(The Center Square) – A new video series from the National Federation of Independent Business features small business owners from around the country expressing concern over President Joe Biden’s tax proposals and how they could impact their ability to survive.
Titled “In Their Own Words,” the latest installment features Mike Gilmartin, CEO of Commercial Creamery in Spokane. The family-owned business started in 1908 and manufactures cheese powder, specialty dairy powders and seasonings used in snack foods, sauces and dips.
Gilmartin is particularly worried about Biden’s call for Congress to eliminate what is known as the “stepped-up basis” in calculating capital gains taxes.
As is the case with tax law, the provision can be confusing. For example, if you bought $100,000 of stock and later sold it for $250,000, the basis would be $100,000 and you would owe capital gains tax on the $150,000 profit. If you kept the stock and it was worth $500,000 at the time of your death, the basis would be stepped up to that $500,000 — its current fair market value — saving your heirs a large capital gains tax.
“To hit this generation with a change in the tax rules, no stepped-up basis, well, I haven’t planned for that,” Gilmartin says in the video. “And there is no way my kids are going to be able to come up with that money.”
Stock in the third-generation company is internally held.
“It could be a slippery slope,” Gilmartin said. “They’d probably have to bring in an outside investor to keep the company open and then the family loses control.”
Commercial Creamery has 10 employees at its headquarters in Spokane and another 130 at its production facility in Idaho.
Biden’s administration has touted a study saying the tax wouldn’t affect 97% of small businesses, though the nonprofit Tax Foundation says that claim is misleading.
Gilmartin said if a large corporation was involved, the first thing they would probably do is shut down the Spokane office to consolidate operations.
“Then they’d look at our Idaho employees and ask whey they have such good pay and good benefits,” he said.
Gilmartin also said he is worried about any potential changes to the qualified business income deduction.
“We take that cash flow that we don’t have to give the government and we spend it,” he said. “We spend it on buildings and equipment. We added more equipment last year, more equipment this year and we plan to add more next year. As long as that deduction is in place, we can continue to go at this certain pace. It’s more jobs, it’s more taxes for the community. It’s a win-win all the way around.”