Policy Experts

We’re All in This Together

While promises to increase taxes on businesses, particularly those with operations overseas, may play well on the campaign trail, it’s clear that, when the dust settles, the rhetoric has no basis in reality. 

In today’s Washington Post, columnist Geoff Colvin does a good job of dispelling any notion that U.S. corporations are up to no good when it comes to the tax code.  In fact, the tax changes proposed by the Administration represent a major change in long-standing tax policy designed to “level the playing field” in a global economy where most countries tax business income at a lower rate.  At the end of the day, these proposals amount to a hefty tax increase on U.S. multinational companies.  The international tax changes, combined with other tax increases like the repeal of “LIFO” and the new carbon “tax and trade,”  are bad news for all of us.  As any economist knows, corporations don’t pay taxes, we—customers, shareholders and workers— do.

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To WTO or Not to WTO?

The United States and the European Union today initiated World Trade Organization (WTO) dispute settlement procedures against China for it trade-distorting export restrictions on critical raw materials. Those materials, such as coking coal, are vital inputs to U.S. and other manufacturing, and China’s action has hiked world prices for those inputs while holding China’s internal prices down. That gives China an unfair competitive advantage and is directly contrary to the promises that China made when it joined the WTO. (See Ambassador Kirk’s statement, USTR materials.)

America’s manufacturers have been hurt by these practices, and the National Association of Manufacturers (NAM) has pressed the U.S. Government to take action to get China to stop. As our press release today indicates, we strongly support the action taken today.

I am surprised, though, at some of the press reaction feeling this is a negative step. For example, the Guardian’s website has a headline screaming, “China and U.S. head for trade war.” Ridiculous. The WTO dispute settlement mechanism is in effect the international trade court for the world — the impartial place you go to resolve trade disputes so you don’t have to have a trade war.

While I am sure China will say they haven’t done anything wrong and will contest the charges before the WTO, China’s past record on settling and complying with WTO cases has been pretty good. I expect that they will abide by whatever decision the WTO makes this time, though it would be really good if China recognized they are in the wrong and voluntarily came into compliance.

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Pressing the Chinese on Currency Valuation, Effectively

It was important for Treasury Secretary-designate to flatly state that China is manipulating its currency. Everyone knows China’s currency is being held at an artificially low level, and it is necessary for the United States Government to acknowledge this in order to be able to approach the problem realistically. (See New York Times and WSJ stories.)

The next step is more difficult – how to get China’s currency appreciating again. The currency appreciated 21 percent against the dollar through July 2008 and then went flat as Chinese authorities decided they were concerned about China’s slipping export performance in the slowing world economy. The fact of the matter is that China’s continued currency manipulation is hurting their own economy and making their transition away from export-led growth more difficult. Yuan appreciation can be win-win.

The Treasury Secretary-Designate is properly concerned with China’s currency and as the next step needs to work within established international means to find a solution. During the campaign, then-candidate Obama saw the importance of a change in China’s currency practices and said he would use all the diplomatic avenues available to seek such a change. Certainly the International Monetary Fund can play a stronger role than it has in the past.

Geithner’s statements showed he wants to get China’s currency moving, but without precipitating a new global financial crisis. Global financial stability and further appreciation of China’s currency can and should go hand in hand, but all this needs to be done carefully and in a way calculated to achieve both objectives and contribute to a lessening of global imbalances.

The yuan per dollar graph below shows how China’s currency was moving until July 2008, and then was held flat.




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Anti-Counterfeiting Law Signed; Pirates Up In Arms.


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Amongst the many erudite thoughts to drip from the quill of Thomas Jefferson, only one has ever gotten me hot under the collar:

He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me.

Well, that’s all fine and dandy if your estates keep you rolling in tobacco so you can crank out political philosophy all day (lifted, by the way, from the likes of Locke, Rousseau and Machiavelli), but if you’re the taper-maker, you’re going to be a little miffed if someone’s knocking off your products to the point that you’ve got to lay off your workers and people are suing you blind because fugazi tapers with your logos are burning down houses.

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This Monday, the White House signed into law the PRO-IP Act, which will go a long way in helping to curb the problem of counterfeit goods.  Unfortunately, what most folks who watch this area of the law see is a piece of legislation to loathe as much as they loathe the music industry, as something that might impede them from enjoying the media they want, regardless of whether they paid for it or not.  So whineth the pundits at Portfolio.com:

But how much will the new law, the PRO-IP Act, actually do to combat digital piracy? Is it the silver bullet the music business needs to save an industry that is shrinking by hundreds of millions of dollars per year? My answers: Not much, and no.

Nay, nay, dear heart: lift your angry eyes from your iPod and see that this legislation is much bigger than Britney.

This legislation isn’t to save the record industry; it’s to make sure the government is doing it’s job to protect consumers.  It’s to make sure that the replacement parts in your car are legit, and don’t end up causing horrific accidents.  It’s to make sure that the medications you take are legit, and don’t end up killing you.  Most importantly, it’s about saving American jobs (I put concern of country above my own personal well-being, but that’s just me).

Luckily, there are folks out there that get it.  Stephen Koff of the Cleveland Plain Dealer reminds us of the stakes:

Ohio companies including Gorman-Rupp Co., a Mansfield pump manufacturer, and Dana Corp., a Toledo maker of auto parts, could benefit if the bill stops foreign companies from stealing their engineering, packaging and sales literature.

So could Ford, Bendix and smaller companies such as Will-Burt Co. of Orville, whose sales of a lighting system in China declined from $1 million in 2001 to less than $250,000 in 2004 after a Chinese company that was supposed to market Will-Burt products there started selling Will-Burt knockoffs instead.

The bill, pushed by Ohio Republican Sen. George Voinovich for several years, grew out of complaints by businesses that found themselves competing with illegal, foreign-made products that looked just like their own — down to the UPC codes in some cases.

Well, we’re thankful for heroes like Sen. George Voinovich who are looking out for American manufacturers and workers, as well as Sens. Leahy, Specter and Bayh, who also were the original champions of the legislation.  They understand that it’s about protecting the small and medium businesses that keep our families employed and our economy going – despite the best efforts of mortgage speculators.

As for Mr. Jefferson?  Ironically enough, he was our first pirate hunter, going after the Barbary Pirates.*  So I guess he did know the value of property and commerce.

* Being a Trekkie geek from Boston, it titilates me to no end that he sent both the USS Constitution and the USS Enterprise to throw a Bean-Town beat-down on the Pasha of Tripoli.

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Much Good in the Tax Provisions of Financial Stability Bill

In addition to providing much needed stability to the financial markets, the Emergency Economic Stabilization Act of 2008  signed into law on Friday (President Bush’s statement) also includes a number of NAM’s tax priorities for the year:

1. A retroactive or “seamless” extension of the Research and Development Tax Credit through 2009. Since the R&D credit expired at the end of 2007, this is a two-year extension. The legislation also includes an increase in the alternative simplified credit (ASC) from 12 percent to 14 percent for 2009. In short, the bill includes a multi-year extension of a strengthened credit. The increase in the ASC is important to a number of companies, including smaller manufacturers that use the credit.  (For background, see the R&D Credit Coalition’s website, InvestinAmericasFuture.org.)

2. An extension of deferral of U.S. tax on active business global financing income, through 2009. This is a huge issue for manufacturers with overseas financing arms as well as financial service companies that do business overseas. Without this provision, these companies would be subject to immediate foreign and U.S. tax, i.e., double taxation, on any income from their overseas financial activities. If the companies had to pay double tax, they would not be able to compete with foreign financial service companies.

3. An extension of the look-through rules for payments between related foreign corporations, through 2009. This is a huge issue for many U.S. multinational companies. Very basically, the “look through rules” allow companies to move money between foreign operations without triggering U.S. tax.

4. Multiyear extensions of a number of incentives designed to encourage energy efficient and the development of alternative sources of energy, including a two-year extension of the production credit for facilities that produce energy from renewable sources and an eight-year extension of the investment tax credit for solar energy and fuel cell property.

The bill also includes an NAM-supported AMT/ISO provision designed to help employees (notable in the high-tech industry) that received incentive stock options (ISOs) that generated “phantom income” when stock prices took a nose dive. Many of these employees were forced to pay a significant amount of AMT. Several years ago, Congress did pass some relief for them-this provision finished the job. The bill also includes an NAM-supported provision that reduces the depreciation period for farm equipment from seven to five years, a change long sought by equipment manufacturers.

One the downside, the bill does include three revenue raisers, opposed by NAM, that increase taxes for the oil and gas companies by about $9 billion over ten years. Specifically, the legislation would freeze the Section 199 deduction for income from domestic production activities at six percent for oil and gas companies, tighten rules on the use of foreign tax credits for the oil industry and extend and increase the excise tax rate for the Oil Spill Liability Trust Fund.

As the NAM’s “key vote” letter to the Senate commented, “We believe the unintended consequences of these provisions could leave American consumers and manufacturers more reliant on foreign energy sources and result in higher energy prices.” 

The text of the legislation, including the tax sections is posted at the House Financial Services committee’s website. A revenue table listing the budget impact of the tax provisions is posted at the Joint Committee on Taxation’s website here.  

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Avast, Thar Be Pirates Attacking Me Intellectual Property!

Pirates Discussing Weaknesses in US IP ProtectionFollowing on the Institute for Policy Innovation’s homage to “Talk Like a Pirate Day” and their timely press release on the protection of intellectual property rights, is there not a better day than today to blast away at the scourge of counterfeiting and piracy?

American manufacturers have been taking a hammering due to piracy, to the tune of over $250 billion a year in lost revenues and an estimated loss of up to 750,000 jobs so far.  The House jumped to the rescue, passing the PRO-IP Act by a vote of 410-11, and now the Senate is trying to do the same.  Note the operative word, “trying.”

The “Enforcement of Intellectual Property Rights Act of 2008,” (S. 3325) will go a long way to help shore up IP rights of manufacturers.  But it’s not just about manufacturers, it’s about workers and consumers.  Oh, and let’s not forget the economy, either.  Unfortunately, the Senate IP bill is hitting some snags on the GOP side of the aisle, even though this is truly a bi-partisan bill.  And that’s the sad part, as this is something that everyone agrees needs to be fixed.

The Senate IP bill is definitely the last, best chance this year to help aforementioned workers, consumers and economy.  If we don’t get it done in the next week, the tides won’t be right for this for probably another two years, what with the new Congress and Administration focusing on bigger fish to fry. And that’s going to hurt a lot of folks.

Specifically, workers are going to be hurt because counterfeit junk displaces the quality products that US workers make (and are often unwittingly bought by consumers).  A study by economics firm LECG figured that cutting piracy by even 5-10% would create at least 174,000 new tax-paying jobs a year, after 3 years.  In case you didn’t know, pirates don’t pay taxes.  I guess that’s the allure of being a brigand, although I don’t know if scurvy factors in on the downside.

Consumers are going to be hurt because a critical check on counterfeit auto parts, airplane parts, food, medical devices, electrical supplies and pharmaceuticals will be missing.  And don’t forget the economy.  LECG also estimates that cutting piracy by 10% would increase the overall US economic output by at least $27 billion, as domestic production would reclaim the market from pirate imports.

You’d think that in the face of all the harm that piracy has done to the US economy, American workers and consumers, Congress would try to find a way around the minor roadblocks and, paraphrasing H.L. Mencken, “spit on their hands, haul up the black flag and start slitting throats.”

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Report from St. Paul: Gov. Palin, the Speech

(NAM Executive Vice President Jay Timmons is blogging from the Republican National Convention this week in St. Paul, Minn., following up on his reports from the Democratic Convention last week in Denver.)

What a time in our country’s history – Republicans will nominate their first female candidate for Vice President – Alaska Governor Sarah Palin.

Which ever party wins the White House, they will make history like never before – the first female Vice President or the first African-American President.

As Ronald Reagan said – The time is now.

In her speech accepting the nomination for Vice President this evening, Governor Palin made sure America knew she is ready for the job she is seeking. (Excerpts)

Last week, I blogged about my own mother’s rise as one of the first female CEOs in southern Ohio. It’s been a long road for the women of America, but as Hillary Clinton recently said, women are poised to finally break through the highest glass celling of them all. She may have thought she was talking about someone else, but turns out she was prophetic.

A reform-minded executive who understands fiscal responsibility, the Governor summed up her philosophy aptly: “I came to office promising to control spending, by request if possible, by veto if necessary.”

She concisely laid out a common sense approach to more domestic energy supply and lower prices at the pump as she called for more pipelines, nuclear facilities, clean coal and alternative sources: “We need to produce more of our own oil and gas….We need American energy produced by American ingenuity and brought to you by American workers.”

There are two months before the election and voters will learn more about all the candidates for President and Vice President. But if tonight is any indication, the Republican nominee for Vice President has shown SHE is ready to talk about public policy solutions that will positively impact real people in the real world.

And I’m pretty sure Americans will be listening.

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Report from St. Paul: Bunning and the R&D Tax Credit

(NAM Executive Vice President Jay Timmons is blogging from the Republican National Convention this week in St. Paul, Minn., following up on his reports from the Democratic Convention last week in Denver.)

NAM member company Brown-Forman honored the Kentucky delegation this afternoon and Sen. Jim Bunning was ready to talk policy.

An ardent advocate for a permanent R&D tax credit, he is ready to roll up his sleeves in the next Congress to get it done.

Without the predictability and consistency of a permanent credit, businesses can’t plan and vital research is often delayed.

As we search for new energy alternatives, it only makes sense that Congress unleash the creativity of American ingenuity. Senator Bunning understands that basic fact.

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Report from St. Paul: Senator Kyl on Taxes

(NAM Executive Vice President Jay Timmons is blogging from the Republican National Convention this week in St. Paul, Minn., following up on his reports from the Democratic Convention last week in Denver.)

John McCain’s Senate colleague from Arizona, Jon Kyl, was appropriately honored at a reception yesterday in Minneapolis. The second-ranking Senate Republican, Kyl is an economic stalwart who truly understands the importance of lower taxes, limited regulation and strong energy policy to economic growth and job creation.

He remains steadfast in insisting that the tax extender legislation be completed before Congress leaves town for the year and that they not contain tax increases. This legislative package is tremendously important for manufacturers as it includes energy efficiency, R&D tax credit and international provisions that will help protect and grow jobs. These provisions need to be passed before Congress adjourns and we are hopeful that a bipartisan agreement can be reached that does so without offsetting tax increases.

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Report from St. Paul: A Dollop of Sensible Bipartisanship

(NAM Executive Vice President Jay Timmons is blogging from the Republican National Convention this week in St. Paul, Minn., following up on his reports from the Democratic Convention last week in Denver.)

The NAM crew visited the Bipartisan Policy Center event, of which we were a sponsor. Just as in Denver, this event was evidence that those on different sides of the political aisle can work together to achieve positive results.

Respect goes a long way in Washington, and it’s something that is lacking in the nation’s capital these days. But two former political opponents attending the reception were reminders that it is possible to regain that spirit of cooperation.

Former Senate Majority Leader Bob Dole (R-KS) and former House Agriculture Chairman Dan Glickman (D-KS) were both on hand. Glickman is now CEO of the Motion Picture Association of America and we talked about how difficult it has become to get things done in DC now because of the partisan tenor. He noted that wasn’t always so, and that he believed in days past there was much more honor in the political process. “The Democrats always wanted me to run against Bob Dole,” he told me. “But I just couldn’t do it. He was a friend, I respected him, and he was just really good for the state.”

The ability to work with both sides of the political aisle and help educate Republicans and Democrats alike of the impact of their legislative initiatives on real people in the real world separates the NAM from some other organizations. Because in reality, no one who seeks public office intends to do harm to the economy or lose American jobs. But sometimes they just don’t realize the unintended consequences their actions might create.

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