Find out more about the U.S. election results here.

The Blue Wave and Taxes

What a Biden Administration Means for Business Owners… and Logistics

Benjamin Gordon
Nov 1 · 4 min read

On November 3, the American people voted. We still don’t know the full and final election results, due to unprecedented volumes of vote-by-mail. However, the New York Times just called the White House election in favor of Biden. In addition, polling suggested a Democratic sweep of the White House, Congress, and Senate, although the Senate results will now depend on January runoffs in Georgia. Meanwhile, Wall Street increasingly expects a Blue Wave.

Let’s take a closer look at the Democratic wins and their implications for business owners.

First, in the Presidential election, Biden is currently favored by an 87/13 margin.

Image for post
Image for post
Presidential Election Predictions, Courtesy of FiveThirtyEight.com

Second, in the Congressional elections, Democrats are even more likely to maintain their advantage.

Image for post
Image for post
House Election Predictions, Courtesy of FiveThirtyEight.com

Third, in the Senate, Democrats are currently predicted to win by a 52/48 margin.

Senate Election Predictions, Courtesy of FiveThirtyEight.com

What does this mean for supply chain owners?

For starters, the Biden tax plan is likely to become a reality. This tax plan includes several dimensions:

  • An increase in top federal tax rates, from 37% to 39.6%
  • An increase in top capital gains rates, from 20% to 39.6%
  • An increase in corporate tax rates, from 21% to 28%
  • A new 12.4% “high earner” payroll tax on all income above $400,000
  • A decrease in the estate tax exemption, from $22.4 million for married couples down to an undetermined level (some have proposed as low as $1 million)

See here for a detailed assessment of the Biden tax plan.

If you have been thinking about the possibility of selling all or part of your business, this math makes a big difference. An owner of a $100 million business could see his/her taxes on a sale double from $20 million to $39.6 million. In addition, with a lower estate tax exemption, if that owner wanted to pass the business on to his/her children, combined estate and capital gain taxes could exceed 60%.

Meanwhile, an owner that defers a sale is likely to incur higher operating costs. Under the Biden plan, taxes will increase on multiple fronts, including corporate tax rates, individual tax rates, and “high earner” payroll tax rates. In the hypothetical example of a $100 million business, if the company were an LLC generating $10 million of profit, the tax on that profit could increase from $2 million to $3.96 million.

After-Tax Proceeds Based on Proposed Biden Tax Plan

Furthermore, for those who question whether the tax rates are likely to change, a look at history is instructive. Over the last seven decades, ordinary income and dividend tax rates have ranged from as high as 90% to as low as 15%. Similarly, capital gains have ranged from 40% to 15%. If past is prologue, in the event of a Blue Wave, Congress can, and will, implement higher taxes.

Image for post
Image for post
Tax Rates Since 1954

For this reason, many owners are exploring deal options. But how much time do you have? It is conceivable that the 117th United States Congress could pass a tax bill retroactive to January 1, 2020, in which case you would have very little time to lock in current tax rates. On the other hand, it is also possible that Congress could pass a bill in March (or later) and issue tax increases effective on that day.

Smart owners have several choices. One possibility is to sell. In the current climate, strategic buyers have become aggressive. For instance, NFI acquired CAI Logistics, in a deal that closed in less than 60 days. A second option is to pursue a recapitalization with a private equity investor. Last week, HIG invested in Capstone Logistics. A third option is to go public or merge with a SPAC. Just this month, Momentus went public via a SPAC. In transportation and logistics, for high-quality companies, all of these options are feasible.

Here at Cambridge Capital, we are in a position to be responsive to logistics and supply chain technology owners who are looking for advice or are ready to act. In fact, we have recently closed on three supply chain investments. We are poised to move quickly to provide capital and support for outstanding companies that fit our strategy and criteria. If you are interested in exploring ideas, please feel free to contact us.

Whatever you think of politics, now is a good time to talk to your tax advisors. If you have ever considered a deal, now just might be the ideal time to do so!

Benjamin Gordon, Cambridge Capital CEO

Supply Chains

Supply chains: the convergence of old-economy…

Benjamin Gordon

Written by

Ben Gordon, CEO of Cambridge Capital and BGSA. Investor in logistics and supply chain technology. Published at Fortune and CNBC. http://bengordonpalmbeach.com/

Supply Chains

Supply chains: the convergence of old-economy transportation and new-economy technology

Benjamin Gordon

Written by

Ben Gordon, CEO of Cambridge Capital and BGSA. Investor in logistics and supply chain technology. Published at Fortune and CNBC. http://bengordonpalmbeach.com/

Supply Chains

Supply chains: the convergence of old-economy transportation and new-economy technology

Medium is an open platform where 170 million readers come to find insightful and dynamic thinking. Here, expert and undiscovered voices alike dive into the heart of any topic and bring new ideas to the surface. Learn more

Follow the writers, publications, and topics that matter to you, and you’ll see them on your homepage and in your inbox. Explore

If you have a story to tell, knowledge to share, or a perspective to offer — welcome home. It’s easy and free to post your thinking on any topic. Write on Medium

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store