Public Policy

A while back, I expressed the view that it would be nice to get a corporate tax rate cut.  Ways and Means Chairman Charles Rangel (D-NY) is willing to accommodate.  He has proposed legislation, H.R. 3970, that will cut the top corporate rate tax cut from 35 percent to 30.5 percent.  There is just a small problem.

The rate cut is just one provision in a huge bill that would repeal the individual Alternative Minimum Tax (AMT).  At this point, I really do not know whether, on balance, we would benefit or not from the bill.  As you know this Congress is operating under strict “pay-go” rules.  Any reduction in tax revenues must be offset by spending cuts or tax increases elsewhere.  H.R. 3970 is fully offset and that creates the dilemma for us.

On the corporate rate side, Chairman Rangel has created a trade-off between the corporate rate cut and the relatively new Domestic Production Activities Income Deduction.  You may recall Representative Don Manzullo (R-IL) led to the effort to secure enactment of the deduction in 2004 and WMMA was a big supporter.  The deduction allows a taxpayer to reduce taxable income by a portion of the income that is derived from domestic production.  Support of U.S. manufacturing has been one of our major planks in our campaign platform.

The question for C Corporations is a straightforward one.  Is the value of the rate cut more beneficial than taking the Domestic Production Activities Income Deduction?  Unfortunately while S Corporations may reduce taxable income by taking the Domestic Production Activities Income Deduction, S Corporations do not benefit from the corporate tax rate reduction.  S Corporation shareholders, as I think we all know, pay taxes on business income on the personal rate structure.  As I will describe in a moment, those rates are going up.

The other good news is that the temporary increase in the direct expensing provision (Section 179) is made permanent under the bill.  Currently, businesses can write off $125,000 of expenditures for machinery and other assets in the first year.

On the negative side is the fact the LIFO method of accounting is repealed.

The AMT repeal complicates the equation.  The revenue offset for the repeal is huge and Chairman Rangel has proposed a new surtax on personal income.  As I noted, S Corporation shareholders and partner and sole proprietors pay tax on business income on the personal income schedules.  The bill proposes a new surtax for married taxpayers of 4 percent on incomes above $200,000 ($150,000 for an individual) and 4.6 percent on incomes over $500,000 for married taxpayers ($250,000 for an individual).  The surtax is applied to adjusted gross income, not taxable income.  If you look at your Form 1040, this is the line at the bottom of the first page.  The significance of this is the surtax would be calculated before you take the various personal deductions at the top of the second page of Form 1040.  One calculates regular tax rates based on taxable income which is the line about a third of the way down that second page.

Courtesy of the Small Business Legislative Council (SBLC), of which WMMA is a member, we have a “back of the envelope” formula you can use to figure out the impact on your tax liability. The exercise is very simple. If the business is a S Corporation, partnership, or sole proprietorship, the shareholder, partner, or sole proprietor should pull out the most recent Form 1040 filed by that individual.

The first step is to find line 37, Adjusted Gross Income.  Use that number as follows:

For a joint return, if the amount on line 37 is more than $200, 000 but less than $500,001, multiply the excess amount over $200,000 by 4 percent.  The result is the surtax owed.  If the amount on line 37 exceeds $500,000, multiply the excess amount over $500,000 by 4.6 percent.  Add that result to $12,000 ($12,000 equals the 4 percent surtax on the $300,000 that falls between $200,000 and $500,000).  The total is the surtax owed.

For an individual return, if the amount on line 37 is more than $150,000 but less than $250,001, multiply the excess amount over $150,000 by 4 percent.  The result is the surtax owed.  If the amount on line 37 exceeds $250,000, multiply the amount in excess of $250,000 by 4.6 percent.  Add that result to $4,000 ($4,000 equals the 4 percent surtax on the $100,000 that falls between $150,000 and $250,000).  The total is the surtax owed.

Now go to line 45 on the Form 1040.  This is the Alternative Minimum Tax.  Compare the amount on this line to the amount calculated above.  If the amount on line 45 is bigger, you are a winner (you will pay less under the Rangel plan than you are paying now in AMT).  If it is not bigger…., well, you know the answer.

An example for married taxpayers with adjusted gross income of $350,000:
$350,000 - $200,000=$150,000 x 4%=$6,000 surtax owed.

An example for married taxpayers with adjusted gross income of $750,000:
$750,000-$500,000=$250,000 x 4.6%=11,500 + 12,000=$33,500 surtax.

Now this is a very rudimentary calculation. There are some nuances in the surtax proposal. 
We would certainly welcome your observations, weighing all the plusses and minuses of the bill.

The bill will not be considered before the first of the year.  When we convene for the Public Policy
Fly-In in February it will still be a topic of discussion and if you have strong opinions on it, it provides another reason to join us in February.

 

WMMA's Public Policy Fly-In: Save the Date!

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WMMA will hold its annual Public Policy Fly-In on February 13th, 2008 in Washington, D.C. The Fly-In will be preceded by two days of WMMA Board and Committee meetings on February 11th & 12th.

The goal of this event is to educate our lawmakers on the significance of manufacturing to maintaining our prosperity, and press them to enact policies that reduce the cost of producing in America….level the international playing field … promote innovation and investment in America… and ensure an adequate supply of skilled workers for our manufacturing base.

Make your voice heard on Capitol Hill as you lobby for the positive future of U.S. manufacturing.
Mark your calendar today to attend one of WMMA's most influential events!

Business Development

Gross Domestic Product: Third Quarter 2007
Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 3.9 percent in the third quarter of 2007, according to advance estimates released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 3.8 percent.

New Residential Construction in September 2007
Privately-owned housing units authorized by building permits in September were at a seasonally adjusted annual rate of 1,226,000.  This is 7.3 percent (±1.3%) below the revised August rate of 1,322,000 and is 25.9 percent (±1.4%) below the revised September 2006 estimate of 1,654,000.

Purchasing Managers Index
The October Purchasing Managers Index will probably be seen as one of those “the glass is half full/empty” issues.  The actual Index is down for the fourth straight month (glass is half empty and perhaps leaking), but it is still above 50 (glass is half full because the economy is growing).

Full Report on Manufacturers’ Shipments, Inventories and Orders - September 2007
New orders for manufactured goods in September, up three of the last four months, increased $0.7 billion or 0.2 percent to $420.7 billion, the U.S. Census Bureau reported today.  This followed a 3.5 percent August decrease.

Shipments, down three of the last four months, decreased $0.2 billion to $417.4 billion.  This followed a 1.7 percent August decrease.

Unfilled orders, up twenty-eight of the last twenty-nine months, increased $8.5 billion or 1.1 percent to $771.6 billion.  This was at the highest level since the series was first stated on a NAICS basis in 1992 and followed a 1.2 percent August increase.  The unfilled orders-to shipments ratio was 5.19, up from 5.06 in August.

Inventories, up seven of the last eight months, increased $2.8 billion or 0.6 percent to $519.5 billion.  This was also at the highest level since the series was first stated on a NAICS basis in 1992 and followed a 0.1 percent August decrease.  The inventories-to-shipments ratio was unchanged at 1.24.

Seven Steps to Search Engine Marketing Success
By Bob DeStefano, bdestefano@svmsolutions.com

Right now, somewhere, a potential customer is searching for your products.  But, who will they find first – your company or your competitor?   Search engine marketing is all about getting in front of customers at the very moment they are searching for your products on Google and the other engines.  But how do you take full advantage of search engine marketing and outshine your competition?  The following seven steps will put you on the right path to search engine marketing success.

Step 1 - Define an Effective Strategy
All too often, companies dive into search engine marketing without a coherent strategy.  Don’t fall into this trap.  Get off on the right foot by thoroughly defining your target audience(s), identifying their needs and motivations and highlighting how your products can serve these needs.  Next, review your company’s position in the marketplace.  Identify your top competitors and your company’s competitive advantage.  Finally, identify specific goals and benchmarks, such as search rankings, Website traffic increases, sales lead volume and other ROI metrics, to allow you to measure the success of your search engine marketing campaign.  This strategy will form the foundation of your campaign and put you on the path to search engine marketing success.

Step 2 - Choose the Best Keywords
The most critical step in search engine marketing is to strategically select the most important keyword phrases for your company.  If you do not perform this step properly, your search engine marketing campaign is destined for failure.  When choosing the best keywords, it is critical to choose phrases that are not only relevant to your business, but also ones that are searched most often by your target customers.  Begin by getting inside the heads of your customers and brainstorm about potential terms your customers use when thinking about your products and capabilities.  Ask your salespeople and customer service people what phrases they think are most important.  You may even want to ask your best customers.  Then, turn to keyword research tools provided by Wordtracker, Keyword Discovery and Google Analytics to create a list of highly searched terms that will drive targeted traffic to your Website.   

Step 3 - Optimize Your Website’s Content
Now that we know your most important keywords, let’s put them to work.  You need to make sure your Website content is optimized to take advantage of these important phrases.  Begin with your Website copy – the information people can read on your Website.  Make sure you skillfully write your Website copy to effectively market your company, while using your important keyword phrases in a relevant fashion.  Next, focus on your Website structure – the code under the hood of your Website that search engines see when they visit your Website.  Use your keyword phrases relevantly in page title tags, heading tags, director names, file names, alt tags and meta tags. Please note: while the ‘keywords’ meta tag has been exploited over the years, the ‘description’ meta tag is very important.  This description will show up in the search results below your link, providing a great opportunity for you to entice the searcher to visit your Website.

Step 4 - Get Your Site Indexed by the Top Three
To be found online, you must make certain that all pages on your Website are fully indexed by the top three search engines: Google, Yahoo and Microsoft Live.  I recommend you start by focusing on Google since it handles over 55% of all searches, and it makes the process easy for site owners.  While all search engines allow you to submit your Website directly for consideration, Google also provides you with a backdoor to get your site indexed quicker.  Google allows you to create a Google Sitemap, which essentially serves as an ongoing invitation for Google to visit your site and a roadmap detailing the pages it should index.  To speed up the process of getting indexed by the other engines, submit your Website to the DMOZ.org Open Directory Project.  Once your Website is accepted by DMOZ, Yahoo and Microsoft should have no problem indexing your Website.

Step 5 - Attract Quality Links to Your Website
Link building involves gaining links to your Website from other Websites that are frequented by your targeted visitors.  The more quality inbound links you have, the more popular your Website is in the eyes of Google and other engines.  And, these links can have a dramatic effect on your search ranking.   A good place to start your link building efforts is to make your Website content link-worthy.  Good content attracts links, so fill your Website with interesting and informative content such as a library of best practices articles, a blog about developments and trends in your industry, etc.  Next, get your Website listed in online directories and portals.  Look first to important online destinations within your industry, then focus on general purpose directories like Yahoo Directory and Business.com.  You can also garner links from vendors, customers, business partners and trade associations.   Finally, you should leverage online public relations and distribute press releases and articles online.  By consistently applying these link building strategies, you will dramatically impact your ranking on Google and boost your online popularity.

Step 6 - Manage an ROI-driven Paid Search Campaign
Pay-per-click advertising (PPC) in the sponsored links search results offers a compelling ROI-driven marketing opportunity.  Unlike traditional advertising, where you ‘pay for exposure’ regardless of the results, with PPC you are not paying to be listed in the search results.  You only pay if someone clicks on your ad and visits your Website, providing a compelling ‘pay for performance’ mode of advertising.   To manage an ROI-driven paid search campaign, first, bid on the most relevant keywords.  Don't pick terms based on popularity alone.  Make sure your product offering will be of interest to the searcher.  Second, tie your bidding strategy to business results.  Think cost-per-lead and cost-per-sale, instead of just cost-per-click.  In many cases a lower ad position will produce a higher ROI.  Finally, include a compelling ‘call to action’ in the ad and send traffic to a relevant landing page tied to the ad.  A compelling and relevant offer will help lift response and boost your ROI.

Step 7 - Measure Success
As with all marketing activities, you must measure success to see how well you performed in the past, as well as identify actionable strategies to improve your results in the future.  Since search engine marketing is all about attracting targeted traffic, begin by leveraging Web analytics to monitor traffic increases from search, as well as what search engines and phrases peoples are using to visit your Website.  To make sure the volume of targeted visitors continues to increase, you should also monitor your position or ranking in the search results.  On a regular basis, check your position in the top three search engines for your most important keyword phrases to see how well you are trending upward toward a top 10 ranking.  Finally, to measure success of your pay-per-click advertising efforts, harness the measurable nature of the Web to track the cost-per-visit, cost-per-lead, and cost-per-sale for all of your pay-per-click ads. 

Special offer for WMMA Members

Association News

18th Annual Woodworking Industry Conference

The woodworking industry and your business face new challenges every day. WIC offers thought-provoking discussions, workshops and other educational forums to better prepare you for today's ever-changing business environment.

The 18th Annual Woodworking Industry Conference will be held
April 23-26, 2008 and is the premier forum for education and networking. Attending the WIC '08 at La Quinta Resort & Club Palm Desert, La Quinta CA is the right choice for your business.

To read about this year's program, visit the WMMA WIC website.  Make your hotel reservations today!  The WIC room block is limited... we urge you to book your rooms as early as possible.

Rates: $185 Single/Double **
Hotel WIC Group Code: ZWIC
Hotel Reservations: (800) 598-3828   
 Or…. 
Visit the reservation linkto book your rooms. 
Use the ZWIC Group Code.
(If you find a better rate online, let us know.  Be sure to check the fine print!)

**$20 Resort fee & taxes not included.   

WMMA Dues Invoices In the Mail

Early next month, WMMA will be sending out the 2008 membership dues invoices.  In the same manner as the previous year, you will be receiving a hard copy of your dues invoice in the coming weeks.  You will have the option of paying your 2008 dues by remitting a check, or by going online and paying via credit card.

If you would like to pay for your 2008 dues THIS YEAR (before the end of 2007), WMMA will gladly accept your check. After the first of the year, dues will be accepted online. Complete details on how to submit your electronic payment will be sent after the first of the year.

IWF 2008 Challengers Award Entries