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The EPA’s Ozone Rule, Regulating Against Seven Million Jobs

The Environmental Protection Agency’s drive to increase regulation of economy activity, starting with its proposed greenhouse gas regulations, is so expansive and so aggressive that much is what it’s doing is escaping real scrutiny. But the EPA’s agenda is a jobs-killer and the public needs to know about it.

Take the EPA’s latest move to lower ozone limits, regulations that a new economic analysis says could destroy more than seven million jobs.

Starting about four years ago, the EPA sought to reduce the national standards for ground-level ozone, a basic component of smog. In March 2008, the Bush Administration imposed a standard of 75 parts per billion, putting hundreds of counties out of compliance and adding billions of dollars of compliance costs to manufacturers, retailers, government and others.

Then, this January, even before those new, very strict and very expensive standards went into full effect, the EPA proposed even more stringent ozone regulations – with a huge impact on the economy and jobs.

The economists at the Manufacturers Alliance/MAPI have just released a study that quantifies that impact, and the results are shocking.

The new report, “Economic Implications of EPA’s Proposed Ozone Standard,” concludes that reaching the proposed level of 60 parts per billion would:

  • Impose annual compliance costs of $1 trillion between 2020 and 2030. One trillion dollars!
  • And total U.S. job losses attributable to a 60 ppb would be 7.3 million by 2020. That’s more than 4 percent of the labor force projected for 2020.
  • Big states with large manufacturing sectors would be the hardest hit. The ozone regs would cost Texas 1.7 million jobs, Louisiana, 983,000 jobs, California, 846,000 jobs, etc.

Unemployment right now is 9.6 percent, and yet the EPA is moving forward with regulations that will crush economic growth and hiring. The environmental arguments for the regulations are debatable, at best, but the agency pushes on.

The Obama Administration has made job creation a priority, the centerpiece of its economic proposals. But at the same time, the Administration’s EPA is proposing regulations that would destroy seven million jobs!

You cannot credibly claim to be for new jobs and then lead a regulatory campaign that eliminates existing ones.

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Whether On Small or Medium, Tax Increases Still Do Harm

In a letter to the editor in today’s Wall Street Journal, Assistant Treasury Secretary Michael Mundaca argues against Kevin Hassett and Allan Viard’s Sept. 3 op-ed claiming that small businesses will be hit by raising individual income tax rates.  Mundaca writes:

The problem with their argument, however, is that it counts any type of partnership income, sole proprietor income, or S corporation income as small-business income… Our analysis indicates that small-business owners under this definition, who would be affected by allowing the top two rates to increase as scheduled, have an average gross income of over $1 million.

So, what we’re quibbling with here is the definition of small-business income.  Mundaca is arguing that a small business with gross income over $1 million isn’t small.  We’ve made the point over and over that manufacturers are capital intensive – one manufacturing press alone could cost $1 million.  Frankly, a small manufacturer with only $1 million in gross income is small!

But, we’re flexible.  If it makes folks feel better, we’ll call them “medium-sized” businesses.   It doesn’t change our position though.  We think that raising taxes on a “medium sized” manufacturer with $1 million in income (which incidentally, would be a $35,000 tax increase) is a bad idea.  And we think it will hurt job creation.

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Seventy-plus Percent of Manufacturers Pay at Individual Tax Rates

We’ll say it one more time.

From a Fox News Story: “A senior administration official said the president will endorse extending expiring tax cuts only for the middle class.  The official said, …that 97 percent of small businesses “aren’t touched by this, and the 3 percent of them that are are largely lawyers and lobbyists and financiers …” 

AND MANUFACTURERS

More than 70 percent of manufacturers file as pass-through entities and pay taxes at the individual rate.*

* NAM’s chief economist David Huether reports that according to the IRS Statistics of Income Division in 2007 there were 208,620 manufacturing S corporations and partnerships in 2007. These companies pay at the individual rate. According to the U.S. Census Bureau, there were 286,701 manufacturing companies in the United States. That’s 72.8 percent.

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Orszag: Higher Taxes Would Crimp Consumer Spending

While we might not agree with everything he says, Peter Orszag makes a compelling argument for extending the 2001-03 tax rates for a few more years.

The former OMB director, writing in his new capacity as a New York Times columnist, today argued:

Higher taxes now would crimp consumer spending, further depressing the already inadequate demand for what firms are capable of producing at full tilt. And since financial markets don’t seem at the moment to view the budget deficit as a problem — take a look at the remarkably low 10-year Treasury bond yield — there is little reason not to extend the tax cuts temporarily.

We couldn’t have said it better ourselves.

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Bring Back the Estate Tax Now – the Dead Won’t Mind

In today’s Wall Street Journal, Robert Rubin and Julian Robertson make the morbid argument that bringing back the estate tax makes perfect economic sense because it would have the “least negative impact on the economic activity.” After all, dead people won’t be spending that money.

The two further argue that reinstating a tax retroactively isn’t such a bad thing in this case because “presumably nobody’s demise was affected in timing by the structure of our tax law.” Umm…let’s hope not.

The argument they make is so simplistic, it’s frightening that it’s our former Treasury Secretary making it. The fact of the matter is that small manufacturers who want to pass their businesses onto their heirs pay exorbitant amounts to plan for the tax – and that’s wasted money that could be spent on jobs and capital expenditures. And that’s a negative impact on economic activity.

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CBO: Raising Taxes Would Stifle Growth, Jobs

The Congressional Budget Office just released latest numbers on the economic outlook. While most of the report is focused on looming deficit numbers – which are alarming – they also make the point that we’ve been arguing now for months. Allowing taxes to increase at the end of this year will stifle economic growth AND result in higher unemployment numbers. There is no doubt that Congress must address the looming crisis associated with spending and entitlement programs – and the tax code will have to be part of that discussion. But, we should all agree that given this week’s news about jobless claims and news of an anemic economy – now is not the time to raise taxes.

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The End of the World? Not Really, but Still Not a Good Idea

Allan Sloan has an op-ed in today’s Washington Post claiming that tripling the rate on dividends won’t traumatize the stock market.  He cites a few apples to oranges comparisons about the market during Bush’s presidency and the market during Obama’s presidency.  Then he says this: “I don’t want to pay higher taxes, especially on my investment income. Who does? But I don’t think that the world will end — or that my investment portfolio will be vaporized — if rates on investment income rise.”

Allan, when you’re right, you’re right.  You got me.  I don’t think that investment portfolios will be vaporized and I also do not think that the world will end.  In fact, for wealthy investors like Allan Sloan, he’ll probably just tell his high priced investment advisor to “move things around a bit. Mix up the old portfolio.”  But, there are others who will not quite be as lucky.

For example, when dividend payments go down, as they are likely to do (they rose dramatically in 2003 when the tax went down to 15 percent), retirees who live off dividend payments and don’t have high priced investment advisors will just have to do more with less.  Since a substantial portion of 401ks and IRA’s are invested in dividend earning stocks, those who are near retirement will see their portfolios decline.  Dividend paying stocks will once again be at a significant disadvantage to growth stocks, creating an imbalance in the market.

But, is it the end of the world?  No, not really.  But is it where we want to be in this economic environment?  Nope, not really.

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Counter Trade Deficits By Exporting More

The latest trade numbers released today by the Commerce Department reaffirm the importance of doubling U.S. exports over the next five years as outlined in President Obama’s National Export Initiative (NEI). The overall U.S. trade deficit grew unexpectedly to almost $50 billion in June, the highest level since October 2008, and imports increased 3 percent, while exports dropped 1.3 percent.

For goods, the deficit was $62 billion in June, up from $54.3 billion in May. The numbers reflect decreases in exports of capital goods and industrial supplies, while there were increased exports in the automotive sector and engines. Imports increased in June to $200.3 billion from $194.4 billion, led by telecommunications equipment, automobiles, pharmaceuticals and furniture.

If the goal is to strengthen the U.S. economy and job creation, then the best response is to expand U.S. exports as called for by both the National Association of Manufacturers and President Obama in his National Export Initiative. And that means we need to do much more – and quickly – to open foreign markets, assist U.S. companies to export more of their production, and enact policies that support innovation and a competitive manufacturing sector. Of the 15 leading manufacturing economies in the world, the United States is dead last in the percentage of production that is exported. The NAM’s “Blueprint to Double Exports in Five Years” points out that reaching this ambitious goal is possible, but only with a radical shift in policies and programs.

For additional information and to read the NAM’s Blueprint please visit www.nam.org/NEI.

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Why Small Businesses are Reluctant to Hire

An op-ed in yesterday’s Wall Street Journal lays out one of the best cases I’ve seen about why small businesses are concerned – and rightfully so – about higher taxes. Most folks aren’t aware of the excessive burden that small manufacturers already face – payroll taxes, unemployment insurance taxes, federal and state income taxes. Now they’re facing a myriad of increased costs related to the health care bill such as onerous new reporting requirements and higher health care premiums. Add on to that the expiring rates from 2001 and 2003 and the numbers get downright scary. That’s why businesses aren’t hiring – and it’s why Congress needs to wake up and take action to keep rates low.

The op-ed is “Why I’m Not Hiring” by Michael P. Fleischer, sub-headlined, “When you add it all up, it costs $74,000 to put $44,000 in Sally’s pocket and to give her $12,000 in benefits.”

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Big Business and Small Business Are Not Foes

Quit playing games with my heart.

The House floor played out today like that tired Backstreet Boys song, as leadership brought up a bill that pitted small business against big business.

At issue was repeal of the onerous 1099 reporting requirements on U.S. businesses that just a few short months ago the House passed into law as part of the health care reform. But to offset the repeal, lawmakers included more than $10 billion in tax increases on American companies that have overseas operations.

They could have just taken the exact text of Senator Johann’s amendment that would have achieved the same goal without raising taxes.

But they simply couldn’t resist putting the business community in a bind. Just like cat versus dog, ketchup vs. mustard — today it was small vs big.

We’ve all fallen for this twisted logic before. But the truth is – like ketchup and mustard and cats and dogs – big business and small business are not against each other, rather they complement one another.

Every big business was once small, most small businesses strive to be big. Without small businesses, big businesses have no suppliers, without big businesses – small businesses have no buyers.

The House played a game and politics may have won the day. But economic growth and job creation lost out.

UPDATE (7:45 p.m.): The House failed to gather the 2/3rd vote for passage of H.R. 5982 under suspension of the rules. The vote was 241-154.

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