The Cliff Commeth!

By September 12, 2012Taxation

The NAM commends the House Small Business Committee for its hearing tomorrow on the impact on small businesses of the tax cliff at the end of 2012 – manufacturers believe it’s critical to extend the current tax code to allow time to get to the what should be the main event: tax reform with the result of a tax code that is simpler, fairer and more competitive.

This hearing should highlight the fact that the lower rates enacted in 2001 and 2003 have played a key role in helping the nearly two-thirds of manufacturers operating as S-corporations or other pass through entities–most of which are small and medium-sized manufacturers (SMMs)–retain and create high-paying manufacturing jobs. As we’ve said time and again, raising taxes on these SMMs would be counterproductive, particularly as we face persistently high unemployment rates and stagnant economic growth.

Unfortunately, the debate about extending the 2001-2003 tax relief during the past year too often overlooks the potential impact on SMMs of not extending all the tax relief. According to 2008 IRS data, the average net taxable income for SMMs is $384,000 –extending some but not all of the current individual income tax rates will have a direct and negative impact on many manufacturers. Manufacturing is a capital intensive industry and the capital that is needed to grow and expand operations, increase product lines, hire additional workers most often comes directly from the owners.

Manufacturers are concerned about the fiscal cliff and are paying attention to the debate in Washington. A March NAM/Industry Week Survey of Manufacturers found that 56 percent of respondents believed that the tax increases slated to go into effect in January 2013 would negatively impact business investment and job retention/creation. Even more alarming in the most recent survey (released today!) more than 78 percent of respondents cited uncertainty regarding the fiscal abyss as their chief concern. In addition, the number of manufacturers with a negative outlook on the future of their business has doubled in the past three months. As we’ve said all year, Congress must act to extend the 2001 and 2003 tax rates and prevent tax hikes on smaller manufacturers.

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

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