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Taxes Drive Behavior!

scottish maid

Taxes Drive Behavior Example

Taxes drive behavior in business! In 1839, a new design of sailing ship, the Scottish Maid, was launched in Aberdeen, Scotland. The Scottish Maid was the first British clipper ship designed to take advantage of the tonnage regulations imposed by Britain in 1836. The new regulations measured the depth and breadth and the length at half the mid-ship depth. Any length above the halfway mark was tax free.

As a result of the new design, the ship has a more squared off bow than other designs. This new design was so successful that many frequently copied and used the design for more than 50 years. A floating example of the clipper ship is the Elissa. It is harbored in Galveston Texas.

This is just one example of tax regulations driving behavior. As our government enacts the new tax codes, expect companies and investors to react in a way to minimize their tax liability. With the new health care laws taking affect in 2014, businesses will rethink their employee benefits. In some cases, they are going to change who is an actual employee.

If you want to overcome obstacles and prepare how your company is going to react to external factors, then download your free External Analysis whitepaper.

taxes drive behavior

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taxes drive behavior

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History of Income Tax Rates: Refresher

After the President’s recent State of the Union speech it might be a good time to refresh our knowledge of the history of income tax rates. Given the massive deficit that the government is creating it is inevitable that income tax rates will go up. But by how much? History should provide a clue as to how high they can go.

History of Income Tax Rates

Question: How long ago was the marginal income tax rate double today’s rate of 35%? Answer: 29 years ago or 1981!

Question: What is the highest marginal tax rate in history? Answer: 94% in 1945!

Question: What was the beginning marginal tax rate in what year? Answer: 7% in 1913 for incomes over $500k!

Income taxes have been in existence for almost 100 years in the United States. They are presently the lowest they have been during that time period. So, what are the chances of them staying this low in the future?

During this 100 year period the taxable income threshold has dropped after being adjusted for inflation. Furthermore, income taxes have increased or taxable income thresholds have dropped after every major war time period. In other words, the government has had to pay for WWI, WWII, Korean and Vietnam Wars with higher taxes. We now have two wars to pay for; Afghanistan & Iraq!

The question faces us in not whether income taxes will increase but how high will they go? It is entirely possible that the marginal tax rates could go back up to a 70% bracket in the next 5 years.

For the past 25 years we have tended to ignore the tax effect of Federal income taxes on our investments. Going forward taxes will have a bigger impact on the economics of our deals. In the future business is going to be buffeted by strong headwinds: higher taxes and higher interest rates!

Download your free External Analysis whitepaper that guides you through overcoming obstacles and preparing how your company is going to react to external factors.

History of Income Tax Rates

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Access your Projections Execution Plan in SCFO Lab. The step-by-step plan to get ahead of your cash flow.

Click here to access your Execution Plan. Not a Lab Member?

Click here to learn more about SCFO Labs


History of Income Tax Rates

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