At first blush, Manufacturers were somewhat optimistic about the framework for business tax reform the President laid out today in the fiscal 2014 budget plan he sent to the Hill. While NAM is firmly behind comprehensive, that is business and individual, tax reform, we thought maybe the President’s plan for business tax reform could help jump start a broader debate.  And frankly, it’s hard for manufacturers to criticize most of the broad tax reform goals the President laid out: eliminate loopholes, broaden the base and cut the corporate tax rate; strengthen manufacturing and innovation; strengthen the international tax system; simplify and cut taxes for small businesses; and restore fiscal responsibility and not add to the deficit. And when we looked at more specifics of the budget, we were pleased to see that at least two provisions important to manufacturers—a strengthened and permanent R&D credit and permanent expensing for small businesses were part of the plan. Unfortunately, the good news ends here.

Let’s turn to the Administration’s goal to “strengthen international tax rules.”  We’re embarrassed that we thought “strengthen” meant improving our outdated worldwide system.  We were wrong. The President’s idea of strengthening means imposing some $157 billion in new taxes on American worldwide companies, actually making our uncompetitive, antiquated system worse than it is. That’s certainly not going to help U.S. manufacturers or any U.S. company struggling to compete in a global marketplace. Nor will manufacturing be strengthened by imposing some $44 billion in new taxes on energy companies. Manufacturers use about 1/3 of our nation’s energy.  New taxes on energy producers will increase energy costs for consumers and discourage the type of investments in new sources of energy in recent years that have been a “game changer” for manufacturers and other energy consumers.

We also were confused that cutting taxes for small businesses is an element of the President’s tax reform framework since the budget itself includes a slew of tax increases targeted to individual taxpayers that also will hit many of the almost two-thirds of manufacturers that operate as “S corps” or other ”flow through” entities. And how do you explain to the many family-owned small businesses—including a number of manufacturers— that their hard-won permanent estate tax relief signed into law by the President in January now is temporary. Five years from now the estate tax rate will go up and the exemption will go down.  That’s the kind of change that not only results in a higher tax bill but also higher planning costs and more uncertainty.

Frankly, we’re also puzzled with the number of new tax incentives included in the budget plan given that “broaden the base” tops the list of priorities in the President’s tax reform framework.  Manufacturers know firsthand how difficult it is going to be to agree on base broadeners. Adding more to the mix will only make that effort more difficult. And while we’re on base broadening, we’re concerned that the President identifies roughly $300 billion “revenue changes and loophole closers” either as part of the reserve for revenue neutral business tax reform or to offset other parts of his budget. This creates winners and losers before we even begin the debate on tax reform. And more importantly, and as we’ve said many times before, piece-meal changes or repeal of long-standing rules outside of tax reform will inject more uncertainty into business planning, making U.S companies even less competitive and threaten economic growth and U.S. jobs.

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