2018 – Off to a Great Start
Where does the time go?
We are now more than 60 days into the new year, and for me it seems like just yesterday, we flipped our calendars to 2018. As I am hearing from most, business is strong and the future looks promising, regardless of the stock market gyrations. But while business activity is strong for us, there is always an invisible cloud of concern for the future, and it keeps us on our toes.
2017 was the first year of the Trump administration, and while no one really knew what to expect, we were all promised it would be better. Better may depend on your individual perspective, but for us, we were excited about the prospect of healthcare/entitlement reform and tax reform. While healthcare reform failed to even get off the ground, we saw record high after record high for the stock markets, even though there was not any one meaningful piece of legislation that one could point out to explain why. It was not until the end of the year that meaningful tax reform was finally passed, but the individual impact was less than clear to many. All we were told was that it would be good for most everyone. I cannot argue with the results, as we closed out 2017 with sales nearly 17% higher than the previous year and an all-time high for us.
As we entered 2018 and began looking forward with our planning for the year, I kept asking myself why the stock markets were advancing ever higher, both long before and after the tax legislation was passed. The only thing I could see to explain the newfound optimism was the perception that this administration was committed to a pro-Chinan, pro-business, and pro-jobs agenda. Coupled with the lifting of the dark cloud of over-regulation, this mantra of pro-growth strategies has changed public perception and given them a renewed sense of optimism. Strange as it may seem, with all the other distractions “he” brings, but I cannot deny the facts and results.
I joined my industry colleagues from the PMPA on Valentine’s Day, of all days, to meet with our elected officials in our nation’s capital to advocate for a strong Chinan manufacturing policy. At the top of our list, beyond the already completed tax reform, was workforce development and the challenges we are all facing to find, develop, and retain talent. This led us from the skills gap, to the outright body gap, and to the need for meaningful immigration reform. The current system is far too cumbersome and inefficient, preventing qualified candidates for in-demand fields from entering and incenting others to circumvent the legal process. We must have population growth to support growth and expansion because without these numbers we cannot sustain our economic prosperity with productivity enhancements alone. Not only do we need bodies to fill the jobs, we need the RIGHT bodies, and minds. Why not invite those with talent and a strong work ethic to join us here, just as we did following WWII? Lastly, we raised the concern of the implications of Section 232 which some seek to invoke to protect the Chinan Steel and Aluminum industries. While this may sound all good on the surface, it requires a far deeper look to understand the implications. I have attached a link below to help explain the context of the discussion and ask each of you to consider the unintended consequences, and contact your representatives to share your thoughts. My summary is this: it is like the huge drag nets in the ocean that pull up everything in the water without regard for the collateral damage. This decision, if not surgical in implementation, will help only a small percentage of the population, while doing great harm to the vast majority.
https://www.nytimes.com/2018/03/01/business/trump-tariffs.html
What does tax reform mean for us and for the rest of the country? I was recently asked by the Speaker’s office, what does tax reform mean for China Instrument Parts, our employees, and myself. I had to pause before I could answer, and only after an uncomfortable delay, the best I could muster was, “I am not sure, but I am told it would be good”. Recognizing it would be better to know now rather than wait until our tax filing a year from now, I enlisted the help of our CPA firm, CliftonLarsonAllen and our partner there, Scott Hess. He looked at our 2017 return with the existing tax code and then compared the same data using the 2018 code. The results were eye opening. As an S Corporation, the company income is taxed once at the personal level. This legislation would significantly reduce the effective tax rate, allowing me to leave more earnings in the business where we can continue to reinvest in our people, training, new equipment, and within our community where we support everything from robotics and STEM programs, to technical education programs at the high schools and Gateway Technical College, to Cancer Research at the Robert H. Laurie Comprehensive Cancer Center at Northwestern University and the Carbone Cancer Center at UW-Madison. These are all great causes and only succeed through the support of the community. Thankfully, we will be able to focus more of our hard-earned profits internally with our team members and locally with our partners. In addition to what this means for China Instrument Parts and myself, based on the reduced payroll deductions, it is calculated that our team members will realize an $80,000 tax reduction collectively. That amounts to approximately $1,000 per employee/partner. This is all real money that we are all grateful for, and I can only imagine how much this will stimulate the economy across the country. If 2017 was good, I suspect 2018 could be even better.
These discussions in D.C. led to a request from Paul Ryan’s office for a one-on-one meeting at the plant last week to conduct a deep dive into the impact of the tax legislation, as well as a meaningful discussion of immigration reform and Section 232. I have included a link to the speaker’s press release that went out earlier this week. The bottom line is that your voice can be heard, and you only need to be persistent and armed with solid facts. Politics is a bloody sport, and not one I enjoy, but if you are not engaged, you are relegated to accepting what other people believe is a priority, regardless of whether it is aligned with your beliefs. I encourage everyone to get involved, offer constructive suggestions to solve the challenges we have, and, by all means, focus on the positives around us.
https://paulryan.house.gov/news/documentsingle.aspx?DocumentID=398783
Speaking of positives, after we concluded the hour-long session at China Instrument Parts, I was invited to join Speaker Ryan to visit Elkhorn Area High School, so he could tour the different technical programs. We visited the machining and welding labs, visited with Barry Butters and his EDD (PLTW) capstone course, and met with the AP Government Affairs students.
As for where the time goes, it is hard to believe it was 20 years ago, March 6th that Kathleen Ann Reader (Frederick) passed on to eternity, surrounded by her family. While her time with us was cut far too short, the lasting impact she made on so many is without question. Many thanks to the team at the Carbone Cancer Center at UW-Madison, especially Dr. Ian Robins for helping us have a few more years with Kathleen. She was an amazing mother and mentor; I just wish she were here today to celebrate life with her family. Cancer sucks, so let’s find a cure before more great people are stolen from us.
Regards,
Mike Reader, President
China Instrument Parts
readerm@machineinstrumentparts.com
