends impacting the industry, he told me it is important to dream the dream again.For many of us, the dream has never faded. I am hopeful the Unleashing the Spirit of Innovation Award brings to the forefront of our conversation the optimism and innovative solutions that are being developed everyday throughout our industry. Check out all the details for the Unleashing the Spirit of Innovation Award at www.unleashwdinnovationaward.com. submissions are due by jun 15. We'll be recoinizing the innovators and optimists among us during NetworkASA 2014 at the Bellagio in Las Vegas in September as well as in the pages of supply House Times and during the October UnleashWD Summit. Begin An optimist and innovator,I suspect You'll want to take part. ASA Showrooming Breakfast a Hit at KBIS ASA Showroom Managers Networking Council held a successful breakfast during KBIS 2014, which featured a stellar panel of industry experts who discussed the growing trend of "showrooming." In the photo, from left: Michael Werner - President and CEO, Globe Union Group Sal Cianciolo - Business development manager, KALLISTA Kate Bailey - National showroom manager, Ferguson Veronica Money - Showroom manager of Welker-McKee, division of Hajoca (NKBA Ohio State Chapter president) ASA currently is scheduling similar events for the remainder of 2014 for the following groups: CFOs, trainers and those in warehouse operations. For more details on all ASA's peer networking councils, visit www.asa.net/Networking/Peer-Networking-Councils and contact Ruth Mitchell at 630/467-0000, ext. 210, for up-to-date event information. Zoeller Celebrates 75 Years Based in Louisville, KY since 1939, Zoeller Company is proud to be part of the American Supply Association. "The more involved we are, the more valuable the information we receive," stated company CEO/President John Zoeller, P.E., regarding ASA and the valuable tools the association provides. John Zoeller represents the third generation of Zoellers to be involved in operating the family business. The company began in August "Pop" Zoeller's basement and has grown to 640 employees representing seven brands, including various private labels. Zoeller operates five facilities, sells into 50 countries and also is expanding; now employing fourth-generation family members in Louisville. As Zoeller is currently celebrating its 75th anniversary, the company would like to say thank you to its employees, reps, contractors, vendors, dealers, shareholders, family members and all others who have had relationships with the company over the years. Zoeller understands that networking, connections and industry awareness play a vital role in the training and success of everyone in the industry that ASA represents. Please contact your plumbing professional for further information or visit www.zoeller.com or on Facebook at www.facebook. com/ZoellerPumpCompany. A Look Ahead The media has had a lot to say about the bad weather earlier this year and tough economic data. My fear is the worrisome news could lead you to conclude that the business cycle is weakening underneath you and that it is time to hoard cash and say "no" to new initiatives. The reality is that the economy and your future are looking good through the middle of the year with only a slower rate of growth likely in the U.S., and in residential plumbing trades, later this year and into 2015.The commercial construction sector promises increased opportunities through the rest of this year and into 2015. The December and January figures for the US Total Wholesale Trade of Hardware, Plumbing, Heating Equipment & Supplies did not show any ill effects of weather. The 3.1% decline from November to December was mild by historical standards and the December-to-January increase of4. 1% was better than average. The industry is posting a solid 5.0% annual growth rate with sales cruising at a record-high $116.3 billion. Expect a slower rate of rise later this year, but at this level of activity it may give you a much-needed opportunity to catch your breath and plan for how you will handle the work when you are busier next year. The February employment number was good and shows employment climbing. There was a 1.3% increase in employment from one year ago (BLS Household Survey data, not seasonally adjusted). This is a reasonable number; not great, but good enough to indicate the economy still is expanding in terms of jobs. The good news from the employment data is encouraging on its own, but it is only one of a number of indicators signaling more economic growth through the near-term. The ITR Leading Indicator trend and the University of Michigan's Consumer Expectations survey both are throwing off encouraging signals in terms of ongoing economic expansion (no recession this year). Throw in a resurgent S&P 500 in February and the signals are telling us that we should all look for the economy to slow down, but not break down in 2014.The events in Ukraine have been headline news in recent weeks. It is reasonable to wonder how events there might impact our forecast. The answer is that we don't expect much (if any) fallout for the U.S. The EU and Russia bear the economic risks in this scenario. The economy of Ukraine is about equal to that of Kentucky, which is not enough to change the course of events for 21.9% of the world's economy (the U.S.) unless sanctions spread to more drastic occurrences. Assuming just the sanctions bantered about so far, it is the EU that will likely feel the pain via higher energy costs.This is a huge political crisis, but for most Americans it likely will remain only a political issue and not an economic one. Alan Beaulieu's 2015 Industry Forecast will be presented at NetworkASA 2014 at the Bellagio in Las Vegas, Sept. 9-11. In late spring/early summer, Alan will preview this presentation with a members-only ASA webinar.Please watch your email and www.asa.net for more information.
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