RSM McGladrey, a Minneapolis-based accounting, tax, and business consulting firm, recently released results regarding tax policy excerpted from its fifth annual Manufacturing and Wholesale Distribution (MWD) National Survey.
Distributed to more than 23,000 C-level executives at U.S.-based manufacturing and distribution companies, recipients were asked about the impact of potential various tax increases on their company as the federal government looks for revenue sources. The results were significant enough that RSM McGladrey has released an early report on tax policy rather than waiting to include this information in the full survey report scheduled for release in early June.
“Increased taxes have a negative impact on cash flow, and small and mid-sized companies, which don’t have the resources of large companies, are particularly hard hit,” said Tom Murphy, executive vice president of MWD at RSM McGladrey. “They are struggling to recover from the recent recession, and less cash flow is a barrier to investment in capital equipment and to the hiring of additional employees – both of which are needed to capture growth opportunities.”
Of the total 1,061 respondents included in the survey analysis, 91 percent were private companies and the remaining 9 percent were publicly owned. Of the private companies, 35 percent were structured as C-corporations, 63 percent were pass-through entities (S-corporations, LLCs, or partnerships) and 2 percent identified themselves as other. Respondents reporting as pass-through entities are of particular importance since the earnings of these companies are passed through to individual shareholders, and taxed at individual tax rates, as compared with C-corporations that are taxed at the corporate rate.
The survey asked four questions regarding potential tax rate increases for individuals, capital gains, dividends, and estate taxes. These potential changes would result from the 2011 sunset of tax rate cuts legislated in 2001 and 2003, which will be reversed in 2011.
Since the majority of survey respondents are private companies, little information regarding the impact of these significant tax increases has attracted widespread public attention. The MWD survey, however, shows a startling level of concern, with 87 percent of the respondents saying they were concerned about individual rate increases, and 61 percent of those saying they are very concerned.
Capital gains taxes are of concern, as well, with 84 percent saying they are concerned, and 55 percent of those being very concerned. For dividends, 71 percent of respondents were concerned, and 43 percent of those very concerned. For the return of the estate tax, 73 percent of respondents were concerned, with 45 percent very concerned.
"Nearly 70 percent of all manufacturers are organized as ‘S’ corporations or other flow-through entities and pay income taxes at the individual rate,” said Dena Battle, director of tax policy at the National Association of Manufacturers (NAM).
"Increasing taxes would be a painful blow to small businesses who are struggling to recover in this economy as they also face other high costs such as health care and energy costs,” Battle said. “What we are hearing from our small and medium-size manufacturers is that they are not hiring or making any decisions to expand right now because of fears related to increased tax rates and uncertainty within the code."
NAM has been partnering with RSM McGladrey since the inception of the annual MWD National Survey five years ago to ensure that the questions included in the survey are applicable, current, and meaningful for manufacturers and distributors.
“This annual MWD survey is another great way that McGladrey seeks to better understand its clients,” said Murphy. “We look forward to sharing the full survey results in early June.”
RSM McGladrey’s 2010 Manufacturing and Wholesale Distribution National Survey was conducted from March 2 to April 5, 2010. The survey analysis includes the results of 1,061 executives and managers of U.S.-based manufacturing and wholesale distribution enterprises. The online survey was designed to assess the current state of the industry and to ascertain what steps CEOs, chief financial officers, and other executives are taking to grow their business and stay competitive.
More information on the RSM McGladrey 2010 Manufacturing and Wholesale Distribution National Survey tax policy report is available on the RSM McGladrey Web site.