Common-sense, bipartisan tax legislation can and does pass quickly in Congress! Today, the House passed, by voice vote, the Mobile Workforce State Income Tax Simplification Act (HR 1864), a bill that establishes an easy-to-understand rule on taxing out-of-state workers that helps both employees and employers. Currently, a maze of state income tax laws apply to employees who temporarily work in nonresident states and their employers who are responsible for withholding taxes for these traveling employees.

The House recognized the absurdity of this patchwork of different state income tax rules and passed HR 1864, which establishes a simple and fair test: a temporary worker needs to work in a nonresident state for more than 30 days before he has to pay income taxes to the state he’s visiting. 

The NAM letter sent 5/14 to all House offices voiced support for this bill and urged prompt passage of this legislation on behalf of many manufactures and their workers, who are getting trapped by onerous compliance burdens and different state income tax liabilities. The compliance burden is particularly problematic for small and medium size companies that do not have in-house tax departments to calculate the employee’s tax liability and the necessary employer’s tax withholding requirements.

The bill now advances to the Senate and manufacturers urge Senators to act quickly on this common-sense, bipartisan legislation. To learn more about the issue, click here.

“Uncertainty” was the buzz word at today’s House Ways and Means Select Revenue Measures Subcommittee hearing on tax extenders. At the hearing, which focused both on provisions that that expired at the end of 2011 and those set to expire at the end of 2012, Democrats and Republicans alike said that repeated expirations of temporary tax provisions breed “uncertainty” for both individual and corporate taxpayers that needs to be addressed. Subcommittee Chairman Pat Tiberi (R-OH) summed it up well in his opening statement: “[W]ith a few exceptions, temporary tax provisions that are worthy should be made permanent.” Manufacturers agree that worthy extenders should be made permanent and we put several provisions in that category including the R&D tax credit, deferral for active financing income and  the look-through rules for controlled foreign corporations (CFCs). 

There is real world cost to letting these tax provisions lapse. For example, the on-again, off-again U.S. R&D credit encourages companies to look into relocating U.S. R&D projects to countries offering more generous and permanent research incentives. Foreign direct investment in the U.S. takes a hit, too, as the U.S. is less attractive to R&D-intensive foreign-owned companies evaluating where to perform their research activity. 

We commend the many members of Congress who are interested in reform our nation’s out-dated tax code. This effort is going to take time and, until it’s done, these proven pro-growth, pro-manufacturing, pro-job tax incentives should be renewed sooner rather than later. We hope taxwriters can build on the bipartisanship evident at today’s hearing and act to restore these sound tax provisions to provided badly needed tax certainty for business taxpayers as soon as possible.

A bipartisan package of key tax incentives important to manufactures has been in limbo since early this year as Congress drags its feet in extending these temporary “extenders.” Like a yo-yo, these on again, off again nature of these tax provisions undermines the goal of these incentives to drive competitiveness, innovation and job growth. For example, with deferral for active financing on hold, U.S. manufacturers that provide financing for overseas sellers are penalized with a tax that their foreign competitors do not incur. And this makes it more difficult for them to provide competitive financing for potential customers. Moreover, unlike our competitors, our country has been without an R&D incentive for almost three months. This is not news to other countries.  In fact, just two days ago Canada ran a half page, full color ad in the Washington Post bragging that its “…R&D incentives are among the most generous in the world.”

These and other temporary tax provisions help manufacturers invest, grow and retain U.S. jobs. During an exchange last week on the floor of the Senate between the Democrat and Republican leadership of the Senate and the Finance Committee, there was rare, bipartisan agreement that the now expired tax extenders are causing uncertainty to individual and business taxpayers and should be renewed sooner rather than later. We couldn’t agree more.  While we wait for comprehensive tax reform, Congress should renew quickly the bipartisan-supported tax extenders that benefit manufacturers, their customers and their supply chains while spurring growth in the economy and jobs.  Restoring tax certainty will go a long way to boosting our fragile economic recovery.

Recently there was yet another plug for a permanent and strengthened R&D Credit, this time from the Washington Post.  In a 2/25 editorial “A Chance for Corporate Tax Reform,” the paper applauded the President for including a permanent and strengthened R&D credit in his tax reform framework. As the Post aptly notes,  “[P]rivate-sector underinvestment in R&D is a market failure requiring government correction.” On this point, the National Association of Manufacturers says bravo! 

More than 30 years of an on again, off again R&D tax credit, is no way to spur cutting-edge technologies and world class innovation in the United States.  And this is particularly true today when the credit has expired for the 15th time. It’s no surprise that the U.S. share of global R&D in this century has fallen from 39 percent to 31 percent given the fierce global competition for R&D investment dollars. Once the best in the world during the 1980s, our R&D tax credit today ranks 24 as countries around the globe have created stronger R&D tax incentives to attract the fuel of innovation:  R&D.  Our global competitors get it. It is not just the economic growth derived from new innovations that makes a country want to be the world’s incubator for the newest innovations, but also the societal spillover benefits and the higher standard of living associated with such innovations.

What manufacturers, who perform nearly 70% of all business R&D in our country know, is that research is inherently risky, costly, and time consuming and a typical R&D project in the manufacturing sector spans five to 10 years.  The United States needs more R&D and the tax code can help.

Yesterday more than 100 associations, representing a cross section of industries on the front line trying to grow and create jobs in a fragile economy, urged in a letter to conferees on the payroll tax cut extension bill HR 3630 to include in the final conference agreement an extension of 100% bonus depreciation (sometimes referred to as 100% expensing) through 2012.

This provision has garnered bipartisan, bicameral support as well as the support of the White House. The broad support is due in part to the fact that bonus depreciation allows manufacturers to write off the full cost of capital investments, e.g. plant machinery and equipment, in the year of purchase rather than over the depreciation life of the capital investment, which typically span 10 to 20 years.

Given our fragile economy, this provision gives a temporary boost to the customers who want to buy and the suppliers who want to manufacture capital equipment in the USA.  Jobs are maintained and created. Just ask small manufacturer Campbell Fittings of Boyertown, PA, about job creation related to this provision effective for past 2 years. Bonus depreciation drove his company’s decision to make more capital investments that resulted in hiring 40 new workers in the past 15 months to run the new equipment. If 100 percent bonus depreciation were extended through 2012, he plans to make more capital investments.  The new equipment allows his company to compete with foreign competitors. 

Today’s Wall Street Journal article “With Tax Break Corporate Rate is Lowest in Decades” was disingenuous in citing a price tag of $55 billion in each of the past two years for bonus depreciation.  Bonus depreciation is a timing issue, and as such, that means companies can write off the cost of a $100,000 piece of new machinery purchased this year and thus would not be taking depreciation for the next nine years for a typical piece of machinery.  

Kudos to Congress and the Administration in recognizing this private sector job creating provision given our abysmal unemployment rate exceeding 8 percent. Capital investments equal putting people back to work.

Bipartisan action in Congress can happen and did occur today as lawmakers in the House Judiciary Committee favorably reported HR 1864, the “Mobile Workforce State Income Tax Simplification Act of 2011.”  This bill represents a commonsense tax simplification for both employers and employees by creating a bright line test to establish fair and uniform rules clarifying that states cannot assess income taxes on non-resident employees who temporarily work in a state.

If the bill is enacted, nonresident employees who work in a state for 30 days or fewer during a calendar year would not have to file a state income tax return or pay state income taxes to the nonresident state. Also, employers would no longer be required to calculate and remit state income tax withholdings for these short work periods.  Some 30 states currently have laws requiring non-resident employees to pay state income taxes based on working only one day in the non-resident state.

The yearly ritual of filing taxes causes enough nail biting and the thought of having to file an additional state income tax return simply because an employee worked one day in a non-resident state seems beyond absurd.  This prudent legislation would eliminate some of the unreasonable tax filing burdens imposed on both employees and employers.  HR 1864 would be a win-win situation bringing common sense tax change for job creators and workers and we will strongly advocate that this legislation be brought before the full House for a vote as soon as possible.

Once again a number of important tax incentives are scheduled to expire on December 31^st, clearing the way for a tax increase on millions of U.S. taxpayers that benefit from these provisions. Manufacturers have an interest in a number of these provisions including the Controlled Foreign Corporation (CFC) look through rules, deferral for active financing, and the R&D tax credit that help us create and retain jobs and compete in the global marketplace.

Because of the importance of these and other provisions to the business community, the NAM today joined more than 1,500 other companies and organizations on a letter to all members of Congress urging them to act quickly to extend these pro-growth, pro-job provisions.

While many in Congress focus on much-needed tax reform, the letter makes a strong case for why these “extenders” can’t wait until negotiators agree on how to revamp the tax code.

“The lack of timely congressional action to extend these provisions would inject more instability and uncertainty into the economy and further weaken confidence in the employment marketplace… Even though Congress has begun to consider tax reform proposals, a wide-ranging group of taxpayers is making decisions right now related to current law which will have an immediate impact on the economy.”

Plain and simple, “tax extenders” mean jobs and competitiveness for the U.S. economy It’s something that we can ill-afford to wait for in these unsettled economic times.

Job creation and increased supply and demand in the manufacturing community is a centerpiece of bipartisan legislation introduced today by Sens. Michael Bennet (D-CO) and Johnny Isakson (R-GA). With support from manufacturers and other business leaders, they introduced the Sensible Accounting to Value Energy (SAVE) Act, which would improve the ability of federal mortgage loan agencies to determine the energy costs a homeowner can expect to pay over the life of a mortgage and would increase taxpayer qualification of federal mortgage loans for energy-efficient homes. 

The benefits to this bill are clear – it will offer homeowners reasonable financing options to make their homes more energy efficient. As a result, manufacturers and their employees across the U.S. stand to see a significant increase in demand for energy-efficient products, ranging from insulation to HVAC units and more. 

CEO of Johns Manville Todd Raba speaks about the SAVE Act

According to recent studies, homeowners spend approximately $2,200 on energy costs per year – a number that remains high due to barriers in mortgage financing of energy-efficient improvements. If federal mortgage loan agencies are allowed to account for these expenses at the outset of a home purchase, homeowners could properly plan for upgrades that will save them money in the long run while creating immediate manufacturing demand. 

In today’s struggling economy, the SAVE Act is expected to create approximately 83,000 jobs in a variety of industries across the country. This is a win-win solution for the economy, the environment, job seekers and manufacturers. 

Monica McGuire is senior policy director for taxation, National Association of Manufacturers.

The U.S. R&D tax credit, a proven tool for spurring innovation and creating jobs, has a bittersweet 30^th anniversary on August 13. Bittersweet because the credit, the best R&D incentive in the world in the mid-1980s, is one of the weakest today.

This negative trend is bad for manufacturers and the economy, especially now that other countries aggressively court American manufacturers to move their domestic research by offering better and often permanent R&D tax incentives.  (To learn more about what other countries are offering, read this Deloitte survey of R&D tax incentives around the world.)

These countries have discovered the multiple spillover and societal benefits, like a higher standard of living, associated with the innovations derived from research. For sure, there has been a steady increase in the migration of domestic research offshore–the U.S. share of global R&D has dropped from 39 to 33 percent in less than a decade as more nations have entered the race to attract R&D dollars.

The credit’s power to spur innovation and create jobs hasn’t been helped by its history of lapses and retroactive extensions. Since its enactment in 1981, the credit has expired 14 times, including a one-year lapse in the mid-1990s that was never reversed—and the credit is set to expire once again at the end of this year.  The uncertainty caused by these stop-and-go credit extensions has had a damaging impact on companies’ future R&D budgets because companies cannot rely on the credit to exist for the duration of a research project, which typically spans 5 to 10 years for manufacturers.

R&D fuels innovations and technological advances that drive new product development and increased productivity—key factors necessary for growth in the manufacturing sector.  Many lawmakers are voicing repeated interest in creating a pro-manufacturing climate in the United States.  Now they can turn their words into action, specifically through enactment of H.R. 942, bipartisan legislation that would strengthen the alternative simplified research credit rate to 20 percent from its current 14 percent, and make it permanent.  There is a long history of bipartisan, bicameral congressional support as well as presidential support for a strengthened, permanent R&D tax credit.  Future anniversaries of the credit would be sweeter if the U.S. R&D tax credit’s incentive value is restored to a position of global leadership.

 
For more information about the R&D credit, visit the website of the R&D Credit Coalition.

Manufacturers, the largest sector using expensing, a tax provision that lowers the cost for companies making new business investments, such as in machinery and equipment used on the plant floor, got a boost today by the President’s proposal in support of temporary expensing from September 2010 through 2011. President Obama outlined the plan during a visit to the Stromberg Sheet Metal Works facilities in Beltsville, Md. (Remarks.)

This proposal, if not counteracted by punitive tax increases on business, is a way to boost job creation for the workers needed to build and the workers needed to run the new machinery.

With 2010 3Q GDP today registering anemic 2 percent growth and a relentless unemployment rate hovering at 9.6 percent, increased expensing is a proven, effective tool for powering new jobs. In fact, increased expensing was successfully launched by both a Republican Administration after the 2001 terrorist attacks as well as by the current Democratic Administration in recent stimulus laws. This issue might be just the trick (no pun intended on this eve of the eve of Halloween) to foster bipartisanship consensus at both ends of Pennsylvania Ave — between Congress and the Administration.