Taxes

• Death Tax Repeal
• Computer Depreciation
• Alternative Minimum Tax
• Capital Gains Tax
• U.S. Tax Code Reform

For more information, contact Wendy Lechner in the Government Affairs Department (703) 519-8196, by fax (703) 548-3227 or e-mail wlechner@printing.org.

Death Tax Repeal skip to next issue issue list

Issue

The vast majority of graphic communications companies are small businesses. Many of them are family-owned. Estate taxes have become a major impediment to keeping a business in the family. With estate tax rates ranging between 37-55 percent, unless expensive succession planning is undertaken, the business often must be sold at time of death.

Status

PIA has supported legislation that would phase out the death tax by 5 percentage points a year over ten years. The Death Tax Elimination Act of last year passed the House and the Senate by large margins, but was subsequently vetoed by President Clinton. President Bush strongly supports repeal. A death tax phase-out bill is likely to be part of one of the tax packages that moves forward in 2001.

Concerns

Since there are many family-owned PIA member companies, this issue continues to be of particular concern. In the 2000 legislative survey conducted by PIA, members rated the repeal of death taxes as a top legislative priority, second only health care liability. In order to pass down a business within a family, printers must engage in expensive and time consuming death tax planning to protect their businesses from these debilitating taxes. The fact that approximately three-quarters of all U.S. companies are family-owned businesses and currently more than 70 percent of all family businesses do not survive through the second or third generation highlights the depth of the problem. While a printer may not be wealthy in terms of liquid assets, there is often an enormous amount of money tied up in plant and equipment. Death taxes can force heirs to sell the family business in order to pay the U.S. Treasury.

Postition

PIA strongly supports the total repeal of the death tax and will push for passage.

Computer Depreciation skip to next issue issue list

Issue

Currently, the tax code requires most computers to be depreciated over a five-year period. Because the depreciation schedule was written in 1986, when the expected life of a computer was much longer, today’s five-year period is totally obsolete. The tax code should be updated to reflect conditions in manufacturing companies today.

Status

Currently, the tax code requires most computers to be depreciated over a five-year period. Because the depreciation schedule was written in 1986 when the expected life of a computer was much longer, today’s five-year period is totally obsolete. The tax code should be updated to reflect conditions in manufacturing companies today.

Status

The Department of Treasury finally submitted its anxiously awaited study on depreciation schedules in July of 2000, but it resulted in little impact. Treasury made no recommendations on updating depreciation schedules citing a lack of input. This is in despite of the fact that PIA submitted extensive information on the effect outdated schedules have on our industry. PIA has supported a bill sponsored by Reps. Mac Collins (R-GA) and Ben Cardin (D-MD) for the past three sessions of Congress. This bill would reduce the depreciation schedule for computers and peripheral equipment used in manufacturing from five years down to two years. A Senate equivalent to this bill was not introduced in the last Congress. However, a similar, but broader, version will be introduced soon by Senator Conrad Burns (R-MT).

Concerns

Since 1986, the tax code has stipulated that computer equipment must be depreciated over a five-year period. Unfortunately, computer technology has vastly outpaced the tax treatment of computers.

In the printing industry, the majority of computer equipment is technologically obsolete in 14 to 36 months, even though the equipment must be kept on the books for five years. This disconnect between the actual useful life of computer equipment and the period of time over which printers must depreciate it is forcing companies to delay investing in new equipment and increasing employment. A study conducted by the Printing Industries of America showed that printers would purchase 20 percent more computers if the depreciation schedules reflected the actual useful life of this equipment.

Changing the depreciation schedule would be tremendously helpful to all industries that heavily rely on computer equipment. Today, business owners are not making investment decisions based on what is best for the company, but on what is permissible under an antiquated depreciation law. The change would be a significant spur to economic activity and job growth in all affected industries.

Position

PIA supports immediate reform of the depreciation schedules, most importantly computer depreciation. Reducing the computer depreciation schedule for computers used in manufacturing from five years to two years is the set goal, unless support for reducing all business computer depreciation schedules becomes more appealing to a greater number of legislators.

Alternative Minimum Tax  skip to next issue  issue list

Issue

Should Congress pass legislation to eliminate the alternative minimum tax?

Effect on Printers

The alternative minimum tax was enacted to prevent taxpayers, both individual and corporate, from reducing or eliminating their tax liability by claiming certain adjustments and tax preference items. The taxpayers’ alternative minimum tax liability generally equals 26 or 28 percent for individuals, and 20 percent for corporations, of the amount by which the taxpayer's alternative minimum taxable income exceeds a prescribed exemption amount. The taxpayer must pay the greater of the regular tax or the alternative minimum tax.

Eliminating the AMT would benefit all businesses by allowing them to realize the full amount of their adjustments and tax preferences. This issue is particularly important to small businesses so that they are not penalized for actions such as modernization. The ability to offset taxes for a small corporation is pivotal to their profitability and ultimate survival.

During 1997, Congress made some significant reforms in the AMT. These were as follows:

1. Companies with less than $5 million in revenues were exempt from calculating or paying the AMT; and
2. Larger companies were no longer required to calculate depreciation based on the AMT depreciation schedule, which was much longer than the general tax depreciation schedule.

PIA participated in the AMT Coalition, consisting of trade associations and national companies.  

Position

PIA supports the elimination of the alternative minimum tax so that the industry can again realize the full value of their adjustments and tax preferences without penalty. Short of total elimination, PIA supports the broadest possible reform package.

Capital Gains  skip to next issue  issue list

Issue

Should PIA support reductions in the capital gains tax?

Status

In the last big tax reform package (1997), a few modest improvements were made in the area of corporate capital gains. Since that time, a number of additional proposals have been introduced and included in some tax packages, but none have been enacted. Some of those that have received the most discussion include:

• Reducing both individual and corporate rates and indexing the basis of assets of individuals for purposes of determining gains and losses.
• Reducing the corporate capital gains tax rate to 15 percent for assets held more than three years.
• Taxing the net capital gain of closely held corporations in the same manner as individuals.

There are many tax priorities that rise higher than capital gains tax reform on either party's wish list. While capital gains tax reform will be a topic of discussion in the 107th Congress, it will be difficult to garner enough support for major reform. However, because there is so much discussion, some reform is possible.

Concerns

The capital gains tax is a direct tax on capital that reduces the incentive to save and invest. It is important that capital be available for businesses to allow for start-up or expansion, among other things. By reducing the capital gains rate, the cost of current capital will be kept down and money invested in frozen assets will be released and available for other investments such as the purchase of new equipment or expansion, resulting in the creation of new job opportunities in the market place. Further, business owners and workers will be able to invest more freely without the fear of a large government penalty for investment success.

Position

PIA supports changes to the capital gains tax that enhance the ability of companies to invest.

Tax Code Reform  issue list

Issue

Should the U.S. tax code be abolished?

Effect on Printers

Fundamental tax reform would affect every element of the U. S. economy, including the printing industry. There is no indication that the elimination of the tax code and replacing it with a more equitable system would have a unique effect on the printing industry compared to other industries; however, inasmuch as printers do not depend upon specific tax breaks for any significant portion of economic activity, it can be assumed that such changes would be beneficial.

The industry clearly supports abolishing the tax code as indicated in a September 1998 survey to all PIA members.  In that survey 87 percent of respondents favored abolishing the code and replacing it with a flat tax (41%) or some combination of flat tax and sales tax (40%).

Position

PIA favors abolishing the U. S. tax code and replacing it with a flat tax.