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Senator, You’re Aiming At the Wrong Target

The NAM believes that recent M&A activity in the international arena highlights the critical need for a comprehensive overhaul of the U.S. tax system to reflect the global marketplace of the 21st century. In short, the answer is comprehensive tax reform, not punitive tax treatment of foreign-owned companies or other “on-off” tax changes that have been floating around Washington this summer.

The latest proposal, unveiled yesterday by Senate Finance Committee member Chuck Schumer (D-NY), takes aim at interest deductions by non-U.S. headquartered companies. Unfortunately, Sen. Schumer’s proposal seems to disregard the very important role that foreign direct investment plays in the U.S. economy. Indeed, U.S. subsidiaries of foreign companies employee more than 2 million U.S. workers, over 17 percent of America’s manufacturing workforce The ability to deduct interest expense is a critical factor in a company’s decision to invest and create jobs in the United States

Foreign investment is particularly important in U.S. manufacturing, where one in every seven U.S. manufacturing workers is employed by foreign-owned firms in the United States. These firms contributed $649.3 billion to the economy in 2010, the most recent year with data. Foreign affiliates are major exporters and, in fact, accounted for nearly 18 percent of America’s global exports.

Because of the importance of foreign direct investment to the U.S. economy, it is critical that policymakers avoid imposing discriminatory taxes on foreign-owned companies. Congress should focus on tax policies that attract and maintain more capital investment, rather than discourage it.

 

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And the Drumbeat for Tax Reform Continues….

You’ve certainly heard manufacturers call for a major overhaul of our nation’s tax code, particularly in light of recent M&A activity in the international arena. In a Washington Post op-ed on August 8, the Senate’s leading GOP taxwriter — Sen. Orrin Hatch from Utah—echoes that call.

In calling for an end to political posturing over the issue, Sen. Hatch concludes “ [T]he real solution would be to create a tax environment more favorable to businesses in this country.”

We agree with Sen. Hatch that the “problem demands much more focus than campaign talking points.” Tax reform won’t be easy but there’s no better time than now to get moving on a  21st century tax system for the United States.  Our trading partners have done it and so can we.

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How to Encourage Investment in the United States

Here at the NAM, we’re big proponents of a manufacturing comeback and one of our top priorities is to make the United States the best place in the world to manufacture and attract foreign direct investment. A pro-investment tax climate is key to achieving this goal and manufacturers are all for it.

On the other hand, we are increasingly concerned about “one-off” changes to the current tax code, like the anti-inversion proposals under discussion in Washington that will actually discourage investment in the United States, taking a toll on job creation and economic growth.

In today’s Wall Street Journal, John McKinnon takes a closer look at the potential negative impact of the anti-inversion legislation just on foreign direct investment in Firms Warn Inversion Crackdown Carries Risks. This is a big issue for the manufacturing sector—U.S. subsidiaries of foreign companies employee more than 2 million U.S. workers, over 17 percent of America’s manufacturing workforce. As we’ve said many times before, we don’t need more tinkering with our broken tax code, what our country needs is a pro-growth, pro-competitive, fairer, simpler and predictable tax climate.

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Setting the Record Straight

There’s no doubt that the U.S. tax code— which includes the developed world’s highest corporate tax rate, outdated international tax rules and a host of temporary provisions—is a drag on economic growth and competitiveness. And while Manufacturers continue to push for comprehensive tax reform, NAM members recognize that, until that happens, we have to operate and compete under the current system. Unfortunately, that reality is being largely ignored in the current rhetoric flying around Washington about corporate inversions.

In today’s Wall Street Journal Miles White, the Chairman and CEO of Abbott Laboratories, sets the record straight on the realities of the U.S. tax system in his oped,  Ignoring the Facts on Corporate Inversions, and notes that legislation to block inversions would simply make a bad system worse. We agree strongly with Mr. White that piecemeal proposals to change the tax code will do more harm than good and the real solution is one Manufacturers have been pushing for all along, “fact-based, thoughtful, comprehensive [tax] reform.”

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Support the United States: Enact Comprehensive Tax Reform

Manufacturers in the United States have struggled to compete under our nation’s broken tax system for years so it’s natural that the NAM is a leader in calling for pro-growth, pro-competitive tax reform. Even though some say tax reform is “stalled” in Congress, NAM continues a constant drumbeat on the need to reform our nation’s tax code to bring us into the 21st century. Indeed, our voices are getting louder by the day as we see Washington policy makers drag their feet on reform or, worse yet,  suggest one-off changes to the tax code to address problems that would be eliminated entirely by overall reform.

While the NAM is a strong advocate for comprehensive reform of our current tax code, we also believe it is critically important to keep our current tax system in place until policymakers agree on a final reform plan. Piece-meal changes or repeal of long-standing rules will inject more uncertainty into business planning, making U.S companies even less competitive and threatening economic growth and U.S. jobs. A key objective for the association, as outlined in NAM’s “A Growth Agenda: Four Goals for a Manufacturing Resurgence in America,”[1]  is to create a national tax climate that promotes manufacturing in America and enhances the global competitiveness of U.S. manufacturers.  Manufacturers want the United States to be the best place in the world to manufacture and attract foreign direct investment. The way to do this is to enact a pro-growth, pro-competitive tax code

[1] Available at http://www.nam.org/

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Good News from Capitol Hill: the House Votes to Permanently Ban Taxes on the Internet

Amid persistent reports of historic gridlock in Washington, there was a brief flash of bipartisanship in the House this afternoon when representatives voted to permanently ban taxes on Internet access. Manufacturers know first hand that the Internet has become a critical piece of infrastructure in the United States and the 16-year ban on new state and local taxes on Internet access has helped spur the incredible amount of investment in broadband networks.

Unfortunately, this temporary moratorium will come to a halt in November 2014 unless Congress acts. Last month the House Judiciary Committee approved bipartisan legislation—the Permanent Internet Tax Freedom Act—which calls for a permanent moratorium on taxing Internet access. We applaud the House for coming together to advance the legislation.

Extending the moratorium will ensure continued robust broadband adoption and investment in the United States and promote competitiveness and job creation. Especially given our lackluster economy, the sooner Congress removes the tax threat the better. Let’s keep this bipartisanship rolling–next stop: the U.S. Senate!

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Don’t Let the Comeback Turn Into a Fallback

Abundant domestic oil and gas resources are fueling a manufacturing comeback in the United States. A recent report by IHS Global Insight found that increased oil and gas production is supporting millions of jobs, increasing household incomes, boosting trade and contributing to a new increase in U.S. competitiveness around the world. For manufacturers and other energy consumers, the development of shale oil and natural gas in the United States in particular has been a “game-changer” in terms of reduced energy costs, increased access to secure energy supplies and availability of a low-cost raw material.

The chemistry industry alone has generated billions of dollars of new investment thanks to this innovation. Manufacturers believe continued shale oil and gas development is a critical component of a successful ‘all-of-the-above’ energy strategy. So it’s no surprise that Manufacturers, both energy producers and energy consumers, support policies that will help advance—not slow down—domestic energy production.

Unfortunately, we’re disappointed to hear reports that policy makers in Pennsylvania are considering imposing a “severance” tax on energy companies based on the value of the gas extracted from wells in the state. The impact of a severance tax is easy to calculate: new taxes translate into higher costs, less production and another hurdle for a manufacturing comeback.

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Don’t Tax Our Internet: Part IV

Over the past 16 years, the Internet has become a critical piece of infrastructure for Manufacturers in the United States and a ban on new state and local taxes on Internet access has a lot to do with the incredible amount of investment in the broadband networks. Unfortunately, unless Congress acts soon, this temporary moratorium will expire for the fourth time in November 2014 with the potential of raising costs significantly for all businesses and families.

NAM members wholeheartedly agree with the conclusion of economist George Ford in a recent paper released by the Phoenix Center that a permanent Internet Tax Moratorium will ensure continued robust broadband adoption and investment in the United States. We strongly support bipartisan legislation, H.R. 3086, the Permanent Internet Tax Freedom Act, scheduled to be taken up tomorrow by the House Judiciary Committee. Kudos to Committee Chairman Bob Goodlatte (R-VA) along with Reps. Anna Eshoo (D-CA), Spencer Bachus (R-AL), Steve Cohen (D-TN) and Steve Chabot(R-OH) who cosponsored the bill. Extending the moratorium encourages innovation and economic growth and the sooner Congress removes the tax threat the better.

UPDATE:

The Judiciary Committee has officially put the permanent kibosh on taxation of access to broadband internet. This is an important step and manufacturers urge Congress to pass this bill in an expeditious fashion.

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Small Businesses Are Taking A HIT

In NAM’s quarterly surveys of members, health care costs consistently rank as the top business challenge for manufacturers. The concerns of these companies are well-founded given the avalanche of new rules, regulations and requirements as the rollout of the Affordable Care Act continues.

It’s particularly challenging for many small and medium-size business owners who, in addition to everything else, are feeling the hit of a new fee on health insurers, also known as the health insurance tax (HIT), which translates into higher insurance premium costs for small businesses and their employees. In a June 4th op-ed in The Boston Globe, “Small business picks up Obamacare tab,” Tom Stemberg, the co-founder and former CEO of Staples, spells out the devastating impact of this tax on businesses operating on tight margins and the workers they hire. His column echoes what the NAM is hearing every day from our members – and unfortunately, it seems that it will get more and more difficult for them as implementation proceeds.

Stemberg knows firsthand the challenges facing smaller businesses and what it takes to succeed and grow—and we agree with him wholeheartedly that it’s time to repeal the Health Insurance Tax.

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Permanent Tax Policy: We Certainly Could Use It!

Uncertainty is the bane of manufacturers and indeed the entire business community. It’s one thing when nature throws you a few curve balls but it’s an entirely different story when we create this uncertainty ourselves. And this is the case with a huge chunk of our tax code, which expired at the end of 2013, leaving many companies in limbo on a number of fronts.

Senators currently are considering retroactively extending the “extenders package,” for 2014 and 2015 and NAM supports this effort as a bridge as we work towards comprehensive tax reform. Yet it’s still a short-term fix for a long-term problem.

Senator John Thune (R-SD) understands this and, along with several colleagues, is pushing to make some of these temporary provisions a permanent part of the tax code. Manufacturers think this is an excellent—and long overdue—idea.

Senator Thune’s proposal, which he is proposing as an amendment to the pending tax bill, includes a permanent and more robust R&D tax incentive for innovating companies and more generous write-offs for smaller businesses making capital investments. The House agrees with this approach and last week approved a bill by Reps. Kevin Brady (R-TX) and John Larson (D-CT) that would make a strong R&D incentive a permanent part of our tax system.

Like the House bill, Senator Thune’s R&D tax credit proposal would boost the alternative simplified credit (ASC) to 20 percent, increasing its incentive value and ensuring continued U.S. leadership in global innovation. As for encouraging small business investment, the Senator would allow companies to take an immediate write-off for up to $500,000 in investments if they invest up to $2 million per year.  This proposal parallels a bill authored by Reps. Patrick Tiberi (R-OH) and Ron Kind (D-WI) , which passed the Way and Means Committee last month, that would make Section 179 permanent at the same levels. We hope that the House will take up this bill in the near future as well.

And the push for permanent, pro-growth tax policy shouldn’t stop there.  Other temporary “extenders” also should be made permanent ASAP. Including bonus depreciation, deferral for active financing and the “look-through” rule for controlled foreign corporations.

Making these provisions a permanent part of the tax code will spur business investment and job creation, which is key to economic growth and competitiveness. And those are goals of which all Americans are certain.

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