This interview is one in a series in which we've asked an industry leader questions on the topic of tax reform and the issues faced by Congress in addressing the tax code.
Paul Campbell is Executive Vice President at Wheeler Machinery, a Caterpillar dealership in Salt Lake City. Campbell has served on the Associated Equipment Distributors' (AED) board of directors since 2005 and, in 2008, was elected Chairman.
Should Congress address corporate-only or comprehensive tax reform, and why?
In recent attempts to address the oppressive and outdated tax code, many in Congress seem to have forgotten that most businesses in the U.S. are small businesses. Family-owned partnerships, LLCs, S-Corps and other entities where the business owner pays the taxes for the business personally. This means that many individuals show as high income earners on tax rolls when in fact they take home a modest salary in order to plow company earnings back into the business - thereby funding growth and continued investment.
A tax code that differentiates between what an owner takes home and what is reinvested in the company is a critical element of economic development and growth and the financial stability of the economic engine that drives this nation. Investment capital derived from business earnings provides growth capital that, when leveraged with other investment or debt, drives innovation and growth. A tax code that promotes investment and rewards risk drives development while growing businesses and wages, and strengthening the middle class. The tax code is antiquated and in desperate need of repair and simplification. However, in the process, Congress must not take away the incentive to take risk or the ability of small businesses to fund their own growth. Tax profits, not growth capital.
The upper end of the tax rate for U.S. corporations is 35% and the individual rate is pushing 40% just federal and state taxes. Should these rates be cut, and if so what tax incentives would you be willing to give up in order to facilitate that?
We are in favor of simplifying the tax code and reducing rates to offset lost tax incentives. A revenue-neutral approach (incentive elimination offset by reduced tax rates) will actually increase tax revenue as more dollars flow to the bottom line of businesses (and individuals) who spend extraordinary amounts of time and money to plan, prepare, and work the system to reduce tax liability. A simplified code with reduced rates will attract capital to this country and jobs along with it. In the end, tax revenues will increase as we become a more productive and attractive place to do business by simplifying our tax code.
What part of your business would be impacted most by a repeal of 1031s and why?
Our company sells and rents construction equipment to home builders, miners, landscapers, and contractors. As we start to see economic recovery in housing and other construction sectors, customers are turning to rental as the preferred means to acquire equipment needed to do the job. This is due primarily to bank lending restrictions which restrict contractor ability to get funding. Therefore, companies like ours provide the working capital to fund many of these projects in the form of rental equipment.
As our fleets grow to meet demand, our ability to fund this growth relies heavily on like-kind exchanges. 1031s allow us to keep working capital in the business, update existing equipment, and acquire new equipment that meets clean air requirements. Eliminating 1031s, quite simply, would eliminate growth in a sector of our economy that is just starting to grow and which our nation relies upon heavily.
Are there certain parts of the tax code today that would dramatically change your business should they be repealed?
Repeal of 1031s would trigger a tax bill of approximately $60,000,000 for our company, with no offsetting income to pay for it. We are a medium-sized construction equipment business in Utah – not a multi-national conglomerate. Such a tax event would decimate our company. Our only option would be to liquidate assets, layoff over 100 employees, and shrink our business to pay the taxes. This scenario could hardly be considered an improvement to the tax code.
Are you concerned by the recent spike in inversions undergone by U.S. corporations?
Business is very predictable. Like water, it will follow the path of least resistance. A tax code that rewards capital investment will attract capital. Where there is capital, there is business and there are jobs. Congress needs to understand the difference between profits and capital, especially as it pertains to family-owned businesses as they revise the tax code. If our tax code were friendly to business, inversions would cease to be a problem as more companies would bring jobs to the United States rather than ship them overseas.