- Contract Packaging
- Leaders in Packaging
Article | November 18, 2010
Additional factors driving mergers and acquisitions
Overall economic factors also are contributing to the increase in M&A activity between contract packaging and contract logistics. One critical factor is the expectation of higher taxes.
Congress may continue to change tax levels.
That said, there is little doubt that taxes are slated for a major increase. The George W. Bush tax cuts set the top level of ordinary income taxes at 35%, and capital gains at 15%. When they expire at the end of 2010 (or 2011 or 2012, if extended), ordinary income levels will rise to 39.6%, unless Congress changes the tax laws again. Capital gains taxes are scheduled to expand to 20%. A proposed health care surcharge tax could boost both sets of taxes by 3.8%, to 43.4% and 23.8%, respectively. And the Medicare payroll tax will increase by 0.9% for earners married jointly above $250,000.
That’s not all. Congressman Charles Rangel (D-NY) has proposed a 4% surcharge on incomes exceeding $200,000. There is talk of repealing the wage cap on social security, which is currently at 6.2% but capped at $102,000. In aggregate, rates could ultimately go much higher.
Some have asked whether we at BGSA believe these tax changes are cyclical. While it is true that historically governments tend to alternate between left-leaning and right-leaning policies, historically government expenditures have only gone up.
What about Gross Domestic Product? Didn’t the U.S. economy expand during that timeframe? Yes, but government spending grew faster. As a percentage of GDP, government spending has continued to grow consistently, from 13% of GDP in 1930 to 46% today. With the exception of the World War II period, government spending has continued its steady march upward, both in dollar terms and as a percentage of the total economy. What about the future? Sadly, as the national debt continues to skyrocket, future tax obligations are likely to follow. Furthermore, entitlement spending is ballooning. In sum, we are likely to witness decades of ever-increasing taxes required to fund these generational liabilities.
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