Taxation

PBGC Proves There’s No Need for More Premium Increases

A report published this week by the Pension Benefit Guaranty Corporation (PBGC) underscores what the NAM has said all along — any further PBGC premium increases are unnecessary and harmful.

Ok, so the PBGC did not say this exactly, but their recent FY2013 Projections Report does show that the PBGC’s “deficit” – the justification previously used for further premium increases — has virtually disappeared, making any further premium hikes unnecessary. The PBGC report shows that the single-employer pension plan so-called deficit will shrink by over 360 percent from $27.4 billion to $7.6 billion by 2023. The business community has criticized the PBGC’s deficit calculations in the past for using false assumptions and historically low interest rates, driving their deficit projections way above the actual levels. Therefore, the fact that the PBGC’s own report shows a diminishing deficit further validates that any more PBGC premium increases are not needed.

For manufacturers who were recently hit with nearly $17 billion over ten years in PBGC premium hikes, the shrinking of the PBGC’s “deficit” problem comes as no surprise since manufacturers pay more premiums (approximately half) than any other industry. As a result, manufacturers are paying much of the cost of 2012 and 2013 premium increases, which will nearly double and triple the flat rate and variable rate premiums by 2016. A recent NAM and Pension Coalition study shows that further premium increases will also have a negative ripple effect throughout the entire economy, draining an average of 42,000 jobs per year, resulting in a $51.4 billion hit to the economy over 11 years.

The NAM alerted Congress to the negative consequences of any further PBGC premium increases in a letter signed by 70 companies and associations, and is leading meetings with key House and Senate offices urging members against further PBGC premium hikes. The PBGC report issued this week is just one more reason that Congress should not raise PBGC premiums, which would be an unnecessary and harmful tax hike on manufacturers and other pension plan sponsors.

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Dodd-Frank Fix in Sight for Manufacturers

The Customer Protection and End User Relief Act (H.R. 4413) is up for vote in the House on Friday. This bill finally addresses the need to fix the unintended consequences of the Dodd-Frank act on derivative end-users.  Manufacturers use derivatives to stabilize risk and allow for further investment, not to game the system.   Congress knew that when they passed the financial reform law and it is past time that they remedy the significant negative impact on manufacturers.

Dorothy Coleman, the NAM’s vice president of tax and domestic economic policy, sent a letter to the House supporting the passage of H.R. 4413. In the letter, she noted that according to a survey released by the Coalition for Derivatives End-Users, ,“Absent clarification on margin requirements, manufacturers and other end-users that use derivatives to manage risk may be forced to sideline a median of $125 million away from business investment, R&D and job creation.” And even though the legislation comes four years late, the NAM has continued to push lawmakers and to clarify once and for all that manufacturers  should not be subject to unnecessary and burdensome derivatives regulation.

Manufacturers were free of blame for the economic crisis, but unfortunately they will soon receive an unintended punishment unless this issue is resolved. After four long years, manufacturers are hopeful that those in Congress have finally recognized the imminent need for this legislation.  The bipartisan support is there, now is the time for congressional action.

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Camp and Brady Talk Tax Reform in D.C.

It’s no secret that our tax system is broken and in desperate need of reform. Tax reform is a key priority for manufacturers in the U.S. and we have been working closely with policy makers to make it a reality.

Today, Rep. Dave Camp (R-MI) and Rep. Kevin Brady (R-TX) spoke to audiences about the future of tax reform.  Representative Camp, Ways and Means Committee Chairman, spoke at an event hosted by RealClearPolitics about his ongoing efforts to implement comprehensive reform.  Chairman Camp’s introduction of a comprehensive bill has been a major step forward in a painstaking but critical process. Manufacturers appreciate his commitment.

Until we see a reformed tax code, the current system will continue to be an anchor on manufacturers.

Echoing this message to members of the business community at Microsoft’s D.C. headquarters, Rep. Brady, a Ways and Means Committee member, urged for a stronger pro-growth and pro-investment tax policy.  Rep. Brady, in addition to his support for comprehensive reform, has been a tireless advocate of a strengthened and permanent R&D credit.

In order to support a strong and competitive environment for manufacturers in the U.S., the passage of federal tax extenders for tax reform policy is crucial.  Tax credit extensions are the means to providing open avenues for manufacturing success.  In recent weeks, the House and Senate have begun to move in the right direction, passing extensions of the R&D tax credit, bonus depreciation, and Section 179 expensing.

The NAM has vigorously beaten the drum in support of tax credit extenders as a bridge to comprehensive tax reform.  We will continue to do so in order to keep investment, job creation and growth moving.

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AT&T Chief Talks Growth in Washington

Randall Stephenson, chairman and CEO of AT&T, appeared the Economic Club of Washington, DC, on June 17 to talk about the key ingredients for economic growth in the United States.

In a wide-ranging policy discussion, the head of the telecommunications giant honed in issues like immigration reform and tax reform as opportunities to drive and attract investment. Stephenson also highlighted the need for strong trade policies and the importance of free trade agreements. Currently, the United States’ ability to negotiate new agreements and complete pending ones is hindered by the lack of Trade Promotion Authority, which helps streamline the negotiation process.

Stephenson’s remarks send a powerful message from the business community about the necessity of engaging with Washington. Policymakers, whether on Capitol Hill or in the executive branch, need to hear from America’s job creators—because like it or not, what happens in Washington matters to businesses. We need to be at the table for these important discussions.

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Don’t Tax Our Internet: Part IV

Over the past 16 years, the Internet has become a critical piece of infrastructure for Manufacturers in the United States and a ban on new state and local taxes on Internet access has a lot to do with the incredible amount of investment in the broadband networks. Unfortunately, unless Congress acts soon, this temporary moratorium will expire for the fourth time in November 2014 with the potential of raising costs significantly for all businesses and families.

NAM members wholeheartedly agree with the conclusion of economist George Ford in a recent paper released by the Phoenix Center that a permanent Internet Tax Moratorium will ensure continued robust broadband adoption and investment in the United States. We strongly support bipartisan legislation, H.R. 3086, the Permanent Internet Tax Freedom Act, scheduled to be taken up tomorrow by the House Judiciary Committee. Kudos to Committee Chairman Bob Goodlatte (R-VA) along with Reps. Anna Eshoo (D-CA), Spencer Bachus (R-AL), Steve Cohen (D-TN) and Steve Chabot(R-OH) who cosponsored the bill. Extending the moratorium encourages innovation and economic growth and the sooner Congress removes the tax threat the better.

UPDATE:

The Judiciary Committee has officially put the permanent kibosh on taxation of access to broadband internet. This is an important step and manufacturers urge Congress to pass this bill in an expeditious fashion.

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Insanity… according to Albert Einstein

“Insanity: doing the same thing over and over again and expecting different results”… Albert Einstein

Well the Senate is once again trying to disprove this wisdom with yet another vote on the so-called “Buffett Tax.” According to our count this will be the 9th time that Senate Democrats have tried to use this tax increase to pay for something. This time around it’s attached to S. 2432 and while the NAM doesn’t have a position on the underlying bill, we do however oppose raising taxes on America’s small and medium sized manufacturers. That’s why, just this morning, the NAM’s Vice President for Tax and Domestic Economic Policy Dorothy Coleman sent a letter to all Senate offices urging Senators to oppose this tax increase.

As we’ve said before, nearly two thirds of manufacturers are organized as a pass-through entity and pay taxes through the individual side of the tax code. Thus, this permanent tax increase would hit those very manufacturers that are the back-bone of the nation’s manufacturing supply chain and reduce the amount of capital available to these business owners to reinvest in their company and their workforce.

This is a bad idea today, just as it’s been a bad idea since it was first conceived a few years ago. Raising taxes on small businesses to pay for new spending is not the way to get our economy back on track and growing the way it needs to. Speaking to the aim of the student loan bill specifically, raising taxes on job creators isn’t the way to ensure that jobs exist for those who are graduating from higher education.

Instead what manufacturers of all sizes need is comprehensive tax reform to ensure that we have a modern, competitive, permanent, pro-growth, pro-manufacturing tax code that allows them to compete and invest and grow and that will remove the constant uncertainty surrounding what policies will be in place in 6 months as well as in 6 years. That’s what manufacturers need and that is what will make the United States once again the best country in the world to manufacture.

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Exactly the Point

Manufacturers applaud the upcoming action in the House of Representatives to consider “America’s Small Business Tax Relief Act of 2014,” H.R. 4457, to make Section 179 permanent. We hope that this common-sense bill will pass with broad bipartisan support.

As we’ve often talked about in this space, making this provision permanent is a priority for small and medium-sized manufacturers. In order to compete in a worldwide economy, manufacturers need to plan and invest and meet emerging needs. Having certainty over the tax treatment of critical investments will make planning for future investment significantly easier. Capital investment is key to economic growth, job creation and competitiveness. Consequently, enactment of this policy would amount to a major step towards a tax code that will promote investment.

Take for example SASCO Chemical Group, Inc. (SASCO), a Georgia-based third generation family-owned chemical manufacturer with worldwide distribution. According to SASCO’s President Marc Skalla, “Innovation has made us who we are today; reinventing ourselves through innovation will secure our future and make us who we will be tomorrow.” To continue this forward-thinking progression, SASCO opened a state-of-the-art Innovation and Technology Center that houses their R&D, Technical, and Process-Pilot plant team. Over the past few years, SASCO has relied heavily on both Section 179 and bonus depreciation provisions in the Tax Code to enhance cash flows on scale up projects originating mainly from their Innovation and Technology Center. According to Marc, “without such provisions, our ability to transition innovations from a small-scale lab environment to full production lines would be severely hampered.  Capital projects such as those our Company launches are exactly the type of projects that these tax provisions are intended to support.”

Companies like SASCO who are innovating, growing and competing are at the heart of the ongoing manufacturing renaissance currently taking place in the United States.  These deductions have allowed SASCO to triple their facility’s capacity over the past four years to keep up with the double digit growth they have experienced annually since 2008. This growth has earned SASCO many accolades including a recent recognition from President Obama’s E-Awards for significant contributions to increasing American exports.

Manufacturers like SASCO need stable, pro-growth, pro-investment tax policy to allow them to face the challenges of competing in a global marketplace. Manufacturers face enough uncertainty and the tax code should not be adding more. We urge every member of the U.S. House of Representatives to support H.R. 4457. Until we can get the full panoply of pro-growth pro-manufacturing tax policies enacted via comprehensive tax reform this is a critical step forward.

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Survey Says… Section 179 and Bonus Depreciation Are Critical

In the latest NAM/IndustryWeek Survey of Manufacturers that was released earlier this morning survey respondents once again underscore the importance of investment incentives like enhanced Section 179 expensing and bonus depreciation and the role that these common-sense provisions play in their firms’ investment decisions. According to the survey, nearly a quarter of respondents said that “they were holding off on making investments until Congress extends Section 179 expensing or first-year bonus depreciation.”

If these provisions were not expensed, over a third of respondents “said that they would not make any investments this year without these provisions.” That would be on top of the 5 percent of respondents that said that they were not planning on making any investment this year at all. As NAM’s Chief Economist Chad Moutray puts it in the survey analysis, “that is a significant portion of businesses that would be negatively impacted by the loss of these investment incentives.

And in a pre-emptive response to those who say that the economy can still benefit when Congress gets around to passing the extenders in the 11th hour during the likely lame duck session later this year, this survey also underscores that the sooner Congress acts to restore these provisions the better. In fact according to our survey, “more than half of those surveyed said there would not be enough time to make capital spending purchases and put these capital expenditures into place if these incentives are not extended until mid-November.”

This survey makes it all the more clear that the House of Representatives should overwhelmingly support the passage of H.R. 4457, America’s Small Business Tax Relief Act later this week. Manufacturers of all sizes need this action and they need it now!

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Who Really Benefits from Bonus Depreciation?

According to a recent paper from the Tax Foundation, the whole economy. Will McBride, the paper’s author, concludes that “extending 50 percent bonus expensing on a permanent basis would boost GDP by over 1 percent, the capital stock by over 3 percent, wages by about 1 percent, and would create 212,000 jobs.”

Here are the NAM, we’re not surprised. Manufacturers know first-hand that capital investment is key to economic growth, U.S. job creation and competitiveness. Promoting investment should be an integral part of U.S. tax policy. And, an effective way to spur business investment and make U.S. manufacturing more competitive is through a strong capital-cost recovery system. An ideal system would allow companies to expense capital equipment in the tax year purchased. First-year expensing lowers the cost of capital, increases the number of profitable projects a firm can undertake and promotes job creation and retention.

This is why we applauded and strongly support Rep. Patrick Tiberi’s recent bill to make 50 percent bonus depreciation permanent, H.R. 4718. We are pleased that it was recently reported out of the Ways and Means Committee and hope that this common-sense bill can come to the floor sometime soon. In the absence of comprehensive tax reform, manufacturers need critical pro-investment tax policies enacted permanently to allow them to plan for future investments. Expensing is not just a matter of timing, by reducing the after-tax cost of investment, policies like permanent Section 179 and permanent 50 percent bonus depreciation allow manufacturers to stretch critical resources and make the investments they need to compete in today’s competitive marketplace. We applaud Rep. Tiberi for his leadership on these efforts and urge swift adoption of both of these provisions and allow U.S. manufacturers to grow and lead way to a full economic recovery.

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Small Businesses Are Taking A HIT

In NAM’s quarterly surveys of members, health care costs consistently rank as the top business challenge for manufacturers. The concerns of these companies are well-founded given the avalanche of new rules, regulations and requirements as the rollout of the Affordable Care Act continues.

It’s particularly challenging for many small and medium-size business owners who, in addition to everything else, are feeling the hit of a new fee on health insurers, also known as the health insurance tax (HIT), which translates into higher insurance premium costs for small businesses and their employees. In a June 4th op-ed in The Boston Globe, “Small business picks up Obamacare tab,” Tom Stemberg, the co-founder and former CEO of Staples, spells out the devastating impact of this tax on businesses operating on tight margins and the workers they hire. His column echoes what the NAM is hearing every day from our members – and unfortunately, it seems that it will get more and more difficult for them as implementation proceeds.

Stemberg knows firsthand the challenges facing smaller businesses and what it takes to succeed and grow—and we agree with him wholeheartedly that it’s time to repeal the Health Insurance Tax.

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