This Week's E-Newsletter

After the Storm
My heart goes out to families of the victims of the powerful Superstorm Sandy, as well as to those whose homes were destroyed by the force of nature.  Thankfully, no storm can overcome the strength and resiliency of the American people, and we saw that this week in the heroic efforts of our Coast Guard and first responders along the East Coast.  As the waters recede, our top priority is to ensure that our responders have every resource necessary to quickly restore power, reopen infrastructure and pick up the pieces.  The clean-up and repair efforts will take time, but if you’re interested in helping, please visit the American Red Cross to find out how you can get involved.  

Jobs in October
This morning, the Labor Department announced that October’s unemployment rate ticked up to 7.9 percent from 7.8 percent the month before.  The new report offers little to be enthusiastic about, especially for job seekers who are looking for a sign of growth as we approach the holiday season.  Still, an important opportunity to turn things around is just a few days away, when Congress returns to Washington to address the fiscal cliff.  Many employers are waiting to see how high their tax bills may climb in 2013 before they make hiring decisions. That’s why the most immediate thing we can do to promote job growth is stop the looming tax hike on January 1st and give American families the fiscal certainty they need.

An A+ Education
The 2012 Illinois School Report Cards came out this week.  As in past years, it showed that our suburban Chicago region is home to some of the state’s finest schools.  You can look up your local school here.  Unfortunately, not all Illinois schools are keeping pace, and many more are struggling to meet outdated federal guidelines under the 2001 No Child Left Behind law.

As a senior member on the House Education and the Workforce Committee, I’m focused on updating our education policies to ensure that every child has the tools to excel.  One area that I’m particularly optimistic about is STEM (science, technology, engineering, and mathematics) education, which helps train young people for the high-tech careers of the 21st century.

This morning, I helped kick off a new after-school STEM education program at Brooks Middle School in Bolingbrook. During the event, hundreds of students previewed the pilot program’s new curriculum, including the Smart Phone Genius Project, crime scene investigation, and a nationwide electric car competition sponsored by Argonne National Laboratory. The program was spearheaded by Senior Pastor A.J. Jones of City of Hope Covenant Church, who first contacted me with the idea.  Together we’ve been able to bring together some of our area’s high-tech leaders to contribute to the program, and I am looking forward to seeing our future scientists in action.  To learn more, click here.

As always, it’s an honor to serve you.  Do not hesitate to contact me at (630) 655-2052 if I can be of assistance to you.

Sincerely, 

Judy Biggert
Member of Congress

Photo of the Week

Article of the Week
Wall Street Journal
by John D. McKinnon
November 1, 2012

Looming Tax Hike Motivates Owners to Sell

A looming increase in the capital-gains tax rate next year is fueling sales of some privately-held businesses.

Many business owners—mostly founders who could gain a lot from a sale—are looking to close deals before next year, when the maximum tax on investment income is scheduled to rise from 15% currently to at least 23.8% on most capital gains, at least for higher-income households. Many sellers intend to convert their equity into retirement funds or just start anew.

"It just made more sense for me to take my chips off the table and go do something else," said Bert Wolf, 60 years old, who has an agreement to sell his compressed-gas business, Acetylene Oxygen Co. of Harlingen, Tex., before year-end.

Mr. Wolf added that if he waited until after the tax increase to sell, he would have to expand the business at the current rate "for at least 3 or 4 more years to achieve the same after-tax sales dollar." He is profiting on the sale of his business to Praxair Inc., a public company.

"There's a kind of a panic on to get things done," said Beatrice Mitchell, co-founder of Sperry, Mitchell & Co. Inc., a New York investment bank that is advising Mr. Wolf on the sale.

To be sure, the weak economy has been difficult for many small-business owners across the board. The median selling price for U.S. small businesses in the quarter ended Sept. 30 was $174,000 down 8.2% from four years earlier, according to BizBuySell.com, an online small-business marketplace. The firm's findings are based on sales, reported voluntarily by business brokers and mostly of less than $1 million, in 70 major markets.

In the three quarters so far this year, 3,536 small businesses exchanged hands, down 34% from the first three quarters of 2008, when sales of small businesses were at a record high, it found.

Yet, some companies' bottom lines are in better shape now than during the recession. That has improved their valuations. Investment bankers say they believe sales of companies whose asking prices are $10 million to $250 million have been boosted for the past two years by pending increases in the capital-gains rates.

The top tax rate will go up at year-end by at least 3.8 percentage points because of a provision in President Barack Obama's health-care overhaul law. But that will be added onto a top rate that will depend on negotiations between Mr. Obama and Congress after the November election, when they are expected to seek a deal on numerous tax and spending measures.

Mr. Obama and Congress agreed in late 2010 to extend the current 15% capital-gains tax rate through this year. Absent further action, the top capital gains tax rate will rise to 20% on Jan. 1. After adding the extra charge from the health-care law for higher-income households, the maximum tax on investment income would be 23.8%. When combined with the scheduled expiration of some other tax breaks for high earners, the maximum tax on investment income would be as high as 25%.

Many Republican lawmakers want to extend the 15% rate. If they prevail, the maximum tax likely would rise to at least 18.8% because of the health-care charge.

Mr. Obama proposes to let the top capital gains tax rate rise to 20% on income above $250,000 for couples, but hold it to 15% on income below that threshold.

Republican presidential candidate Mitt Romney has said that if elected, he would seek to eliminate taxes on all investment income, including capital gains, for taxpayers with incomes below $200,000. He proposes to maintain the 15% maximum rate on income above that level. He also plans to repeal parts of the health-care law, including the investment-tax increase.

Leonard Ramirez and his wife built up their Houston-based oil drilling supply business, Drilling & Production Resources Inc., over 25 years. They sold it last year to PGI International, a manufacturer of precision parts and systems, partly to avoid the possible capital-gains increase, according to Mr. Ramirez.

The owners of IM Solutions LLC, a Dallas-based online marketing company that serves the legal industry, figured the expected tax increases in 2013 would eat up about 8.8% of the proceeds from selling their business, said company president John Emerick. That 8.8% chunk could be up to $1 million or more of his share, he said.

"It was pretty clear to us that it made more sense for us to pull the trigger early," Mr. Emerick said. "For me—I'm 49—I'm thinking I might not earn that much for the rest of my life. The earnings for the rest of my life would be equivalent to the tax I'd be paying by waiting until 2013." The owners sold the business to LeadingResponse LLC in a deal financed by Huron Capital Partners, a private-equity group, closing on the sale in July.

Generally, there are more sellers than buyers of small businesses. Investment bankers and brokers say both are being motivated by taxes to some degree. Sellers are looking at the scheduled increase in capital gains rates, and buyers are being discouraged by the overall uncertainty over tax policy.

When Congress last raised capital gains tax rates in 1986, lifting the top rate to 28% from 20%, the change triggered a wave of asset sales, including securities and companies, in the months before it took effect.

The top rate had been scheduled to rise to 20% from 15% at the end of 2010, before the White House and Congress agreed in December 2010 to extend the lower rate for two years. In the fourth quarter of 2010, there were 928 sales of companies priced between $10 million and $250 million, for instance, compared with 660 sales of companies in that range in the third quarter, and with 548 sales of companies in that range a year earlier, according to data from S&P Capital IQ.

Sales of companies in this range have stayed reasonably strong, averaging 728 per quarter since the start of 2011, according to S&P Capital IQ data. But such sales have slipped a bit this year compared with 2011, largely because of broader uncertainty about the economy as well as tax policy, investment advisers say.