A FISCAL CLIFFHANGER

the shippers, which could lead them to seek alternatives.

While talking won’t lower fuel prices or eliminate added fees, Vise believes that better communication between shippers and carriers could help to reduce misunderstandings and frustrations arising from the current situation. “Th ere’s traditionally been a sort of arm’s-length relationship between shippers and carriers,” he says, “where a shipper may tend to hold things close to the vest because they don’t want to give the carrier any ammo for raising rates. And carriers are just as likely to hold things close to the vest for the opposite reason.

“I would say the best lesson learned from the pandemic and other recent challenges is the need for shippers to be as open as possible with carriers about what their volume requirements are going to be and what their transportation needs are going to be. It’s to everyone’s advantage to be more open with our business partners. It ultimately doesn’t serve anyone’s interest to play games.”

Th at openness extends to communicating eff ectively with customers as well, as cost increases and potential delays can strain even the best customer relationships. Says Elgin, “At this point, our customers are understanding when it comes to shipping delays and other issues. Everything seems to take longer to get than it ever has, so they’re used to it.”

In time, though, that patience may run out.

Slowly Toward Normal

Capacity and costs are, for the most part, outside of shippers’ control. Unless a boxmaker decides to make signifi cant changes to the business—building their own shipping fl eet from scratch, for example—there is little to be done but wait for the situation to change. “We’ve done analysis on whether we want to start trucking things ourselves,” Elgin says. “We’re not going to do it at this point.”

Despite his current frustrations, he believes the “solution” likely would be just as disruptive. “I ship a lot, and I ship on a daily basis to the North, the South, and the West,” he adds. “Say I bought a couple of trucks. If I sent one to California, it would be four or fi ve days before it’s back. And I’d need to fi nd something to haul back. On top of that, I would still have to maintain the truck. I’d have to hire the people to drive it. Managing a trucking operation is not our core business, and I just don’t think it’s quite worth it yet. Th ings haven’t gotten that bad yet.”

Based on his company’s data, Vise believes things likely won’t get “that bad.”

“Th e trucking market started to normalize earlier this year,” he says. “We started to see capacity returning to the larger carriers, and we saw some easing of stress in the spot market, which was dealing with the sharp increase in diesel prices. Rising diesel prices put a lot of fi nancial pressure on very small carriers— many of which had only just started up during the pandemic—that typically don’t get fuel surcharges. So we’re seeing a number of drivers returning to the larger trucking companies.”

Summing up, Vise says, “Th e bad news is that the situation is not going to improve quickly. Th e good news is that the worst is behind us. We’re headed—although slowly—toward a more normal market.” 

“I would say the best lesson learned from the pandemic and other recent challenges is the need for shippers to be as open as possible with carriers about what their volume requirements are going to be and what their transportation needs are going to be.”

—Avery Vise, vice president of trucking, FTR

Robert Bittner

is a Michigan-based freelance journalist an d a frequent BoxScore contributor.

By M. Diane McCormick

Even in fraught political times, good tax policy can be enacted, but it doesn’t fall from the sky “like manna from heaven,” says Brian Reardon, president of the S Corporation Association. Good policy requires people to develop and champion it.

“You have to sit down and ask what we can do here, given the parameters of what we’re going to be dealing with in the House, the Senate, the White House, and where the votes are,” says Reardon, whose association advocates for pass-through businesses. “What can we do, and what’s a good direction we can encourage people to move in that has a chance of passing? You have to start thinking about these things now. You can’t wait until the last minute, because then you’re going to end up with some sort of a half-baked compromise that’s not going to make anybody happy.”

As the midterm elections of 2022 loom, boxmakers nationwide are wondering how the outcome will impact their businesses and operations. Th e U.S. House of Representatives could change majority from Democratic to Republican. Th e U.S. Senate might stay in Democratic hands—or not. Th e White House remains the residence of President Joe Biden, a Democrat.

No matter the congressional confi guration, tax experts say there’s work to be done to defend tax provisions that are protecting small, midsized, and family businesses but are due to sunset soon. Add the pressures of a rocky economy, and boxmakers have a lot at stake in the politics of 2022.

Tax Provisions

In 2017, Congress passed President Donald Trump’s Tax Cuts and Jobs Act (TCJA). While heralded as a business booster, key provisions that helped S corporations and family-owned businesses are scheduled to sunset by around 2025. It’s a “fi scal cliff ” that demands attention and talks now, says Reardon.

“Our goal is to position the Main Street community so we can get the best results out of that coming negotiation that we possibly can,” he says.

Consider these tax benefi ts of the TCJA, all on the chopping block: • Increased estate tax exemption of about $11.5 million per person. “It’s easier to tax the dead than it is to tax the living,” says Mitchell Klingher, owner of tax consultancy Klingher Nadler LLP. Th e increase from $5.45 million allows private business owners who have worked their whole lives to build an estate to “keep the business in the family without having to sell it or borrow tremendous amounts of money to pay the estate taxes.” As Reardon notes, estate planning is an everyday concern for private businesses, because every generation “has to buy a certain percentage of the company back from the government.” • Th e 199A pass-through, which reduces qualifi ed business income for pass-through entities by up to 20%. Th e provision is set to expire after 2025. • One-hundred percent bonus depreciation for complete write-off of capital in the tax year the investment was made. Th is provision has provided a big boost for boxmakers who compensated for staffi ng shortages by investing in automation, says

Klingher. But it starts phasing out in 2023 and is slated for elimination after 2026.

Th e last two years have been the most profi table in the independent converters’ marketplace that Klingher says he has ever seen, as demand skyrocketed and capital investments drove effi ciencies. But sunsetting of the TCJA provisions would deliver a “perfect storm” of disincentives, as higher taxes drain the money that small to midsized businesses would otherwise be investing, says Klingher. “It’s a direct, dollar-for-dollar tradeoff ,” he says. “If Congress can do one good thing for the small-business owner, it would be to take these things that are sunsetting and make them permanent.”

But after the midterm elections, he adds, “even if Republicans take the House and the Senate, what’s Joe Biden going to do?” Perhaps some horse trading to off er Biden some of his desired initiatives, such as renewable energy incentives, could free TCJA’s business-friendly items from the threat of sunsetting, he suggests.

In fact, when a similar fi scal cliff loomed in 2012, two political opponents hammered out a compromise, recalls Reardon. Today, those same two foes—then-Vice President Joe Biden and then-Minority Leader Mitch McConnell—are again in position to lead talks, but who occupies their seats when today’s fi scal cliff looms in 2025? “Th e challenge is, you don’t know who’s running the Congress in that year,” says Reardon. “You don’t know who the president’s going to be. Our goal between now and then is to provide thought leadership and come up with

“We think we’re in a good place, but the simple fact is, because the vote count is so close, you’re really talking about one or two votes switching. We have to remain vigilant and stand tough all the way through to the end of the fi scal year.”

—Brian Reardon, president, S Corporation Association

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some good ideas and good policies that members can embrace and champion, and hopefully, they get adopted in the next three years.”

Reardon is also not counting out Biden’s signature Build Back Better Act, which would have hit private businesses with a “triple whammy” by raising tax rates, increasing the capital gains rate, and dramatically increasing the estate tax.

Although it appears that BBB is dead, or at least on life support, it remains a significant threat because only two Democratic voices in opposition—from West Virginia’s Joe Manchin and New Mexico’s Kyrsten Sinema—prevented its passage in the U.S. Senate. “Without their leadership, this bill would have passed easily, and it would have been very, very bad for Main Street,” says Reardon. “We’re going into some economically dicey times. The odds of recession are rising. It’s hard to see how a lot of companies could have survived if they had to deal with that and the BBB adoption at the same time.”

If Democrats gain Senate seats and retain the House, BBB could see new life, so “we’re not resting easy,” says Reardon. “We think we’re in a good place, but the simple fact is, because the vote count is so close, you’re really talking about one or two votes switching. We have to remain vigilant and stand tough all the way through to the end of the fiscal year.”

The age of skirting political stalemates through temporary patches, such as reconciliation bills and sunset provisions, is eroding any certainty that businesses have relied on for planning. “Most of my members would love to have a five-year cease-fire where the policies can stay the same and they can go about focusing on running their businesses,” says Reardon.

A Stormy Economy

In a time of tax policy threats and hopes, one enormous uncertainty dangles like the sword of Damocles: the economy. The rare combination of inflation and recession, exacerbated by ongoing supply chain disruptions, puts the kind of squeeze on businesses unseen since the 1970s. Even the disco-era term “stagflation,” when prices were high but growth was moribund, is making a comeback.

In this atmosphere, Klingher sees a counterproductive push and pull between Congress and fiscal regulators.

“Somebody’s got to try to put this together and have some cohesive plan to fix the economy.”

—Mitch Klingher, owner, Klingher Nadler LLP