Author Archive

Just What the Doctor Ordered

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.

VN:F [1.9.22_1171]
Rating: 0.0/5 (0 votes cast)


Restating the Obvious

The release today of NAM/IndustryWeek Survey of Manufacturers confirms what manufacturers have long known, the expiration of the on-again and off-again investment tax incentives have companies holding off on making key purchases and thus delays the robust economic growth we need. According to the survey, the expiration of two of the key incentives for manufacturers, the “enhanced” Section 179 expensing and the so-called “bonus depreciation,” forces many manufacturers to rethink with investment plans. The enhanced Section 179 allowed smaller companies to write off up to $500,000 of capital equipment immediately if they invest less than $2 million a year and the so-called “bonus depreciation”— available to companies of all sizes — allowed taxpayers to expense 50 percent of the cost of assets bought and placed into service in 2013.

The survey found that 64.4 percent of manufacturers (three-quarters of medium-sized firms with between 50 and 499 employees) said they took advantage Sec. 179 and/or bonus depreciation in 2012 or 2013, or. “(R)oughly 40% of small and medium-sized manufacturers felt that the expiration of these provisions would alter their company’s investment plans for this year.”  As we’ve long maintained, manufacturers use these tax provisions to replace old or out-of-date equipment (73.9%), add capacity for existing product lines (56.7%) and add new capacity for additional products (50.2%). And in rebuttal to those who think that the impact of Section 179 is limited to small businesses, respondents also confirmed what the NAM has long known, that “they sold capital equipment, and Section 179 was an effective sales tool for them.”

Today much of the focus over tax policy is centered squarely on the need and various proposals for comprehensive tax reform. Indeed, the NAM has long called for comprehensive reform however in the meantime while policymakers work through the process of arriving at this much needed overhaul, manufacturers need these critical incentives extended now, not resurrected during the Congress’s final hours in December. Once again, this survey finds that government created barriers continue to hold back a full and robust economic recovery finding that, “(a)ll told, 79 percent of respondents said there is an unfavorable business climate because of taxes, regulations and government uncertainties.”

The tax extenders package, which includes Sec. 179 and bonus depreciation, is a poster child for the drag that uncertainty has on the economy. Let’s hope that the Congress acts quickly to reinstate these provisions and keeps them in effect until we can get to a newly reformed system which will really allow the economy to take off and grow.

VN:F [1.9.22_1171]
Rating: 0.0/5 (0 votes cast)


in·cen·tive

noun \in-ˈsen-tiv\  : something that encourages a person to do something or to work harder (from Merriam-Webster)

For the past several years, Congress has seen fit to enact policies that would incentivize capital investment namely through an enhanced Sec. 179 and what is referred to as bonus depreciation. While the investment caps and phase-outs have varied over the past 10 years, one thing that has remained constant is that Congress has agreed that an incentive for companies to make capital investments is good economic policy. As we stated in our comments to former Senate Finance Committee Chairman Max Baucus’ staff discussion draft on cost recovery and accounting tax reform, a basic premise of economic theory is that investment is a positive function of an increase in demand and a negative function of costs. The cost of capital to a firm includes three components: the price of capital equipment, the cost of financing the equipment and the tax treatment of investment. Thus, policies like the enhanced Sec. 179 and bonus depreciation make sense. Of course just because the economic theory makes sense, since we’re dealing with our tax code, it’s not as simple as that because like many other commonsense tax policies (including the R&D credit to name one) the enhanced Sec. 179 and bonus deprecation incentives expired at the end of 2014.

Now, while the NAM has long advocated for comprehensive tax reform that results in a pro-growth, pro-competitive, permanent, simpler code, while we slog through the process of getting to the “new and improved” code, we need to ensure that the right policies are in place so business can continue to grow and compete. This is why manufacturers support the extension of these incentives because for manufacturers it’s not just giving them incentives to buy new equipment and machinery but it ensures that for those who make equipment and machinery that their customers are able to make these purchases as well. Consider the nearly 40 percent of farmers who according to an AgWeb.com article who aren’t buying machinery in 2014 mainly because of uncertainty around Sec. 179. And if manufacturers don’t have as many customers for their products then our still struggling economy won’t have as much of the juice provided by manufacturing. The impacts on manufacturing are particularly important because for every $1.00 spent in manufacturing, another $1.48 is added to the economy, the highest multiplier effect of any economic sector.

So while manufacturers await much needed comprehensive tax reform, keeping pro-growth tax incentives in law certainly makes sense.

 

 

 

VN:F [1.9.22_1171]
Rating: 0.0/5 (0 votes cast)


Energy Tax Policy Should Support an “All of the Above” Strategy

Last Friday, the NAM submitted comments on Senate Finance Committee Chairman Baucus’ Energy Tax Reform discussion draft. Since manufacturing accounts for nearly one-third of the energy consumed in the U.S., Manufacturers could not let this draft go by without a strong statement that any tax reform plan must allow our nation’s energy producers to make the necessary investments to ensure our country’s energy security and that reform should not increase the tax burden on this vitally important industry sector.

Echoing our cost recovery comments this submission emphasizes the need for policies that support capital investments – such as those that are regularly required to produce energy – and that those policies must support all types of energy production. This is even more important today as thanks in large part to the investments and developments in shale gas production, the abundance of increased low cost energy and raw material is producing a competitive advantage today for many manufacturers and other energy consumers. Tax policy must reflect the fact that finding and producing domestic oil and natural gas are requires large and ongoing capital investments. Current policies that allow, for instance, intangible drilling costs (IDCs) to be deductible as ordinary business expenses are the types of policies that will continue to allow companies to make the investments necessary to develop these resources.

Further, because as we support incentivizing investment, we also oppose policies such as a carbon tax that seek to penalize production. Such a punitive tax would impair the ability of U.S.-based producers to compete in a global marketplace, would increase energy prices and would have a negative impact on economic growth. This was a key finding of a study, “Economic Outcomes of a U.S. Carbon Tax” undertaken for the NAM last year by NERA Economic consulting.

The NAM is a strong champion of domestic energy production as well as efforts to promote energy efficiency and develop renewable sources of energy, and has long pointed to the important role a favorable tax climate plays in achieving these goals. As we look towards comprehensive tax reform the ultimate goal should be the creation of a tax code that is pro-job, pro-growth and pro-competitiveness and policies that support the development and investment of energy resources will help us attain that goal.

VN:F [1.9.22_1171]
Rating: 0.0/5 (0 votes cast)


Another Opportunity to Fix Dodd Frank

Let’s start the year off on an optimistic note…. Here’s to hoping that 2014 is the year that a bipartisan Congress fixes a number of flaws in the Dodd-Frank Wall Street Reform Act.

As we’ve talked about before, Manufacturers, as derivatives end-users, have been working over the past several years to prevent the implementation of the Dodd-Frank Act from having a negative and costly impact on companies that use derivatives to manage risk. On issues like margin requirements, inter-affiliate trades and the use of centralized treasury units, the NAM has fought against new regulations that will create new costs and burdens on manufacturers who utilize derivatives to mitigate commercial risk and not for speculative purposes. The rationale is simple, manufacturers did not contribute to or cause the financial crisis that triggered Dodd-Frank, and as several regulators have stated before Congress, do not pose a systemic risk. Thus, regulators’ efforts should be focused elsewhere.

So far we’ve made some headway… Bipartisan bills (H.R. 634/S.888) moving through Congress would exempt end-users from margin requirements. In fact, H.R. 634, led by Reps. Grimm (R-NY) and Peters (D-MI) passed the House with a huge bipartisan vote last June with only 12… yes, 12 votes in opposition. The Senate companion bill (S.888) has 18 cosponsors from both sides of the aisle and two strong champions in the bipartisan team that is leading the effort – Sens. Johanns (R-NE) and Tester (D-MT). And that’s not all. H.R. 677, the Inter-Affiliate Swap Clarification Act by Reps. Stivers (R-OH) and Fudge (D-OH) was approved by the House Financial Services Committee also with broad bipartisan support.

Earlier this week, Rep. Hudson (R-NC) introduced legislation addressing another problem we have talked about before, the looming change in CFTC’s criteria for companies to register as a swap dealer. The bill, H.R. 3814, would require that the CFTC take an affirmative action to change today’s de minimis level of $8 billion. Without action, the CFTC’s rules currently lower the threshold to $3 billion by 2018. It seems odd to us that the CFTC has seen fit to set a de minimis level at a reasonable level and while doing so then set into motion an automatic drop in the level by over 60% several years in advance. One would think that regulators would prefer to establish the threshold and then go back and reconsider what the appropriate level will be in the economy of some future year. The bill by Rep. Hudson, like the other ones referenced above, is straightforward and a common sense solution to problems arising from the enactment of the massive Act known as Dodd-Frank.

Manufacturers continue to work to encourage members of both parties in both the House and Senate to move these bills in a timely manner.

VN:F [1.9.22_1171]
Rating: 0.0/5 (0 votes cast)


Manufacturers Oppose Proposed Pay Ratio Rule

Yesterday the NAM submitted comments to the SEC in response to their proposed rule implementing the so-called pay ratio requirement that was enacted as part of the Dodd-Frank Act. Manufacturers believe that requiring companies to regularly disclose the ratio of employees’ median pay to the compensation of the company’s chief executive represents a costly and onerous administrative burden on companies that will not produce useful information for investors or advance shareholder knowledge. As the SEC itself points out in the proposal, ““neither the statute nor the related legislative history directly states the objectives or intended benefits of the provision or a specific market failure, if any, that is intended to be remedied.” Yet, despite the absence of a clear benefit, companies will be required to incur significant financial cost, dedicate substantial man-hour resources and overcome numerous administrative challenges in order to attempt to comply with the proposed rule.

Manufacturers are concerned that the idea that a single statistic, like the pay ratio, could be an indicator of a company’s approach to compensation practices, business strategy, or hundreds of other decisions that comprise their business plan is false and overly simplistic – however this reality did not prevent Congress from including this requirement in the Dodd-Frank Act and now manufacturers are facing a compliance hurdle that will put them at a disadvantage to any company that is not required to comply. This issue is just another example of the real and costly impact that the Dodd-Frank Act – enacted to ensure that the financial crisis of 2007-2008 is not repeated –has had on manufacturers who did not cause the financial crisis.

Manufacturers are proud of their commitment to their workforces and want to dedicate resources to competing, growing and investing in their companies, their products and their employees and are concerned about regulatory burdens that will distract them from this mission. Manufacturers hope that the SEC will re-examine this proposed rule and that the Congress will act swiftly to pass H.R. 1135 by Rep. Huizenga (R-MI) to repeal this onerous burdensome requirement and in doing so ensure that manufacturers can spend their time and resources on developing their workforces and their products and not on complying with complicated and costly regulations.

VN:F [1.9.22_1171]
Rating: 0.0/5 (0 votes cast)


Another case for fixing Dodd-Frank

Manufacturers, as derivatives end-users, have been working over the past several years to prevent the implementation of the Dodd-Frank Act from having a negative and costly impact on end-users. On issues like margin requirements, inter-affiliate trades and the use of centralized treasury units, the NAM has fought against new regulations that will create new costs and burdens on end-users who utilize derivatives to mitigate commercial risk and not for speculative purposes. The rationale is simple, end-users did not contribute or cause the financial crisis that was the impetus for Dodd-Frank and as several regulators have stated before Congress, end-users do not pose a systemic risk, regulators efforts should be focused elsewhere.

A recent report from Abraham Energy Report highlights yet another threat to end-users. Specifically,  rules issued by the Commodity Futures Trading Commission (CFTC)  that will drastically limit the use of hedging by energy businesses and will impact the broader economy through higher costs and fewer risk mitigation options for all energy users. The CFTC now requires any firm engaged in over $8 billion annually in commodity swaps to register as a swap dealer that makes them subject to a regulatory regime more similar to rules for financial institutions than end-user rules. To date only a few firms have been forced to register as swap dealers. That will change though when the threshold drops, as it is scheduled to do by 2018.  The lower threshold will capture a much broader group of companies and will impose greater costs throughout the economy. In another effort to expand their regulatory domain, the CFTC is also seeking to further regulate the energy market by treating volumetric options of commodities, including oil and gas, as swaps and subject to CFTC regulation. America is on the cusp of an energy boom poised to create a competitive advantage for American manufacturers. That is, unless regulators get in the way.

All of these end-user issues should be reviewed and considered as Congress reauthorizes the Commodity Exchange Act (CEA) and the Commodity Futures Modernization Act. While Congress has been stymied in recent months on myriad issues of importance to manufacturers, one thing that both parties in both bodies should agree on is that action needs to be taken to lessen the impact of harmful regulation on the growth of the economy and jobs. All of these issues should be addressed in the upcoming reauthorization process and manufacturers will continue to urge Congress to do so.

VN:F [1.9.22_1171]
Rating: 0.0/5 (0 votes cast)


NAM Applauds Key Investment Incentives in the “Start Up Jobs and Innovation Act”

Manufacturers know firsthand that capital investment is critical for economic growth, job creation and competitiveness, which is why the NAM has long supported a strong capital cost recovery system. Kudos to Sens. Patrick Toomey (R-PA) and Bob Menendez (D-NJ) for introducing the “Start Up Jobs and Innovation Act” and for recognizing the critical role that Sec. 179 expensing plays in encouraging investment by smaller manufacturers. As a capital intensive industry sector, making permanent the higher expensing limit that is in law today is key to helping manufacturers grow and compete. This is a key provision for NAM members.

More generous expensing  lowers the after-tax cost of investing  for manufacturers making capital investments and helps spur sales for manufacturers selling the equipment. The NAM applauds the Senators for making permanent the current $500,000 expensing limit, eliminating the phase-out, and indexing the limit to inflation. These common-sense updates to this provision will allow more manufacturers to realize the benefit of expensing. Manufacturing has the highest multiplier of any other economic sector — every dollar spent in manufacturing adds another $1.48 to the economy. A permanent expansion of Sec. 179 benefits U.S. manufacturers and the economy as a whole. We applaud the Senators for their leadership in this area.

VN:F [1.9.22_1171]
Rating: 0.0/5 (0 votes cast)


End-Users Keep Beating the Drum for Relief

Earlier this week the NAM, on behalf of the Coalition for Derivatives End-Users where we serve as a steering committee member, sent a letter to every Senate office signed by over 50 companies – large and small – urging swift action on the passage of legislation to follow-through on the stated intention of the authors of the Dodd-Frank Act to exempt non-financial end-users from mandatory margin requirements imposed by regulators. Three years after the enactment of this law, companies are still left wondering whether they will need to sideline billions of dollars into margin accounts. Company after company has indicated that the cost of margin requirements which could be imposed by the Prudential (banking) regulators could sideline hundreds of millions of dollars to margin trades that simply seek to reduce commercial risk. As we’ve said in this space time and again, non-financial end-users, like manufacturers, do not use derivatives to speculate but simply to manage their own costs and risks inherent in doing their day to day business. End-users did not cause the financial crisis and throughout the Dodd-Frank debate the bill managers made clear that they intended to exclude end-users from new regulations that sought to reduce the speculative trading that contributed to the crisis, thus the clear inclusion of the end-user clearing exemption included in Title VII.

Unfortunately, despite various floor discussions that sought to build the legislative history to support the end-user exemption from margin requirements, today end-users face varying views of the statute from various regulators. This has been at the crux of the issue over the past two year. The Fed believes they have a statutory requirement under the Act to impose some level of margin requirement on all swaps, the CFTC on the other hand believes that they have the authority to exempt end-users… thus the uncertainty and the concern amongst businesses that they may need to make decisions later this year that would allow them to free up hundreds of millions of dollars to sit in margin accounts.

This issue, which has been of great concern to the NAM and the broader Coalition, is now coming to a head with regulators indicating that they plan to finalize margin rules later this year. Now is the time for the Senate to act and pass legislation (H.R. 634/S.888) to provide the clarification necessary to end the uncertainty. The bill was passed last month for the second year in a row by an overwhelming bipartisan majority of the House of Representatives who supported the bill by a vote of 411-12. The NAM is pleased that this issue is one that will be explored later this afternoon in a Senate Agriculture Committee Hearing on the reauthorization of the CFTC and the Commodities Exchange Act. Earlier this spring, the NAM submitted a letter requesting that the Committee take up this issue during the reauthorization process and we are pleased that this issue it is being addressed in today’s hearing by Jim Colby, an assistant treasurer at NAM Member Honeywell International. Jim’s testimony speaks to the need for swift action on this issue and explains the impact on a diversified technology and manufacturing leader like Honeywell.

Manufacturers, and the broader economy, do not want to feel the impact of the sidelining of billions of dollars to meet requirements that were never intended for this sector.

VN:F [1.9.22_1171]
Rating: 0.0/5 (0 votes cast)


NAM Leads Push for Solutions for Derivatives End Users

On Tuesday, June 11th, the NAM along with the Coalition for Derivatives End-Users—of which the NAM is a leading member—organized a fly-in of corporate treasury executives advocating for Senate consideration of H.R. 634/S.888 and H.R. 677. The group, which included nearly two dozen representatives from 15 companies along with other trade associations, spent the day lobbying Senate offices to support the legislation. The first bill, H.R. 634/S.888, would provide a statutory exemption from margin requirements for derivatives end users. H.R. 677 would exempt internal, inter-affiliate trades from being treated for regulatory purposes in the same manner as market-facing trades and also ensure that centralized treasury units can take advantage of the clearing exemption available to non-financial end users when they are hedging commercial risk.

The morning of the event, the lead Democratic Senate sponsor of S. 888, Sen. Jon Tester (D-MT), joined the kickoff breakfast to discuss the status and outlook for the legislation. The Senator was followed by a discussion with is staff from Sen. Mike Johanns (R-NE) the bill’s lead sponsor who joined Sen. Tester’s staff to discuss strategy and the key messages for the day’s events. The group then set off for a day’s worth of visits, meeting with leadership and committee staff as well as staff in offices who have previously opposed this legislation.

Also that morning, the NAM sent to every member of the House of Representatives a coalition letter urging passage of the two bills. The letter was being sent in advance of the anticipated vote on H.R. 634 to be held in the House the following day. Manufacturers are thrilled that the House passed H.R. 634 by a strong bipartisan vote of 411–12. This vote, which is even stronger than last year’s tally of 370–24, sends the bill to the Senate to await action with a clear demonstration of the overwhelming support for this bipartisan legislation.

The NAM will continue to lead the fight to get the Senate to move these two critical bills in the near term. Manufacturers are encouraged by the overwhelming majority in support of the margin bill in the House. And we are committed to keeping up the fight for this exemption which was the clear intent of the authors of the Dodd-Frank Act as the Congressional Record’s reporting of the floor debate makes clear. Simply put, the portions of the bill that sought to regulate speculative derivatives trading were never intended to negatively impact commercial end users who use derivatives to hedge commercial risk. H.R. 634/S. 888 and H.R. 677 will ensure that nonfinancial end users—like manufacturers—who use derivatives to hedge commercial risk do not face increased costs of doing business because they use hedges as a risk-management strategy.

We will continue to press for swift Senate consideration of the H.R. 634/S. 888, margin bill which are now pending and we will continue to press for progress on H.R. 677 in the coming weeks.

VN:F [1.9.22_1171]
Rating: 0.0/5 (0 votes cast)


A Manufacturing Blog

  • Categories

  • Connect With Manufacturers

            
  • Blogroll