Budgets (California and Federal), CEQA, Big Pharma Merger, and who was Fred Smith?
Budget, Budget, who has the Budget?
Well, as it turns out, everyone.
California passed its budget and not to be outdone, so did Congress.
One was “balanced” in theory, the other, not so much. Each had elements that would make the Magic Castle proud.
California had numerous cuts and a couple of significant changes, the biggest of which was the watering down of CEQA – see the next section.
Congress made some changes to the previous tax act in 2017. You may recall that those provisions were set to expire at the end of 2025. And by ‘expire’, that means the changes would turn into a pumpkin at the end of this year. At midnight.
Some of the key components for this year's plan are:
The tax brackets don’t change. They stay at 10%, 22%, 24%, 32%, 35% and 37%.
The SALT deduction ceiling went from $10,000 to $40,000, meaning you can now deduct up to $40,000 of state and local taxes, including property taxes as long as they don’t exceed $40,000 and your income is less than $500,000; it phases down after that.
The child tax credit increases from $2000 to $2200 for each child – income limits apply.
Charitable Donations – in addition to the standard deduction, filers can deduct $1000 for single and $2000 joint, if Schedule A isn’t used.
Are you 65 or older? You get an additional $6000 deduction (filing single) with income up to $75,000, and $12,000 joint (if both of you are older than 65 and make less than $150,000).
Tips – the first $25,000 is deducted from your taxes for single filers up to $150,000 in income and up to $300,000 joint.
$10,000 interest deduction on new cars assembled in the USA. Lots of caveats here.
If you want a tax credit for buying an electric vehicle, you’d better do it before the end of September this year. Otherwise, no bueno.
Some take effect for 2025 and some for 2026.
Folks, there are LOTS of other things, but I VERY BRIEFLY touched on items that are important to the average tax payer. I will continue to investigate.
CEQA
If you are not in California, go to the next segment. And BTW, it’s pronounced ‘cee-kwa’.
CEQA – California Environmental Quality Act – was passed in 1970 by… wait for it… Ronald Reagan.
So what if it was watered down?
It means that most new apartment buildings will no longer face the open threat of environmental litigation, which either stalled the project for years or cancelled it outright.
It also means most urban developers will no longer have to study, predict, and mitigate the ways that new housing might affect local traffic, air pollution, flora and fauna, noise levels, groundwater quality, and objects of historic or archeological significance.
This piece of legislation, while well-intended in 1970, was used to stop projects altogether or extract concessions from the developer.
If the developer made the ‘right concessions”, environmental challenges could miraculously be mitigated.
The good news? Builders can expect to save significant time (and money) in completing new housing projects.
The bad news? No obvious ones other than more apartments will be built, which is what California needs.
Pharmaceutical Merger
When a company is weakened by external or internal forces, the first indication is a cash crunch. It doesn’t matter the cause, but it usually is due to decreased sales.
In and of itself, that doesn’t cause the cash crunch. It’s the expenses that don’t decrease along with the sales, or fixed costs that can’t be adjusted.
What happens when your distribution channel is choked, regulatory agencies are applying pressure, Division V.P.s are pointing fingers, and money is so tight, you are selling product lines to your competition?
Evidently, one option is to carve out a piece of the company and merge it with said competition.
And that is what is going on.
A division of the Sinaloa Cartel, run by the sons of El Chapo, has allied itself with the Jalisco New Generation Cartel.
Hmm. I wonder what that business card looks like.
Is it me, or does it sound like the name of a hedge fund for AI? I digress…
That’s what happens when supply routes are squeezed and shipping routes to the largest importer are closed.
That gives a whole new meaning to the phrase “I wonder who’s going to survive the merger.”
I hear the competition is cutthroat.
Who was Fred Smith?
For business school students in the 90s, Fred Smith was legendary for the risks he took to go after his vision. Many of you may already be familiar with the story, but it’s so good that it bears repeating.
Fred came from a fairly wealthy family; his dad owned a regional bus line and other ventures in the Memphis area, but died when Fred was 4.
After high school, Fred attended Yale; George Bush was a roommate. After graduation, he joined the Marine Corps and served two tours in Vietnam, being discharged as a Captain in 1969. During his tenure as a platoon leader and forward air traffic controller, he was awarded a Bronze Star, a Silver Star, and a couple of Purple Hearts.
While at Yale, he wrote a business plan for a nationwide overnight delivery system and received a grade of C.
He then experienced logistics firsthand while serving in the Marine Corps in Vietnam.
When he came back from Vietnam, he felt people would pay for such a service “when it absolutely, positively has to be there overnight.”
He approached investors with his overnight delivery plan and assembled an $80,000,000 venture capital package – one of the largest at that time – plus a few million from his family.
He called the company Federal Express because he felt that having Federal in the name had a lot more impact.
He was also trying to secure a contract with the Federal Reserve Bank.
On April 17, 1973, with 14 small planes out of Memphis going to 25 cities, they delivered 186 packages.
FedEx now ships 17,100,000 packages… per day.
It has $90,000,000,000 in annual revenue.
However, keeping the company going in the first couple of years was a challenge.
Pilots used their personal credit cards to refuel planes.
After a failed attempt to secure additional bank debt, he stopped in Vegas and, with the last $5000 of company funds and payroll looming in the next few days, went to the blackjack table.
He parlayed that $5000 into $27,000, enough to keep the company going for one more week.
New investors came in and kept the company going.
That’s not my idea for financing operations, but it worked.
When asked about that, he said, “What difference did it make? Without the funds for the fuel companies, we couldn’t have flown anyway. The $5000 wasn’t going to save us, but the $27,000 bought us a little time.”
Fred Smith died on June 21. He was 80 years old.
At a ceremony in 2023 for a gift to the Marine Corps Scholarship Foundation, he said:
“America is the most generous country in the world. It's amazing the charitable contributions that Americans make every year. Everything from the smallest things to these massive health care initiatives and the Gates Foundation and everything in between. I think if you've done well in this country, it's pretty churlish for you not to at least be willing to give a pretty good portion of that back to the public interest. And all this is in the great tradition of American philanthropy.”
Nice.
Wow. Many things are going on, and at the start of summer, no less. I will see what I can learn about the impact on businesses by the new tax bill and report back.
I’ve always maintained that being a business owner is a gamble, but Fred Smith took that to the next level. Regardless, many owners will go to great lengths to keep their company going. A great question at your next Business Owners Anonymous meeting might be “What is the craziest thing you have done to keep your business going?” If you want to tell me, I’ll keep it anonymous.
I expect this past weekend was a welcome break from the day-to-day duties. Why not host a BBQ for your employees to thank them for being part of the team? Just an idea.
