Just What the Doctor Ordered

By April 14, 2014Taxation

Last Friday President of the Federal Reserve Bank of Minneapolis Narayana Kocherlokata (Ph.D.), noted in a speech that, “the future course of the U.S. economy is not predetermined by the events of the past seven years. Both history and theory have the same lesson: It is possible to undo what might now appear to be permanent changes.” The way that he proposes to do this is by reducing he suggests is by, “reducing the tax rate on the process of transforming current goods into future goods. In practice, the government can accomplish such a reduction in a relatively targeted fashion by allowing businesses to completely expense any investments into equipment, structures, or R&D.” Doing so, “leads to a higher rate of capital accumulation, which stimulates future economic activity by lowering the future costs of production,” something all manufacturers agree is critical.

This particularly timely prescription for economic recovery comes just days after two bills were introduced to make two critical, pro-investment incentives permanent, H.R. 4457, by Reps. Tiberi (R-OH) and Kind (D-WI) to permanently extend increased Section 179 expensing and H.R. 4438 to simplify and make permanent the research credit introduced by Reps. Brady (R-TX) and Larson (D-CT. These bills are just what the Ph.D. ordered.

The NAM has long supported the extension of enhanced Section 179 expensing and the bill introduced by Reps. Tiberi and Kind would take this one step further and make this important pro-growth, pro-investment incentive permanent. The expiration of the enhanced Section 179 at the end of 2013 has put investment decisions on hold for many small and medium sized manufacturers who do not know what tax provisions may be in place by the end of this year. H.R. 4457 would raise the cap for Section 179 expensing from $25,000 where it is today to $500,000 with a $2 million phase out. Making this provision a permanent part of the tax code will help these manufacturers invest and compete but it will also help those manufacturers whose customers rely on enhanced Section 179 to help defray the tax cost of their investment.

Likewise, the R&D tax credit is a proven incentive for spurring private-sector investment in R&D and creating domestic, high-wage R&D jobs, as 70% of credit dollars are used to pay the salaries of high-skilled R&D workers. For manufacturers, R&D fuels innovation that translates into new product development and increased productivity—two key factors necessary for growth in manufacturing. Unfortunately, the credit has never been a permanent part of the tax code since it was first enacted in 1981, and Congress recently allowed the R&D Credit to expire on December 31, 2013, creating unnecessary uncertainty for American manufacturers. The NAM supports the strengthened, permanent R&D credit provided in H.R. 4438, which will enhance the credit’s incentive value and increase U.S. competiveness in the global race for R&D investment dollars.

So while not full expensing, by seeking to make these important policies permanent, these two measures would go a long way towards injecting some certainty and growth into our still lagging economy and would be actions manufacturers would certainly applaud.

Carolyn Lee is Senior Director of Tax Policy for the National Association of Manufacturers.

Christina Crooks is Director of Tax Policy for the National Association of 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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