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Taxation

Little Understood Government Process Could—if Congress Acts—Provide Tax Cuts for Individuals and Manufacturers

By | General, Shopfloor Policy, Taxation, Trade | No Comments

Though many don’t know it, Americans pay both directly or indirectly about $1 million a day in government-imposed import taxes on products not made or available in the United States, including everyday items like swim goggles, smartphone cases and pepperoncini. Why? It’s a long story, but it essentially comes down to the fact that the United States has a very old tariff code, and it has been nearly a decade since Congress has gotten around to addressing these unfair, out-of-date, distortive and anticompetitive taxes by passing the so-called Miscellaneous Tariff Bill (MTB). Thankfully, the U.S. House of Representatives passed an MTB bill, the Miscellaneous Tariff Bill Act of 2018, on January 16 by a margin of 402 to 0. Now, it is the Senate’s turn to approve the legislation. It must do so without delay.

Here’s some important background on the issue.

Back in 2016, Congress took a major step toward modernizing the way products are considered under the MTB with its near unanimous passage of the American Manufacturing Competitiveness Act of 2016 (AMCA). The AMCA established a regularized process for Congress to consider the elimination of individual import taxes for products not made or available in the United States—and a few key elements from that rigorous and thorough process follow below:

  • Detailed petition. Each request for tariff suspension required a detailed petition, identifying the product and providing information that it is not produced or available in sufficient quantities in the United States. A total of 2,524 petitions were filed and reviewed in this process. (An additional 638 petitions were filed but later withdrawn.)
  • Public review, with comments. All petitions were posted online and comments were requested from the public, at the start of the process, on whether the petition met statutory requirements under the AMCA, including that there were no objections from domestic manufacturers of similar products. More than 800 comments were submitted on the petitions filed in 2017.
  • Review of all petitions for eligibility. Each of the petitions was reviewed by the U.S. International Trade Commission (ITC) with input from the U.S. Department of Commerce, U.S. Customs Bureau Protection and other executive branch agencies to determine if each petition met all the eligibility criteria. Several reports were released to the public summarizing these findings. Overall, more than 27 percent (or 697 petitions) were rejected as not eligible, including for reasons of domestic availability, as discussed below.
  • Broad U.S. government review of domestic production and availability. As required by the statute, the U.S. government review did not just look at identical products, but also products that were “directly competitive” with the product to ensure that no domestic industry was producing a similar product that might prefer to keep the tariff in place. U.S. government officials reviewed not only the comments received but proactively reached out to industry sectoral groups and individual businesses to ask if the same or competing product was available domestically. Nearly 500 petitions, or nearly 20 percent of the total, were not recommended by the ITC for inclusion in MTB legislation due to objections by domestic producers.

After all that work and more than nine months of engagement with stakeholders, a final package of eligible products was sent in August to the House and Senate, which also reviewed the products (with the ability only to strike products, not add them to the package). That rigorous process has produced a final MTB with nearly 1,700 products eligible for tariff elimination or reductions. Notably, such tariff relief is not permanent, as it only lasts for three years in case there are domestic manufacturers that want to produce any of these products and might prefer the application of the tariff. These products include both inputs used by many manufacturers throughout the United States (more than 75 percent of the products are inputs, according to National Association of Manufacturers (NAM) analysis), and some final goods that will directly benefit consumers and purchasers, in a manner that is fully consistent with the AMCA.

  • As one example, certain U.S. imports of performance footwear face tariffs ranging from 20 to 37.5 percent, which add unnecessary costs to U.S. consumers and harm our manufacturers and workers. Such imported performance footwear products incorporate made-in-America components, such as the GORE-TEX® laminate that is manufactured in Cecil County, Maryland. GORE-TEX® laminate is exported, incorporated into performance footwear and ultimately returns to the United States. Tariff relief for such footwear products, which are included in the MTB package, would support American jobs and incentivize continued investments in technology such as GORE-TEX.®
  • As another example, Lasko Products LLC is the only U.S. manufacturer of electric pedestal and desktop fans sold at retailers across the United States, but Lasko pays import taxes on fan motors not manufactured in the United States, making it more difficult for the company to compete with fans imported from China. These fan motors are also included in the current MTB package.

As required by international trade rules, these tariff suspensions also apply to all goods entering the United States from all countries. To do otherwise would invite retaliation and higher costs or barriers for U.S. manufacturers exporting overseas.

So, a lot of hard work has gone into addressing this issue, but we are not yet past the finish line. The NAM and manufacturers and other businesses across the United States are doubling-down to urge final congressional passage of the Miscellaneous Tariff Bill Act of 2018 as soon as possible so we can eliminate unnecessary taxes on families and manufacturers. Based on NAM analyses, the Miscellaneous Tariff Bill Act of 2018 would eliminate unnecessary import tariffs of more than $1.1 billion over three years, helping both consumers and manufacturers, with an estimated boost to U.S. manufacturing output of $3.1 billion.

The House already acted last month, and it passed this bill without a single vote in opposition. We are now urging the Senate to demonstrate its strong bipartisan support for the MTB by moving quickly to approve this important legislation.

Congress Sees the Importance of Addressing ACA Taxes Now, Not Later

By | Health Care, Shopfloor Main, Shopfloor Policy, Taxation | No Comments

When it comes to Obamacare (i.e., the Affordable Care Act, or ACA), Democrats and Republicans haven’t found much to agree upon. That’s why it was particularly notable when bipartisan consensus emerged last year around the need to do something about some of the law’s worst taxes: the medical device tax, the health insurance tax (or “HIT”) and the so-called “Cadillac” tax, which is a 40 percent tax increase on “high-quality” health benefit plans. Members in both parties said they believed these taxes at least needed to be delayed from their planned implementation dates, which is why it was so disappointing when legislation did not ultimately pass to do so. The good news is that Congress can still take action on the issue in the upcoming short-term government-funding bill, or CR, that the House plans to consider this week. Congressional passage would take a step in the right direction by allowing the implementation of these taxes to be delayed at various times.

The medical device tax, the HIT and the Cadillac tax were not designed to last due to their burdens, high cost and complexity. That’s why manufacturers have repeatedly urged Congress for much-needed relief from these job-killing taxes. A recent letter to House and Senate leaders can be found here. Unfortunately, the medical device tax and the HIT went into effect this year but the pressure to delay them did not let up. For the medical device tax, the first collection of the 2.3 percent tax comes later this month. Also, the HIT comes online in the form of higher health insurance premiums totaling $22 billion for more than 100 million Americans nationwide. Manufacturers are already planning for the 2020 Cadillac tax, with implementation beginning this year.

Manufacturers need certainty to negotiate health plans with affordable premium costs and best-in-class benefits for our employees. Ultimately, that means these taxes need to be repealed entirely. Members in both parties agree. We’ll continue pushing to get that result. But the CR that the House is prepared to vote on this week offers an important solution in the interim. While not a long-term solution for manufacturers or their employees, it is progress that the National Association of Manufacturers welcomes. We hope the House and Senate will pass this delay and continue working with us on a long-term solution.

NAM Leadership Goes on Tax Reform Roadshow in Key States

By | Communications, Events, Shopfloor Policy, Taxation | No Comments

The National Association of Manufacturers (NAM) is all in on tax reform. The legislative framework unveiled by the “Big Six” presents a tremendous opportunity for America’s manufacturers to grow, hire new workers and increase wages and benefits. Following robust engagement at the national level, capped by hosting President Donald Trump for a major address on tax reform at our board meeting and joining the president for an Oval Office proclamation signing on National Manufacturing Day, the NAM’s leadership hit the road this week to make the case for tax reform in key manufacturing states. As NAM President and CEO Jay Timmons told National Journal for its Q&A feature this week, “We’re going to make sure manufacturing workers know how important [tax reform] is to their own livelihood back in their districts.”

That effort began in earnest on Tuesday with a forum at the City Club of Chicago, where Timmons and Illinois Manufacturers’ Association President and CEO Greg Baise discussed the importance of passing tax reform with local business leaders. Timmons also traveled to Milwaukee, where he led a panel focused on tax reform with local business leaders and gave an interview to the Milwaukee Journal Sentinel:

“… [T]he tax code desperately needs an overhaul, Timmons said in an interview. ‘I am really optimistic about getting tax reform yet this year. There’s a focus in Washington like I have not seen on any issue for many, many years,’ he said. It’s been more than 30 years since the last major tax code overhaul, according to Timmons … Reforms of taxes and regulations, and infrastructure investments, are the trade group’s top priorities, Timmons said. ‘Those all add to the cost of doing business in this country,’ he said. Should Trump’s plans succeed: ‘What I can tell you is what my manufacturers are actually saying and how they are planning,’ Timmons said. ‘They are planning for growth of their own facilities, and they’re planning to hire new workers.’”

Manufacturing leaders, including Timmons and Pennsylvania Manufacturers’ Association President David Taylor, also rallied around the president’s tax reform address in Harrisburg. As the Allentown Morning Call reported:

“Standing in a Harrisburg airplane hangar before big-rig Volvo trucks and American flags, President Donald Trump touted the Republican plan to overhaul the federal tax code as a proposal that will benefit Pennsylvania truckers and an American economy he sees as strengthening …‘If he can deliver on all or even most of what he’s offering, it is going to be a real shot in the arm for American competitiveness,’ said David Taylor, president of the Pennsylvania Manufacturers’ Association.”

The NAM finished off the week strong with an address by Emerson Chairman and CEO and NAM Board Chair David Farr at the Economic Club of Minnesota, where he put opponents of tax reform on notice. As the Washington Examiner reported:

“Critics such as Farr counter that the current tax rate has resulted in the offshoring of jobs because it is often cheaper for companies to move operations overseas. ‘If you’re an opponent of tax reform, I want you to come to Minnesota or Ohio or Wisconsin and look a manufacturing worker in the eye. Tell her she doesn’t deserve a bigger paycheck. Tell her that her family doesn’t deserve to save for school and retirement. Then, tell an unemployed dad that a worker overseas deserves a job more than he does,’ he said.”

As the effort to reform our outdated tax system moves forward, the NAM and manufacturers across America will continue drive the discussion both at the grassroots level and with leaders in Washington.

Just the Facts: Tax Reform Will Boost Manufacturing

By | Shopfloor Main, Taxation | No Comments

A recent study from the Institute for Policy Studies seems to assert that businesses with lower tax rates were not job creators. Specifically, they analyzed “92 publicly held U.S. corporations that reported a U.S. profit every year from 2008 through 2015 and paid less than 20 percent of these earnings in federal corporate income tax.” They then assert that those 92 firms lost 1 percent of their workforce in that time frame versus a 6 percent gain for the U.S. private sector as a whole.

The authors use this analysis to suggest that pro-growth tax reform will not produce the positive employment benefits that its advocates, including the NAM, assert. But, this misses the point. You cannot extrapolate the tax burdens of 92 firms to the larger economy, mostly because there are a variety of reasons why those individual firms might have paid lower tax rates in those years, including deductions for losses in prior years.

The important point—missed in this paper—is that American businesses are at a competitive disadvantage globally, with marginal tax rates in the United States higher than any other major economy. We need pro-growth tax reform—an idea that has bipartisan support. Read More

Senate Must Address Health Insurance Tax and Other Burdens Associated with the ACA—the Clock Is Ticking

By | Health Care, Shopfloor Policy, Taxation | No Comments

Efforts to stop the impacts of the onerous Health Insurance Tax (HIT) must continue as the Senate debates health care legislation. This $100 billion tax levied on fully insured health plans is paid by consumers and, if left unaddressed, will be a shock to retirees on Medicare Advantage and Part D plans as well as employers, individuals and families who purchase off-the-shelf health care plans. That tax will go into effect next year.

Manufacturers are fully behind repealing the “Cadillac” tax, the medical device tax, the health insurance tax and the pharmaceutical tax as well as reducing the burden of the employer mandate. The National Association of Manufacturers sent a key-vote letter to the Senate on Wednesday in support of Amendment 271 to underscore the importance of action on these issues. Unfortunately, the amendment failed in a 45–55 vote.

A full repeal of the Affordable Care Act (ACA) will help employers contain rising health care costs and provide much-needed predictability so that manufacturers can continue providing quality health care to employees. Manufacturers encourage the Senate to unlock the stranglehold of the ACA on manufacturers.

Senate Taxwriters Advance Nomination of Top Treasury Tax Official

By | Shopfloor Policy, Taxation | No Comments

The Senate Finance Committee today approved the nomination of tax expert David Kautter to be assistant treasury secretary for tax policy, clearing the way for Senate confirmation of the nominee to a post where he will play a key role in the tax reform debate.

Over the past several months, tax reform meetings between the House, Senate and administration have heated up and having Kautter in place at Treasury will bring additional technical expertise to these discussions and hopefully help speed up the process. As a liaison to the IRS, he will also play a major role in the current effort underway to repeal or rewrite a number of tax rules issued during the previous administration.

Kautter, whose nomination was put forth by President Donald Trump in May, is extremely well qualified for the job. He serves as partner-in-charge of RSM’s Washington national tax practice. Earlier in his career, he was managing director of the Kogod Tax Center and executive-in-residence at the Kogod School of Business at American University. Before holding this position, he spent more than 30 years at Ernst & Young, serving as director of national tax for more than 13 years.

Advancing pro-growth tax reform and rolling back anti-manufacturing tax regulation are two top priorities for the National Association of Manufacturers, and time is running out on both. Having Kautter in place as the assistant treasury secretary for tax policy will be key to advancing these two initiatives. We strongly urge the Senate to confirm his nomination without delay.

Treasury Opts to Revisit Tax Regulations Causing Problems for Manufacturers

By | Regulations, Shopfloor Policy, Taxation | No Comments

The Treasury Department in a notice issued today said it plans to propose reforms, including possible repeal, of eight sets of regulations issued in 2016 by the Obama administration. Included on the list are four regulation projects of specific concern to manufacturers: Section 385 debt-equity rules, proposed rules on valuing minority interests in family-owned businesses, rules for calculating gains and losses on currency exchanges and regulations allowing contractors hired by the IRS to participate fully in summons interviews and receive summoned documents.

Notice 2017-38 was issued under an executive order issued by President Donald Trump in April that asked Treasury to identify tax regulations issued in 2016 that impose an undue financial burden on taxpayers, add unnecessary complexity to the tax code or exceed the statutory authority of the IRS. Under the executive order, Treasury has until September 18, 2017, to recommend specific changes to regulations to address these issues.

The Section 385 debt/equity regulations were proposed in April 2016 and finalized six months later. As originally proposed, the rules, which would treat intercompany debt as equity, would have imposed new taxes on manufacturers and threatened legitimate and well-established business practices. While the National Association of Manufacturers’ (NAM) aggressive, large-scale advocacy effort was successful in obtaining some favorable changes to the proposed rules, the final regulations still impose a significant and unnecessary administrative and cost burden on manufacturers. We continue to advocate total repeal of these rules.

Also on the list are proposed regulations under Section 2704 on valuing minority interests in family-owned businesses, which were issued in the fall of 2016. NAM members believe that the proposed regulations, which incorporate some of the most sweeping changes to estate tax policies in the past 25 years, would unnecessarily increase estate and gift taxes on family-owned manufacturing companies by an estimated 30 percent or more, severely impacting the ability of owners of these family businesses to transfer their companies to the next generations. If finalized in their current form, these regulations would harm their ability to invest and grow their businesses and reduce their competitiveness versus non-family-owned firms. Consequently, we have urged both the Trump and Obama administrations to withdraw this proposal.

Treasury also included the final and temporary Section 987 regulations on the review list. These regulations, which would change the way companies calculate certain currency exchange gains and losses, would require businesses to change their tax and accounting systems and dedicate significant time and resources to comply with regulations. Moreover, in many cases, companies would not be able to get new technology systems developed and installed by the January 1, 2018, effective date for the final regulations, forcing these companies to spend additional resources on temporary systems.

The Section 987 regulations represent a significant change from the longstanding proposed regulations and impose new and additional compliance burdens on companies. Given the negative impact on jobs, investment and economic growth, we support withdrawal of these regulations.

Finally, Treasury indicated that it will revisit final regulations under Section 7602 that allow contractors hired by the IRS (i.e., outside economists, engineers, consultants or attorneys) access to books, papers, records or other data summoned by the IRS. In addition, under the regulations, contractors may, in the presence of an IRS officer or employee, participate fully in the interview of a person the IRS has summoned as a witness to provide testimony under oath.

The NAM believes that these regulations also should be repealed. The final regulations fall short on both policy and procedural grounds. Moreover, by allowing contractors to participate fully in summons interviews and receive summoned documents, the regulations will lead to longer and less efficient examinations.

Manufacturers applaud Treasury for acting decisively to begin to address the onerous, costly and unnecessary burden these tax regulations impose on manufacturers. We strongly urge Treasury recommend the withdrawal or repeal of these regulations in its final recommendations in September.

Once Again, the House Approves a Measure to Simplify State Taxation of Nonresident Workers

By | Shopfloor Policy, Taxation | No Comments

The House this week, by voice vote, approved the Mobile Workforce State Income Tax Simplification Act of 2017 (H.R. 1393), which clarifies and simplifies the ability of states to tax nonresident employees. The legislation—which sets a bright line test for when states can tax income earned by nonresident workers—has been approved by the House in earlier sessions of Congress but has yet to pass the Senate.

Many manufacturers have employees who travel outside their home states as part of their job. Unfortunately, these out-of-state assignments sometimes result in an arbitrary compliance burden and tax liability for both employees and employers. In particular, employees are required to track and comply with various tax filing requirements while employers are required to maintain records and withhold state income taxes for these employees. This is particularly onerous for small and medium-sized manufacturers that do not have in-house tax departments. Clarifying the ability of states to tax mobile workforces will free up resources for employers to use in their business and leave more money in the paychecks of their employees.

Now that the House has—once more—supported this commonsense legislation, the National Association of Manufacturers urges the Senate to follow suit and pass H.R. 1393.

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