Friday, September 29, 2017

Kill the estate tax

Last week, President Trump announced his tax reform plan. Among the changes he proposed was an all-out repeal of the estate tax, which taxes individuals on larger inheritances. Currently, it impacts estates in excess of $5.49 million but that amount changes with the political winds of the day. It’s a considerable tax, too, charging heirs 40 percent of the value of the estate.

Key Democrats roundly criticized the proposed repeal, saying that it helps only the very rich, folks with unfathomably-high net worth like Warren Buffet, Bill Gates, and the President himself.

That false narrative ignores the fact that the estate tax in some way or another has a significant impact on many small business owners. Among those are countless farmers across Western New York and others who, like this writer, might own shops and factories.

We farmers and manufacturers aren’t sitting on millions in the bank -- or even thousands of dollars for that matter -- like the Buffets and Trumps of the world. Instead, many small business owners are cash poor yet wealth rich due to the assets of the business itself (property, plant and equipment).

Consider what farmers hold in land alone. Large dairy farms abound on the Niagara Frontier, many having 300 to 1,000 cows. To make such an enterprise work they need considerable acreage to allow the cattle to range, to grow the feed for the cows, and to raise crops that allow the farm to ride out the financial roller coaster that is the milk market. It is not uncommon for those dairymen to have at least 5,000 acres of land to meet those needs and keep their business solvent. Rural land has become expensive in recent decades and can now be had for around $2,000 an acre in this area. One 5,000 acre farm could therefore hold $10 million in value in just the land.

That farm also needs considerable equipment to make it work. That is not cheap. Small tractors which serve the feedlots come in anywhere between $50,000 and $100,000. The large tractors needed to plow, plant and harvest large tracts of acreage range from $110,000 to almost $270,000 for the latest and greatest. Now, imagine a whole fleet of those machines to handle all the various tasks and crops. That same farm could have almost two million dollars invested in tractors alone.

Now, think about the men and women who own those farms. They live simply. There’s no extravagance. They’re not rolling in cash. In many years, when there’s a drought, a late frost, or a dairy crisis, they aren’t even making any money at all.

But, if they died, the IRS would come knocking. Their kids, who would have hoped to keep the farm running for they and their kids, have to pony up and give Uncle Sam cash they don’t have by selling off assets, taking out backbreaking loans, or getting rid of the farm entirely.  

It’s so scary of a scenario that this statistic tells it all: 80 percent of farmers plan to pass off control to the next generation, but only 20 percent of them are confident in the ability of their succession and estate planning to do so.

Then there are companies like mine; let’s go from talking about businesses that raise produce to those that make products.

Confer Plastics has been in operation for 45 years. Over that time, the company has accumulated 19 molding machines, 2 large buildings, acres of land, and a flourishing product line. That’s a lot of wealth held only as objects, not as cash (as matter of fact, we have loans to pay off that allow us to acquire those things).

To make sure that the company can go to the next generation – which guarantees an determined effort to keep my 240 coworkers employed – the company has spent considerable amounts of money on making sure that there is a clean succession in the event that my dad or I (or, God forbid, both of us at once) pass away. Every year, the company pays nearly a quarter of a million dollars in life insurance policies on the two of us to manage the very real threat posed by the estate tax.

It grosses me out to think what we could do with that $220,000 annually. We could pay off debt, buy new machines, dole out bonuses to our team, fix up the building, and develop new products -- you know, the things businesses are supposed to do. But instead, we have to prepare ourselves to pay the piper in death, even though that same government has already reaped millions from the company in regard to corporate taxes through the years.

We’re not alone in that regard. Drive through WNY and you see countless, long-lived family owned and operated plants. I guarantee that the owners wonder often how to keep the company going for the future.
When death comes for a family member, it shouldn’t come for the company, too. The estate tax is a cash grab by the government that comes at the worst time, under the worst conditions possible, and for the worst reason possible.

It’s immoral to believe that an inheritance belongs to the public coffers. It belongs to the families trying to keep farms and factories alive for themselves and the families they employ.

From the 02 October 2017 Greater Niagara Newspapers

Friday, September 15, 2017

Closing sheltered workshops will hurt the disabled

Last week, I hosted a plant tour at Confer Plastics for a half dozen clients of an agency that serves the mentally or physically handicapped by providing to them jobs and a variety of life services. This was the fourth such tour for the disabled in the past six months.

These agencies have been coming to our factory so we can help their counselors and team leaders educate their clients on the variety of jobs that are available across Western New York in regard to manufacturing, light assembly, warehousing and food processing. We expose them to the tasks involved, show them typical machinery and tools, and discuss the hard and soft skills needed in the workplace.

2017 has seen an increase in the number of these tours – and the need for them – because the disabled and their families have been placed in a difficult, if not dire, situation. Sheltered workshops, where disabled workers could secure consistent and productive employment under the guidance of trained and dedicated caretakers, are being phased out across the country.

Back in 1999, the US Supreme Court ruled that sheltered workshops segregate people, and in turn, violate the Americans with Disabilities Act. For the decade that followed the decision, there was little movement on it. But, since 2009, the US Department of Justice has been playing hardball with the states about this.

In response to the ruling and its enforcement, from 2012 to 2014 the Cuomo Administration developed a multi-pronged plan to bring about the demise of such worksites in the Empire State: The workshops had to incorporate those without disabilities into their employment (to the tune of 25 percent of the workforce) and become businesses instead of service agencies; existing disabled workers were grandfathered while new admissions into standard sheltered workshops weren’t allowed; and state funding of the workplaces was curtailed and ultimately fully cut.             

Now, disabled workers are scrambling to find career paths and employers that are a fit for them and vice versa.

It’s not a good time for these individuals. The men and women who have toured the plant are unsure of their future and are scared of leaving the people and places that they’ve known for so long and have grown so comfortable with and loving of.

Questions abound.

Will some of the disabled be able to handle the rigors of paced, competitive work and full shifts?

Will their new employers be as kind and understanding as those they’ll be leaving?

Do most businesses have the skill sets or personnel to manage those who need attention, help and encouragement?    

Will the number crunchers in larger corporations be able to accept lower productivity and special accommodations?

Will there be a network of public and private services in play that will get the disabled the transportation, support and training they need while entering the general workforce?

Many of their parents and providers are as uncomfortable as the workers and have had called for the Cuomo Administration to suspend the closure of workshops for fear that many of the disabled would not be able to find gainful employment and support in corporate America. They believe that the handicapped would then become unemployed for the long term and require day services while not having the chance to hold a sense of purpose and be productive to the economy and world as everyone aspires to.

I’ve seen the worried faces of and had heart-to-heart conversations with the workers and families who will be deeply affected by this change in the world as they know it. It breaks my heart.

While there may have been altruistic goals in shutting down sheltered workplaces (everyone should be able to work in a mainstream environment regardless of race, creed, or disability), the hard reality of the matter is that they are needed.

In an attempt to do good the government is only doing harm to the disabled. Those with special needs value their ability to have a job, to make and assemble things, to have an impact on society. But now, all of that will be taken away from far too many of them.

From the 18 September 2017 Greater Niagara Newspapers

Saturday, September 9, 2017

Hurricanes and the WNY economy

As Texas and Florida have been ravaged by hurricanes, most of us who choose to call Western New York “home” watch the news horrified yet revel in our decision to live in an area where the worst thing that can happen is a snow storm. We think that here -- 1,300 miles from Houston and 1,200 from Miami – we are safe and sound and fully protected from the hurricanes.

Sure, we might be from weather standpoint, but economically, we all will be feeling some pain.

It won’t be as great as that suffered by those having to replace their homes and worldly possessions, but we’ll be seeing our dollar shrink nonetheless, courtesy of the laws of supply and demand and the resulting price inflation.

It starts with plastics.

Those ubiquitous petrochemicals comprise or hold most everything consumers purchase, whether it’s a durable good, a beverage, a cleaning solution or packaged foods. Almost three-quarters of all the ethylene used to produce plastics is made in Texas along the Gulf of Mexico. The plastics corridor was right in Hurricane Harvey’s sights and two-thirds of the US ethylene production was shut down by flooding, damages, and outages. Industry experts don’t know when all the plants will be back online, nor do they know when the transportation infrastructure will be ready to handle those plants’ inputs and outputs.

Manufacturers who utilize Texas-made materials aren’t being very optimistic. The big boys like Newell Rubbermaid have cut back on 2017 earnings forecasts their while the little guys like Confer Plastics have warned their customers of pending supply and price issues (those plants damaged by hurricanes will have to recoup their losses somehow).

Plastic is everywhere. So, don’t be surprised if retail prices go up over the next six months for anything under the sun. And, if you work in any of the local automotive or healthcare factories or food and beverage processors that make things out of plastic, don’t be surprised when you see those machines being idled as supplies wane. 

Similarly, oil is refined in Texas, too, which is why prices at the pump are rising dramatically. In many locales across the northeast, gasoline prices have risen by 30 cents in the past few weeks and there seems to be no end in sight to the growth. For a typical WNY commuter that will be a few hundred dollars lost over the next twelve months if prices stick. According to Moody’s investment services, every penny increase in gasoline prices reduces consumer spending by $1 billion over the course of the year.        

Then there’s the issue of building supplies, their prices and overall supply.

There will be considerable repair and rebuild underway in Texas. As I write this, Irma has not yet hit Florida, but if the forecasts hold true, there will be devastation. You’re talking about two incredibly-populated states having to fix what happened. Harvey alone is likely responsible for $30 billion in property damages. That’s a lot of lumber – in a lumber market that has already seen prices jump by 31 percent this year because of America’s little trade war with Canada. Another 30 percent due to the hurricanes would not be unexpected.

Then, having access to building supplies is another issue. Rebuilding will affect the macro and the micro in ways you’d never expect.

I always use an anecdote from Hurricane Katrina to make that point. Back then, we were making gazebos at the factory that had smoke windows on them so those inside that gazebo had some privacy. After Katrina we had to suspend their production for a couple of months because we couldn’t get the smoke windows. Why? Building codes require homes along the coast to have smoke colored windows near ground level so sea turtles don’t go towards lights at night thinking it’s the sun.

That’s peculiar cause and effect that you will be happen in various ways and with a wide variety of products after the water settles in Texas and Florida.

What will we be looking at in regard to overall inflation? The higher gas prices have already accounted for a half-a-percent of inflation nationally. Over the 12 months will consumers see all goods and services rise by a whopping 5 or 6 cents on the dollar or more? That’s certainly foreseeable given that just over 2 has been the norm for our economy in recent years. 

There’s an obvious domino effect – and a wide-ranging one at that -- when it comes to natural disasters. We may be far away from the epicenter of the damage, but we will still see our dollars float away, even here in WNY.  

From the 11 September 2017 Greater Niagara Newspapers