Update: Philly businesses, economists react to Trump tax plan
Love President Trump's tax proposals? Hate them? Either way, when it comes to tax laws and lawyers, change is good, said lawyer Mark Silow, chairman of Fox Rothschild LLP. "Clients tend to need guidance and they need our advice," Silow said.
Love President Trump's tax proposals? Hate them? Don't know what to think? No wonder.
If printed, the nation's tax code would probably be the size of a small bridge abutment, so the one-pager released by the White House on Wednesday is long on concept and short on details. Even so, it provided plenty of grist for the reaction mill.
"The announcement is light on details and the devil is in the details," wrote Adam Cohan, chief executive of Brio Solutions, a web and software development company in Fort Washington.
The highlights for businesses include:
The business tax rate would be lowered to 15 percent, both for corporations and pass-through businesses. In pass-through businesses, which tend to be partnerships or smaller businesses, the owners pay personal taxes based on the business's gains or losses at the individual rate. The highest individual rate is now 39.6 percent.
Trump proposes to repeal the estate tax, which would benefit small businesses faced with a big tax bill when the company founder dies.
The plan would simplify the tax system for individuals and for companies calculating payroll deductions by reducing the seven tax brackets, with the highest bracket at 39.6 percent, to three brackets, with the highest at 35 percent.
Businesses would be taxed only on income they earn in the U.S. -- a territorial tax system. The current system taxes U.S. companies' worldwide earnings.
"The impact on my business at this point is difficult to gauge," Cohan wrote. "On one hand, it may directly benefit us because we are a [pass-through] entity, which would seemingly cap our rate at 15 percent. But it may eliminate other deductions or tax credits that we can take advantage of as a technology firm.
In general, for a growth-oriented business, any capital freed up [from taxes] is most likely to end up being reinvested in the company -- hiring additional people or other investments to drive growth, Cohan wrote. "From a larger macroeconomic perspective, I'm a believer that a simpler tax code and lower taxes will help drive economic growth and investment."
Like Brio's Cohan, Kris Singh, president and chief executive of Holtec International, a much larger company, says tax relief will allow more money to be invested in business growth. Holtec, based in Marlton, supplies equipment and systems to the energy industry.
"Our company has been growing organically through reinvestment of our after-tax income in the business," Singh wrote. "We are nearing the completion of our four-year, $320 million-dollar technology center in Camden, which hopefully will employ at least 5,000 workers in five years. The proposed tax cut will undoubtedly leave us with more money to reinvest and grow. Should President Trump succeed in lowering our tax burden, we will provide compelling evidence of the beneficial effects of the tax cut in turbocharging our nation's industry."
Less enthusiastic was Dyann Roth, chief executive of RHD, a 5,100-employee Philadelphia nonprofit that provides services to 30,000 people with developmental, physical, and behavioral issues.
"With changes to the cap on the amount people can write off, and increases in the standard deduction, a stated intention to simplify the tax code hides devastating consequences for human services nonprofits like RHD in the fine print," Roth said.
"According to the American Enterprise Institute, $17.6 billion in annual giving could evaporate under President Trump's tax proposal. That doesn't just hurt human services nonprofits like RHD, who care for our most-vulnerable citizens, it would result in a loss of services that would do real harm to the people we support," she said.
Claudia Timbo, president of CompanyVoice LLC, a call center in Blue Bell, was more enthusiastic: "I would vote in favor of the biggest tax cut in American history," she said. "It should create more jobs."
Kevin Shivers, Pennsylvania executive director of the National Federation of Independent Businesses, had one initial word to describe his reaction to the president's proposals: "Ecstatic."
"What a difference an election makes," he said. "The optimism level of small employers has been through the roof since the election has been decided. Their optimism was validated when the president began to dismantle the regulatory overreach."
Shivers particularly highlighted the proposed elimination of the death/estate tax. "You have small employers in Pennsylvania who have been paying taxes as they earned their money," he said. "And now their families are being punished by being taxed again when the business founder passes away. You have many small businesses that are being dissolved because the family can't afford to pay the estate taxes on the business assets."
For law firms, the verdict is mixed, said lawyer Mark Silow, chairman of Fox Rothschild LLP, in Philadelphia.
Long term, the elimination of "what Republicans call the death tax and everyone else calls estate tax" may hurt lawyers, Silow said. "I think there will be significantly less tax planning."
Silow said the pass-through tax break probably would not apply to law firms.
"If you own a manufacturing firm, I think the intention is to top the tax rate at 15 percent," he said. But, he said, he thinks he has heard that the owners of personal service businesses, such as "law firms, accounting firms, barbers, and massage parlors" will still pay at the higher individual rates, as high as the proposed top rate of 35 percent. But that rate is still lower than the current 39.6 percent top rate.
Either way, when it comes to tax law and lawyers, change is good -- at least in the short term, Silow said. When regulations and taxes change, "Clients tend to need our advice and guidance."