Wednesday, January 16, 2008

Family-Owned Businesses Fear Higher Taxes

PricewaterhouseCoopers (PwC) invited me last night to dine with the CFOs of a dozen privately owned family businesses. These companies ranged in size from about $20 million per year in revenues to $2 billion. Executives from publicly traded companies have plenty of opportunities to meet with one another, but those from privately held family businesses often do not. Last night's dinner was put together to address this situation.

Since my focus is primarily on publicly-traded equities, I welcomed the opportunity to meet executives from the other side. Although I work for a privately-held family business, I rarely get a chance to meet executives from other such companies. The evening was a wonderful learning experience. In particular, PwC had compiled an interesting survey of privately-owned family businesses. Many of the findings were surprising to me. One was not. It turns out these executives worry a great deal about government regulation and taxation. In fact, two-thirds of respondents felt that tax simplification and/or tax reduction should be a priority for government over the next three to five years.

I have written often about the tax burden in the Forbes Growth Investor and elsewhere and wondered why the stock market had been doing so well even when it became increasingly apparent that the Democrats stood a good chance of taking the White House. A Democratic president combined with a Democratic majority in Congress spells higher taxes. Even if the Republicans manage to hold onto the White House, the Bush tax cuts are likely to expire--another way to spell higher taxes. It is difficult to argue that stocks can thrive in a high-tax environment--at least not until they first sustain a sizable sell-off. Perhaps that is what we are going through right now.