All Posts By

Monica McGuire

Rx for Rising Health Care Costs: Repeal the Health Insurance Tax (HIT)

By | Taxation | No Comments

Effective in 2014, the Patient Protection and Affordable Care law will impose a new tax on health insurance companies in the fully insured marketplace. Unfortunately, this punitive tax—known as HIT— will also drive up the cost of premiums paid by employers for their employees’ health insurance coverage, according to the non-partisan Joint Committee on Taxation.  Many smaller manufacturers will be among the employers paying more to provide health insurance for workers. According to a recent NAM survey, nearly 70 percent of NAM’s small and medium-size manufacturers buy health insurance in this market and would be subject to higher health care costs associated with the cost shifting.

We are pleased that Reps. Charles Boustany (R-LA) and Jim Matheson (D-UT) recognize that imposing a new tax on health care insurance is no way to encourage employers to provide health insurance coverage for their workers. Their new bill—The Jobs and Premium Protection Act of 2013— will repeal the HIT tax and help drive down health care costs that are currently rising for employers faster than the rate of inflation. In endorsing Reps. Boustany’s and Matheson’s bill in a February 19th letter, we noted that the additional cost of providing coverage from the HIT tax comes on top of average health insurance premium increases of nearly 10 percent experienced last year by NAM’s small and medium-size members. And it’s not just Manufacturers that are concerned. A February letter endorsing the bill was signed by 35 associations representing a cross section of industries in the business community that would also bear the burden of this new tax.

If policymakers are serious about driving down health insurance costs for employers and want to encourage employer-provided health insurance for employees, supporting this legislation would be a responsible step. Repealing the HIT would be a win-win for many manufacturers and their workers.

TI CEO Testimony Hits the Mark on NAM’s Innovation Policy Agenda

By | Taxation | No Comments

The testimony of Texas Instruments’ (TI) CEO, Richard Templeton at the House Science and Technology Committee 2/6 hearing on  “American Competitiveness:  The Role of Research and Development,” endorsed key principles of NAM’s Innovation Policy Agenda with laser precision. His support of STEM (science, technology, engineering and mathematics) education; reversing the growing skills gap in the United State; boosting underfunded federal, basic research spending; fixing the high skilled immigration system; and providing robust, competitive R&D tax incentives are all smart policies that will drive future innovation and job growth in our country.

Templeton got it right about the role research plays in advancing America’s competitiveness: “…federal funding of fundamental scientific research is critical to our nation’s continued competitiveness, economic growth and workforce development” as basic research is the key to unlocking future innovation in the United States. This is important because innovation has a proven track record in helping manufacturers companies to grow. Manufacturers lead all industries in innovation investments, accounting for 70 percent of all private sector research and development spending. This investment results in new product development, increased productivity, and job creation, not to mention the societal spillover benefits that improve our country’s standard of living.

Other countries recognize the exponential value of being home to world class innovation and have enacted attractive innovation policies to lure future R&D activity outside the United States. Templeton’s testimony gives credence to this global competition by citing a disturbing trend — OECD (Organization for Economic Cooperation and Development) data showing a decline in the U.S. share of global R&D as a percent of GDP from 39 percent to 34 percent from 1999-2010. He cites other stark statistics such as our current skills gap that “…for every unemployed person in the United States, there are two STEM job postings,” which should be a wakeup call for policymakers.

The NAM joins Mr. Templeton in urging lawmakers to enact smart policies that will reverse this trend and drive future innovation in the United States. A first step would be to avert the across-the- board spending cuts from the sequester set to occur March 1. These arbitrary cuts will foolishly cut federal funding of basic research programs and STEM education. An op-ed coauthored by Mr. Templeton appearing 2/6 in Politico sums up the expected negative impact on innovation from sequestration:  “…there will be a significant, long-term irreparable price to pay if the U.S. government slashes its support for science and engineering and for those who pursue those fields.”

Doesn’t this impending sequester of federal programs that spur innovation reflect the old adage “penny wise, pound foolish”? These imprudent budget cuts if allowed to occur will be a direct hit at future innovation and economic growth that will reverberate for years to come.

NAM applauds Mr. Templeton’s voice for pro-innovation policy that will result in unleashing future American innovation and create a 21st century workforce to meet the needs of manufacturing. Lawmakers would be prudent to act on his recommendations.

Pending Fiscal Crisis Already Taking Its Toll on Midwestern Manufacturers

By | Taxation | No Comments

Last week I had the opportunity to travel outside the Beltway and meet with a group of tax professionals from manufacturing companies in Missouri. What struck me almost immediately was the general unanimity among these financial professionals that the grave uncertainty caused by looming tax increases and spending cuts is now negatively affecting companies.

Some of the company executives said they’re paralyzed in their decision making on a multitude of issues ranging from capital investments to acquisitions to job creation. Others said they already are making decisions based on “going over the cliff” that will adversely affect next year’s salaries and yearend bonuses. One company rep anticipated significant job losses if the defense sequestration goes into effect as scheduled in 2013 while another said his company may divest certain businesses this year based on tax implications in order to offset the impact of going over the fiscal cliff.

These concerns spread beyond the business community. An educator from a Missouri college echoed apprehension about anticipated cuts in federal funding for his school’s R&D activity.  A concern that’s well-placed since 21 percent of all university and private R&D is funded by federal expenditures according to an ITIF study.

These Midwestern companies also shared the same negative view about the business outlook as many respondents to recent NAM surveys. With time running out before the fiscal crisis hits, federal lawmakers need to take action during the upcoming Lame Duck session of Congress to avoid this self-inflicted wound. Specifically, Congress and the Administration should “maintain the status quo” on spending and taxes ideally for all of 2013, with a “path forward on reaching agreement in 2013 on a long-term package that addresses our deficit problems, including entitlement and tax reform. Now is the time for bipartisan cooperation between the legislative and executive branches of the government to avoid a fiscal crisis that will likely throw our economy into a recession.

Tax Extenders Renewal Gains Momentum

By | Taxation | No Comments

The temporary tax provisions that typically expire every year or two, e.g. R&D tax credit, got a boost of bipartisan, bicameral energy this week with Senate Majority Leader Harry Reid (D-NV) attempting to advance on the Senate floor tax extenders bill S. 3521 and House Ways and Means Committee chairman Dave Camp (R-MI) echoing support for moving some of these tax provisions during the upcoming Lame Duck session. Congressional leaders and tax-writing committee leaders were not the only lawmakers this week calling for action to renew tax extenders. Yesterday, 50 House GOP freshmen signed a letter of support and call for action on tax extenders to Chairman Camp and House Ways and Means Subcommittee chairman Pat Tiberi (R-OH), who held two hearings this year to evaluate the merits of some tax extenders.

In the NAM statement submitted for Rep. Tiberi’s June hearing, key tax extenders important to manufacturer were highlighted along with their impact on innovation, competitiveness, and jobs. The NAM commends tax law writers for their thoughtful review of these tax provisions and their intended goal to renew some of them before yearend.

Here in the city that is the heartbeat of American politics and it seems that everyone has caught Washington Nationals fever. In keeping with that enthusiasm, tax extenders legislation that was in the minors earlier this political season has now just been called up!  Stay tuned for the Lame Duck session.

Businesses Call for Simplified Approach to Taxing Out-of-State Workers

By | Taxation | No Comments

The current tangle of different—and sometimes conflicting— state laws on taxing temporary workers from out-of-state is a growing head ache for U.S. businesses and many companies and groups want to do something about it.  Just this week, a group of 195 companies and associations —including many manufacturerssent a letter to Senate leaders and the Senate Finance Committee leadership urging action on S. 3485, the Mobile Workforce State Income Tax Simplification Act.

This legislation would significantly untangle the current maze of state income tax laws that apply to employees who temporarily work in nonresident states and employers who are responsible for withholding nonresident state income taxes of these traveling employees. The House recognized the absurdity of this patchwork of different state income tax rules and last May passed companion bill HR 1864, which sets a bright line test of 30 days or less before a temporary worker could be required to pay out-of-state income taxes. 

Many manufactures and their workers continue to get 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. On behalf manufacturers in all 50 states, we urge Senate passage this year of this bipartisan, common sense tax simplification legislation. 

To learn more about the issue, click here for NAM’s explanation.

Clarification of States’ Taxing Power Will Provide More Certainty for Businesses

By | Taxation | No Comments

Manufacturers of all sizes continue to be bombarded with unexpected and punitive tax assessments by states where they have no physical presence—that is, no plant and no employees in the state. This persistent and growing problem increases their tax burden and injects even more uncertainty into business planning.

Fortunately there is help in sight. Legislation currently pending in Congress—the “Business Activity Tax Simplification Act,” H.R. 1439—would establish a bright line, physical presence test clarifying when states can impose business activity taxes, e.g. state income tax, on out-of-state companies engaged in interstate commerce.

This is smart legislation. It would allow business taxpayers to make investment plans and hiring decisions without the threat of random state tax assessments and costly litigation. State business activity taxes are particularly problematic for small and medium size manufacturers. Typically these companies don’t have in-house tax departments to navigate their way through the time consuming paperwork associated with these taxes, which in some cases include penalties and interest.

Kudos to the Los Angeles Business Journal for an excellent article on one company’s experience with these random state taxes. Bobrick Washroom Equipment, a medium size manufacturer in North Hollywood, CA, spent $185,000 appealing one state’s tax assessment, and spent an additional $100,000 to settle the case. This is real money to a company that would rather spend it on expansion and job creation rather than lawyers and fees.

Policy makers would be wise to enact H.R. 1439 to help provide some tax certainty in a very uncertain tax climate.

Monica McGuire is senior director-tax policy, National Association of Manufacturers.

Common-Sense Tax Simplification Legislation Passes House

By | Taxation | One Comment

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.

Taxwriters Agree That “On Again, Off Again” Extenders Leave Taxpayers Up in the Air

By | Taxation | No Comments

“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.

Now’s the Time for Congress to Switch the Extenders Back On!

By | Taxation | No Comments

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.

Further Support for a Strong and Permanent R&D Credit

By | Taxation | No Comments

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.