The President’s “Half-of-a-loaf” Proposal Is Not A Plan for Comprehensive Tax Reform

By February 22, 2012Taxation

While manufacturers do appreciate the President’s focus on tax reform today, we are a bit dismayed that it only outlined a piece of the whole tax reform pie.

To start with, we do appreciate that the Administration recognizes what we have been saying for quite some time – that our nation’s corporate tax rate is a disincentive for businesses to invest and hurts our ability to compete worldwide. We appreciate the nod towards a lower corporate tax rate and we also appreciate that the plan specifically calls for making permanent a simplified and strengthened R&D credit – something we here at the NAM have been fighting for for far too long.

But again, it’s not a full plan. It doesn’t address many of the issues on the corporate side including the tax treatment of capital gains and dividends critical to driving investment among other things. And the proposal also barely touches on international tax reform, it doesn’t include a territorial system and the international tax changes are all to the detriment of companies who operate worldwide including the creation of a new “minimum tax” on foreign earnings. As if our nation’s recent experience with the corporate and individual AMT hasn’t been bad enough, the Administration is proposing a whole new one.  While not something that’s not acknowledged often enough, with 95 percent of the world’s customers outside the US and 77 percent of the purchasing power for many products, companies need to be located near their customers whether they be individuals or the supply chains that they feed into and that international operations are critical to US based jobs.  Other tax increases in the plan would target the oil and gas industry and companies that invest in capital equipment.

The proposal says nothing about the impacts of the scheduled increases in marginal tax rates on the individual side that are due to go into effect come January 1, 2013. These rates are critical as nearly 70 percent of manufacturers are organized as flow-through entities and pay taxes on the owners’ individual tax returns. The cliff of skyrocketing tax rates will hit these manufacturers barring action to extend these rates later this year. This is something that just can’t be ignored. And speaking of AMT, by not addressing individual tax reform, the proposal doesn’t attempt to solve that problem either.

Our nation’s tax code is a complex, antiquated, some may even say Byzantine mess, and thus it needs a complete revamp, not only a patch or piecemeal fix.  We thank the Administration for putting forward part of the plan and hope that they will return sometime soon with the rest of a plan so that the comprehensive tax reform debate can finally begin in earnest.

Carolyn Lee

Carolyn Lee

Senior Director of Tax Policy at National Association of Manufacturers
Carolyn Lee is Senior Director of Tax Policy at the National Association of Manufacturers (NAM), the nation's largest industrial trade association. In this role Carolyn is responsible for portions of the NAM's tax portfolio including issues individual marginal tax rates - which are a top priority for small and medium sized manufacturers - as well tax issues relating to investment income, energy efficiency and capital cost recovery.
Carolyn Lee

Join the discussion 2 Comments

  • David says:

    (continued from previous) If US indusrty is truely supporting foreign sales by manufacturing overseas, then stop manufacturing it over there only to ship it back here. My favorite analogy is that a farmer has to fertilize the field, if he wants to grow crops. You can’t expect high sales, if you’re soley relying on someone else to supply you with gainfully-employed customers.

  • David says:

    I understand that many US corporations are in fact, international corporations – and that manufacturing needs to be closer to the customer, but this is not what our foreign competitors are doing, as a whole. Container ships loaded with tons of household goods and appliances are coming in everyday from China and other cheap-labor nations. It’s almost impossible to buy domestically made versions of these items. It is true that on a basis of global percentage, foreign customers outnumber domestic customers, but the falling level of domestic sales is a direct result of falling employment. The first time a US company decided to manufacture overseas, to be competitive in this country, the stage was set for a mass exodus of US jobs. Fewer jobs means less domestic dollars spent here in the US. Less industry means less domestic industrial equipment sales, as well. By contrast, the more jobs overseas, the more currency spent overseas, and the more industrial equipment sold overseas.

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