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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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House Taxwriters Move Forward on Tax Reform Part I

Kudos to House Ways and Means Committee members who today approved several bills that will revive, make permanent and—in some cases—improve several expired tax provisions that are high priorities for manufacturers.

The individual bills call for a permanent and robust R&D credit, provide first-year expensing for capital investments by small manufacturers, allow manufacturers to defer tax on active financing income earned overseas and let U.S. multinationals redeploy cash overseas without triggering an additional U.S. tax burden. Taken together these bills will stimulate innovation, create more jobs, spur investment and make U.S. manufacturers more competitive—all factors that are critical to our nation’s economic growth.

In an April 28th letter to Committee members in advance of the hearing, the NAM pointed out that legislative action to make permanent these important tax provisions represents a significant step forward in achieving our goal of pro-growth, pro-manufacturing tax reform. Here at the NAM we’re committed to both ending the continuing cycle of temporary tax provisions and advancing much-needed comprehensive tax reform. Today Ways and Means members added a strong voice to these critical provisions and demonstrated their commitment to pro-growth tax policy. Thanks to Chairman Camp and his Committee for getting the ball rolling towards these goals.

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House Subcommittee Looks At Bill to Fix Tax Nightmare Facing Traveling Workers

Our nation’s increasingly mobile workforce is subject to an ever-changing hodgepodge of state tax laws, creating a compliance and fiscal nightmare for both companies and their employees on temporary assignments to other states.

There is an easy solution to the problem and Manufacturers have joined others in the business community in calling for legislation— the Mobile Workforce State Income Tax Simplification Act of 2013 (HR 1129)—clarifying that states can only assess income taxes on non-resident employees who work in the state for more than 30 days in a calendar year. HR 1129—and other similar proposals—have been stuck in legislative limbo for a while so kudos to the House Judiciary Regulatory Reform, Commercial and Antitrust Law Subcommittee for holding a hearing today on the bill.

NAM members are squarely behind this common-sense approach to a taxing problem and hope that the subcommittee’s hearing today will spur legislators to act quickly on this important measure.

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The President’s Ideas on Tax Reform Will Hurt, Not Help Manufacturers

 

Manufacturers haven’t been shy in pushing for pro-growth, pro-competitiveness and pro-manufacturing tax reform.  We know firsthand how our current complicated and antiquated tax code, with the highest corporate tax rate among developed countries, makes it more difficult for manufacturers and other businesses in the United States to compete and succeed in a global economy. So our ears perk up when we hear the President mention tax reform, though tonight he touched only around the edges.

Previously, President Obama has called for a 28 percent tax rate for corporations – it is simply not enough. That wouldn’t even put US companies on a par with the rest of the developed countries whose average corporate tax rate is about 25 percent—and why should we be average? NAM supports a corporate tax rate of 25 percent or lower—with an accent on the lower.

We’re also more than a bit concerned about his talk of unspecified “loophole closers” or the more technical term, “base-broadening.”  Manufacturers are pragmatic enough to recognize that broadening the income tax base will be part of any debate over lowering corporate tax rates, but policy makers need to consider the potential impact of expanding the tax base on economic growth and the competitiveness of capital-intensive industries like manufacturing. Some current tax rules are key to a strong manufacturing sector, and the benefits of these provisions should be maintained in a new system.

The NAM supports greater investment in infrastructure but the tax code isn’t the place to look for financing.  The President’s proposal to repatriate overseas earnings as a means to direct additional investments in infrastructure is a very complicated financing tool that will make it even harder to achieve a modern international tax system that’s so important for U.S. manufacturers.

Like the President, manufacturers support an “all of the above” energy strategy. And we truly mean “all.” so we were concerned that the President again is suggesting we create winners and losers in the energy sector by increasing taxes on the oil and gas industry. It’s time to retire that tired, inaccurate talking point and acknowledge that manufacturers consume one-third of our nation’s energy ad know that higher taxes on some energy producers will translate into higher energy prices.

Finally, with his focus solely on corporate tax reform, the President totally ignores two-thirds of manufacturers—companies organized as “flow throughs,” like S corps and pay taxes at the individual level.  These companies are a critical part of the manufacturing ecosystem and dealing them out of the tax reform effort could leave them with a higher tax bill.

Here’s the bottom line for us: a new system should not result in a net increase in manufacturers’ U.S. tax burden—a change that would undoubtedly derail efforts to enhance U.S. economic growth, investment and jobs.  Unfortunately, the ideas the President outlined tonight are not good news for U.S. manufacturers.

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Tax Reformers Need to Focus on Growth, Not Targeting the Energy Industry

Manufacturers are totally frustrated with our outdated, anti-competitiveness, anti-growth tax system and appreciate the current focus in the White House and on Capitol Hill on improving our nation’s tax system. As we’ve said many times before, any effort to rewrite the federal tax code should result in a balanced, fiscally responsible plan that allows manufacturers in the United States to prosper, grow and create jobs and also enhances their global competitiveness.

Moreover, since manufacturing accounts for roughly one-third of the energy consumed in the United States, it also is critically important that any tax reform plan allows our nation’s energy producers to make the necessary investments to ensure our nation’s energy security and avoids increasing the tax burden on this vitally important industry sector. Maintaining diverse, reliable and affordable energy sources is crucial to jobs, competitiveness and overall economic growth.

With that in mind, we were shocked by Daniel Weiss’ assertion in a January 17th Real Clear Politics editorial that “one simple tax reform that Congress should pass right away that would make the federal tax code fairer and reduce the deficit with almost no impact on the economy: end special tax breaks for the five biggest oil companies.” Nothing could be farther from the truth.

Let’s start with a simple fact: providing the energy needed to support manufacturers and the broader U.S. economy requires large capital investments by the private sector. Promoting investment should be an integral part of comprehensive tax reform, particularly as it relates to investments in developing our nation’s energy supplies.

In particular, finding and producing domestic oil and natural gas requires large and continuing capital investments. Drilling oil and gas wells involves a number of costs, including labor, repairs, fuel, chemicals, supplies and other expenses that have no salvage value. Under longstanding tax policy rules, energy companies can deduct these costs—known as intangible drilling costs (IDCs)—as ordinary and necessary business expenses, reducing the cost of exploring for and producing oil and gas.

For manufacturers and other energy consumers, the development of shale natural gas in the United States 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. IDCs cover about 70–80 percent of the cost of a shale gas well. It’s not hard to imagine the negative impact of eliminating the deduction of IDCs as Mr. Weiss suggests.

In the same vein, Mr. Weiss suggests eliminating the Section 199 deduction for U.S. oil and natural gas production, refining and processing. Sec. 199, which was included in the 2004 American Jobs Creation Act, is designed to reduce the tax burden on all domestic manufacturers and help spur investment and create jobs in the United States. Congress already took a swipe at the energy sector by limiting the deduction for oil and gas production. The total repeal of this deduction for the energy sector would further target these companies and, in the process, discourage new oil and gas investments in the United States by making them less competitive economically with foreign opportunities.

Also keep in mind that reserving U.S. energy companies’ access to global natural resources is critical to U.S. energy security. Unlike their competitors, U.S. energy companies with overseas exploration and production operations—so-called “dual-capacity” taxpayers—pay both U.S. and foreign taxes. Current tax rules for dual-capacity taxpayers—already stricter than rules for other taxpayers—reduce the potential of double taxation of income in the U.S. worldwide tax system and limit foreign tax credits to payments that are truly in the nature of income taxes. Existing rules specifically deny foreign tax credits for some payments, such as royalties paid to access a natural resource.

Mr. Weiss suggests that policymakers deny foreign tax credits even for income taxes paid by dual-capacity taxpayers. These proposals will unfairly and retroactively overturn well-established and longstanding rules, subjecting American energy companies to harmful double taxation on new and existing investments. 

NAM has a different message for policy makers on tax reform and the energy sector. In contrast to a tax system that encourages investment in new energy sources and energy efficiency, imposing discriminatory taxes on the energy sector will result in higher costs for all energy consumers in the United States. The increased cost for manufacturers will make it more expensive to produce in this country and make them less competitive in foreign markets, putting millions of current manufacturing jobs at risk.

New energy taxes also will set back current efforts to achieve energy independence. As noted above, the United States has made great advances recently in developing new sources of domestic energy. Unfortunately, imposing targeted tax increases on energy companies will discourage oil and gas investments in the United States, working against the goal of enhancing America’s energy security and boosting new, domestic investments in affordable energy sources.

The NAM remains adamantly opposed to targeted energy taxes, whether in the context of tax reform or as part of a separate effort. Manufacturers believe that tax and energy policy needs to focus on enhancing America’s energy security by encouraging new investments in affordable sources of energy, not imposing new taxes on the energy industry.

 

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Comprehensive Tax Reform: Good for Tennessee and Good for the U.S.

Following a stop in Memphis last month by Congress’ chief taxwriters Sen. Max Baucus (D-MT) and Rep. Dave Camp (R-MI) to talk taxes, John Faraci, Chairman and Chief Executive Officer of Memphis-based International Paper Co., penned an op ed promoting the benefits of a comprehensive rewrite of the tax code.  Manufacturers couldn’t agree more with Mr. Faraci’s assertion that “simplifying and modernizing the current tax code has the potential to ignite a virtuous circle of economic activity: businesses increase investments, consumers have more spending power and businesses grow even further.”

We also share his belief that “America’s current tax system is anything but virtuous” and know firsthand that the challenges faced by International Paper and other businesses in Tennessee are similar to challenges faced by manufacturers nationwide. We support efforts by Chairmen Baucus and Camp to advance pro-growth, pro-manufacturing tax reform. To quote Mr. Faraci, “ All of us can support reforms that will achieve a more modern, streamlined tax system that promotes jobs and growth for Tennessee and the entire nation.”

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Americans Look Askance At New Taxes Imposed By Healthcare Law

A recent bipartisan poll conducted by GOP pollster John McLaughlin and Democratic pollster Margie Omera  shows little support among American voters for new taxes included in the Affordable  Care Act.

Slightly more than one third of the respondents, which included Republicans, Democrats and Independents, approved of the new excise tax set to raise $8 billion next year from health insurance providers, while 50 percent of respondents stated flatly that they opposed the tax and 12 percent were neutral.

A similar percent of respondents felt the same way about the 2.3 percent tax on medical devices that went into effect at the beginning of this year. And as for the Affordable Care Act overall, 49 percent opposed it and additional 7 percent were neutral.  So it’s hardly surprising that 71 percent of the respondents of all political stripes said they supported changing, delaying, defunding or repealing the ACA.

 

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Manufacturers Look Forward to Continue Working with Furman As He Moves to the CEA

As the Principal Deputy Director of the President’s National Economic Council, Jason Furman has displayed an understanding of some of the issues that face Manufacturers, particularly as they relate to operating in a struggling economy.  Jason has earned the respect of economists and policymakers across the political spectrum, much as President Obama said yesterday.

In recent years, he’s been helpful in our efforts to advance both expanded net operating loss relief and bonus depreciation, two tax provisions that helped many manufacturers through slow economic times. From our perspective, Jason will be taking over as head of the Council of Economic Advisers at another critical time as the debate over reforming our nation’s tax code heats up.  While the NAM is firmly behind comprehensive tax reform, we are concerned about reform efforts that could increase the tax burden on American manufacturers.  As the tax debate moves forward, there’s a lot of important issues to consider and we look forward to working with Jason on pro-growth, pro-manufacturing tax policy.

Dorothy Coleman is vice president of tax and domestic economic policy and Chad Moutray is chief economist, National Association of Manufacturers.

 

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Some Advice for the President: Look Out for U.S. Competitiveness When You Get To Ireland

In advance of President Obama’s trip to Northern Ireland for the G-8 summit later this month, the NAM and several other business groups this week sent a letter asking the President to keep U.S. competitiveness front and center in the upcoming talks.  When the talks turn to taxes—and that’s likely to happen—the organizations urged him to support tax policies that would improve the worldwide competitiveness of American businesses and increase U.S. economic growth and job creation.

As the letter points out, this is an important and timely message to deliver.  Not only are other countries promoting the international competitiveness of their companies, but a number of foreign countries, including several of our G-8 partners, have advanced tax initiatives under the guise of tax avoidance that actually seem to be primarily targeting American global companies, a development that would harm both the competitive position of U.S. companies and the U.S. Treasury.

With 95 percent of the world’s customers outside the United States, it is critically important that American companies are able to compete effectively in the world’s markets.  As we’ve said many times before, overseas operations of American companies help stimulate the demand for U.S. exports and support jobs in the United States.

 

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Still Time to Do Something About Rising Healthcare Costs for Small Businesses

Healthcare costs are constantly on the minds of manufacturers. Almost three fourths of the companies responding to a recent NAM survey said rising healthcare insurance costs are a primary business challenge for them. So we’re glad to see that these concerns are resonating in Congress where House Small Business Health and Technology Subcommittee Chair Chris Collins (R-NY) today held a hearing to take a look at the impact on small businesses of the new fee on health insurance fee, set to kick in next year.

The fee, which was included in the healthcare reform law, will raise some $100 billion from health insurance providers over the next ten years. And since many small businesses obtain their employees’ health care coverage from these insurance companies, these additional fees are likely to be felt in premium costs. Indeed, the fee could raise the cost of employer-sponsored insurance by 2 to 3 percent in 2014, imposing a cost of nearly $5,000 per family by 2020 according to a study released earlier this year by the National Federation of Independent Business Research Foundation.

Fortunately, Congress still has an opportunity to avert this crisis before it starts. On the House side, Rep. Charles Boustany has introduced bipartisan legislation –H.R. 763 — to repeal this annual fee on health insurers and a similar bill — S.603—has been introduced in the Senate by  Sen. John Barrasso (R-WY). Manufacturers urge lawmakers to repeal this job killing tax ASAP.

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