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Later this week, the House of Representatives is scheduled to take up the a bill that is exactly the kind of legislation we need to see more of if Congress truly wants to set policies to help American manufacturers grow, compete, create jobs and strengthen communities.

One may ask how a single bill can do all of this?

The bill I’m speaking of is, H.R. 4718, authored by Rep. Pat Tiberi (R-OH) and would make 50 percent first year expensing (aka “bonus depreciation”) permanent. This bill is one of the handful of bills moving through the House this spring and summer that seek to make various provisions of the “extenders” package permanent. And, and it’s a very important bill for manufacturers. This bill would extend retroactively to the beginning of 2014 provisions which were in place and working up until they expired at the end of 2013.

Why is this bill so important for manufacturers? Manufacturing is a capital intensive industry and those costs have three significant factors: the price of equipment, the cost of financing and the tax treatment of the investment. Bonus depreciation lowers the after-tax cost of capital, increasing the number of profitable projects a firm can undertake and helping spur the growth in business investment. And so in the 7 months since it expired uncertainty has settled in. And uncertainty slows investment. Our March 2014IndustryWeek/NAM Survey of Manufacturers confirms that 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.

What does this really mean for Main Street? With pro-investment tax policies, companies like Marlin Steel Wire Products can invest in new cutting edge technologies like the IDEAL welding system. As Drew Greenblatt, the President of Marlin Steel put it, “policies like these allow companies like us to take a risk, put our necks out there and invest.” There are only five of these automated welding machines in the world and Marlin Steel, located in Baltimore, Maryland, is now the only company outside of Germany that owns one. According to Greenblatt, the investment in this new technology means that, “now our employees have the greatest technology at their disposal and now they can compete even better with foreign competitors. This machine will help us make a faster, more precise part and clients will be happier and order more products. This will help protect our employees’ jobs and help us to grow and hire even more employees.”

As we at the NAM have heard time and time again, policies that incentivize investment – especially when those policies are permanent – will help the economy take off because companies large and small will be able to take risks and invest and grow.

So yes, bills like H.R. 4718 will help Marlin Steel make a better material handling basket and so much more. The NAM urges all members of the House of Representatives to vote for this important pro-growth, pro-manufacturing legislation.

 

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Insanity… according to Albert Einstein

“Insanity: doing the same thing over and over again and expecting different results”… Albert Einstein

Well the Senate is once again trying to disprove this wisdom with yet another vote on the so-called “Buffett Tax.” According to our count this will be the 9th time that Senate Democrats have tried to use this tax increase to pay for something. This time around it’s attached to S. 2432 and while the NAM doesn’t have a position on the underlying bill, we do however oppose raising taxes on America’s small and medium sized manufacturers. That’s why, just this morning, the NAM’s Vice President for Tax and Domestic Economic Policy Dorothy Coleman sent a letter to all Senate offices urging Senators to oppose this tax increase.

As we’ve said before, nearly two thirds of manufacturers are organized as a pass-through entity and pay taxes through the individual side of the tax code. Thus, this permanent tax increase would hit those very manufacturers that are the back-bone of the nation’s manufacturing supply chain and reduce the amount of capital available to these business owners to reinvest in their company and their workforce.

This is a bad idea today, just as it’s been a bad idea since it was first conceived a few years ago. Raising taxes on small businesses to pay for new spending is not the way to get our economy back on track and growing the way it needs to. Speaking to the aim of the student loan bill specifically, raising taxes on job creators isn’t the way to ensure that jobs exist for those who are graduating from higher education.

Instead what manufacturers of all sizes need is comprehensive tax reform to ensure that we have a modern, competitive, permanent, pro-growth, pro-manufacturing tax code that allows them to compete and invest and grow and that will remove the constant uncertainty surrounding what policies will be in place in 6 months as well as in 6 years. That’s what manufacturers need and that is what will make the United States once again the best country in the world to manufacture.

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Exactly the Point

Manufacturers applaud the upcoming action in the House of Representatives to consider “America’s Small Business Tax Relief Act of 2014,” H.R. 4457, to make Section 179 permanent. We hope that this common-sense bill will pass with broad bipartisan support.

As we’ve often talked about in this space, making this provision permanent is a priority for small and medium-sized manufacturers. In order to compete in a worldwide economy, manufacturers need to plan and invest and meet emerging needs. Having certainty over the tax treatment of critical investments will make planning for future investment significantly easier. Capital investment is key to economic growth, job creation and competitiveness. Consequently, enactment of this policy would amount to a major step towards a tax code that will promote investment.

Take for example SASCO Chemical Group, Inc. (SASCO), a Georgia-based third generation family-owned chemical manufacturer with worldwide distribution. According to SASCO’s President Marc Skalla, “Innovation has made us who we are today; reinventing ourselves through innovation will secure our future and make us who we will be tomorrow.” To continue this forward-thinking progression, SASCO opened a state-of-the-art Innovation and Technology Center that houses their R&D, Technical, and Process-Pilot plant team. Over the past few years, SASCO has relied heavily on both Section 179 and bonus depreciation provisions in the Tax Code to enhance cash flows on scale up projects originating mainly from their Innovation and Technology Center. According to Marc, “without such provisions, our ability to transition innovations from a small-scale lab environment to full production lines would be severely hampered.  Capital projects such as those our Company launches are exactly the type of projects that these tax provisions are intended to support.”

Companies like SASCO who are innovating, growing and competing are at the heart of the ongoing manufacturing renaissance currently taking place in the United States.  These deductions have allowed SASCO to triple their facility’s capacity over the past four years to keep up with the double digit growth they have experienced annually since 2008. This growth has earned SASCO many accolades including a recent recognition from President Obama’s E-Awards for significant contributions to increasing American exports.

Manufacturers like SASCO need stable, pro-growth, pro-investment tax policy to allow them to face the challenges of competing in a global marketplace. Manufacturers face enough uncertainty and the tax code should not be adding more. We urge every member of the U.S. House of Representatives to support H.R. 4457. Until we can get the full panoply of pro-growth pro-manufacturing tax policies enacted via comprehensive tax reform this is a critical step forward.

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Survey Says… Section 179 and Bonus Depreciation Are Critical

In the latest NAM/IndustryWeek Survey of Manufacturers that was released earlier this morning survey respondents once again underscore the importance of investment incentives like enhanced Section 179 expensing and bonus depreciation and the role that these common-sense provisions play in their firms’ investment decisions. According to the survey, nearly a quarter of respondents said that “they were holding off on making investments until Congress extends Section 179 expensing or first-year bonus depreciation.”

If these provisions were not expensed, over a third of respondents “said that they would not make any investments this year without these provisions.” That would be on top of the 5 percent of respondents that said that they were not planning on making any investment this year at all. As NAM’s Chief Economist Chad Moutray puts it in the survey analysis, “that is a significant portion of businesses that would be negatively impacted by the loss of these investment incentives.

And in a pre-emptive response to those who say that the economy can still benefit when Congress gets around to passing the extenders in the 11th hour during the likely lame duck session later this year, this survey also underscores that the sooner Congress acts to restore these provisions the better. In fact according to our survey, “more than half of those surveyed said there would not be enough time to make capital spending purchases and put these capital expenditures into place if these incentives are not extended until mid-November.”

This survey makes it all the more clear that the House of Representatives should overwhelmingly support the passage of H.R. 4457, America’s Small Business Tax Relief Act later this week. Manufacturers of all sizes need this action and they need it now!

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Who Really Benefits from Bonus Depreciation?

According to a recent paper from the Tax Foundation, the whole economy. Will McBride, the paper’s author, concludes that “extending 50 percent bonus expensing on a permanent basis would boost GDP by over 1 percent, the capital stock by over 3 percent, wages by about 1 percent, and would create 212,000 jobs.”

Here are the NAM, we’re not surprised. Manufacturers know first-hand that capital investment is key to economic growth, U.S. job creation and competitiveness. Promoting investment should be an integral part of U.S. tax policy. And, an effective way to spur business investment and make U.S. manufacturing more competitive is through a strong capital-cost recovery system. An ideal system would allow companies to expense capital equipment in the tax year purchased. First-year expensing lowers the cost of capital, increases the number of profitable projects a firm can undertake and promotes job creation and retention.

This is why we applauded and strongly support Rep. Patrick Tiberi’s recent bill to make 50 percent bonus depreciation permanent, H.R. 4718. We are pleased that it was recently reported out of the Ways and Means Committee and hope that this common-sense bill can come to the floor sometime soon. In the absence of comprehensive tax reform, manufacturers need critical pro-investment tax policies enacted permanently to allow them to plan for future investments. Expensing is not just a matter of timing, by reducing the after-tax cost of investment, policies like permanent Section 179 and permanent 50 percent bonus depreciation allow manufacturers to stretch critical resources and make the investments they need to compete in today’s competitive marketplace. We applaud Rep. Tiberi for his leadership on these efforts and urge swift adoption of both of these provisions and allow U.S. manufacturers to grow and lead way to a full economic recovery.

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NAM Applauds Introduction of Permanent, Pro-Growth Investment Tax Policy

Kudos to Congressman Pat Tiberi (R-OH) for introducing today a bill to allow companies to write off 50 percent of their capital investment in the year they make the investment. Permanent 50 percent first year expensing (also known as “bonus depreciation”) will go a long way to ensure that companies large and small can make investment decisions based on what’s best for their business’s future and not be paralyzed by the constant on-again and off-again pro-investment tax policies.

The bill also will allow companies that have AMT credits (generally companies in a downturn) to use these credits in lieu of taking bonus depreciation. A recent NAM/IndustryWeek Survey of Manufacturers confirms   that, since the start of 2014, the expiration the “enhanced” Section 179 expensing and “bonus depreciation,” has forced many manufacturers and businesses to the sidelines holding off on investment plans. Capital investment is key to economic growth, job creation and competitiveness. Consequently, promoting investment should be a focus of any tax reform effort and an integral part of U.S. tax policy. The most effective way to spur business investment and make manufacturing in the United States more competitive is through a strong capital cost-recovery system.

The introduction of this bill is a significant step toward making this pro-investment culture a reality in the U.S. and creates a critical bridge to pro-growth tax reform. We applaud Rep. Tiberi for his leadership in this area on behalf of manufacturers and urge the Committee and full House to act on it in the near-term. As our economy continues to struggle to fully recover from the recession we need this type of solid, permanent pro-growth policies in place to unleash our economic potential.

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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.

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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.

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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.

 

 

 

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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.

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