Today the Senate rejected S. 2204, a bill to raise taxes on energy companies by more than $35 billion.  The NAM has weighed in strongly against the legislation and it was voted down by a vote of 51-47. Manufacturers know that these tax hikes would deal a devastating blow to energy companies in the U.S. pursuing resources critical to our nation’s energy security as well as saddle everyone with higher costs.

This proposal – and others like it – will only distance the U.S. from our goal of energy policy that will increase supply and lower costs and should be voted down. It’s another strike against manufacturers, consumers of one-third of our nation’s energy, who already face a 20 percent cost disadvantage with their foreign competitors. If we seek to truly achieve energy independence, lower costs and improved competitiveness around the globe we must avoid a policy of picking winners and losers through punitive taxes.

Dispite the bill’s defeat today, there are still a number of people, including President Obama, that still wish to hang an albatross around the necks of energy companies in the U.S. with new taxes.  The NAM is committed to fighting this unfair effort and manufacturers will continue to support and work towards an “all of the above” energy policy that will deliver for consumers and our economy.

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.

Manufacturers send their thanks to Ways and Means Committee Chairman Dave Camp (R-MI) for holding a hearing yesterday on the Treatment of Closely-Held Businesses in the Context of Tax Reform. As we’ve been saying for years, more than 70% of manufacturers operate as “S” corporations or as other “flow-throughs” and pay income taxes at individual tax rates.

These entities are responsible for nearly 60 percent of total net business income and employ over half of the private sector workforce. In a nutshell: the treatment of S corps and other flow-throughs – and thus individual tax rates –should be a key part of any tax reform discussion.

However, that’s not always the case. As we noted last month, the President’s Framework for Business Tax Reform didn’t address flow-through entities because it didn’t address individual tax rates that apply to flow-throughs. Instead, the President continued to argue that individual tax rates should go back up to their pre-2001 levels for many of the very taxpayers who are business owners. What we need is comprehensive tax reform that includes permanent lower tax rates for the the small businesses that make up a significant part of the American economy and private sector employment.

We also appreciated the testimony of several witnesses who underscored the need for comprehensive tax reform that results in a simplified and streamlined pro-growth tax code to allow business owners to make decisions based not on the tax code but what’s best for their business. The NAM will continue to urge Congress to take action on this national priority.

Carolyn Holmes Lee is senior director of tax policy, National Association of Manufacturers.

Like columnists Jim Carter and Jason Filchner, manufacturers are buoyed that Presidential candidates—on both sides of the aisle—are talking about reforming our nation’s tax code.  As Carter and Fichtner point out in their March 6^th op ed in Investors’ Business Daily, our corporate tax rate needs to be lowered to a level more in line with our competitors’—for us, that’s 25 percent or lower. 

We also need to move from our “worldwide” tax system to a more competitive territorial system like those used by our major trading partners. And we shouldn’t stop there.  Our overall tax code needs to be simpler, more transparent, permanent, predictable and efficient.

While all of the candidates recognize the need for tax reform—and some have ideas very similar to Manufacturers—we need to ensure that tax reform is not just an issue for the campaign trail but an action item for the new Administration.

Manufacturers were disappointed to hear the President, once again, call for increased taxes on energy companies during his speech today in North Carolina. Despite growing anxiety in recent weeks about the increasing cost of gasoline and predictions of $5 a gallon gas, the Administration continues to push for punitive tax increases on the oil and gas industry.

The increased costs actually would make a bad situation worse by discouraging oil and gas investments in the United States, increasing energy costs and making us less competitive and threatening job creation and the broader economy. The NAM has long held that the debate about energy policy should focus on enhancing America’s energy security by encouraging new investments in affordable sources of energy, not with new and higher taxes.

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.

While manufacturers do appreciate the President’s focus on tax reform today, we are a bit dismayed that it only outlined a piece of the whole tax reform pie.

To start with, we do appreciate that the Administration recognizes what we have been saying for quite some time – that our nation’s corporate tax rate is a disincentive for businesses to invest and hurts our ability to compete worldwide. We appreciate the nod towards a lower corporate tax rate and we also appreciate that the plan specifically calls for making permanent a simplified and strengthened R&D credit – something we here at the NAM have been fighting for for far too long.

But again, it’s not a full plan. It doesn’t address many of the issues on the corporate side including the tax treatment of capital gains and dividends critical to driving investment among other things. And the proposal also barely touches on international tax reform, it doesn’t include a territorial system and the international tax changes are all to the detriment of companies who operate worldwide including the creation of a new “minimum tax” on foreign earnings. As if our nation’s recent experience with the corporate and individual AMT hasn’t been bad enough, the Administration is proposing a whole new one.  While not something that’s not acknowledged often enough, with 95 percent of the world’s customers outside the US and 77 percent of the purchasing power for many products, companies need to be located near their customers whether they be individuals or the supply chains that they feed into and that international operations are critical to US based jobs.  Other tax increases in the plan would target the oil and gas industry and companies that invest in capital equipment.

The proposal says nothing about the impacts of the scheduled increases in marginal tax rates on the individual side that are due to go into effect come January 1, 2013. These rates are critical as nearly 70 percent of manufacturers are organized as flow-through entities and pay taxes on the owners’ individual tax returns. The cliff of skyrocketing tax rates will hit these manufacturers barring action to extend these rates later this year. This is something that just can’t be ignored. And speaking of AMT, by not addressing individual tax reform, the proposal doesn’t attempt to solve that problem either.

Our nation’s tax code is a complex, antiquated, some may even say Byzantine mess, and thus it needs a complete revamp, not only a patch or piecemeal fix.  We thank the Administration for putting forward part of the plan and hope that they will return sometime soon with the rest of a plan so that the comprehensive tax reform debate can finally begin in earnest.

American manufacturers are focused on investment, expansion and job creation.  One important way to do this is by expanding their customer base. And, with 95 percent percent of the world’s population outside the United States, it is not surprising that American companies are looking at markets outside the United States.  More business translates into more jobs and stronger companies.  So why is the Administration so intent on punishing companies that operate in the global market place?  A new video from the Tax Foundation explains in simple terms how overseas business benefits U.S. companies and their workers and how, in contrast, misguided U.S. tax policies make it much harder for them to compete.

As each day goes by, manufacturers across the country are eyeing ever more warily the “perfect storm” of tax increases that will take effect at the end of this year if Congress doesn’t act to stop them. The need to extend one particular tax benefit – which reduced and paired the tax rate on savings and investment – in current law is highlighted in a new study released today by the Alliance for Savings and Investment. This coalition of dividend paying companies, investor organizations and trade associations – including the NAM – fights for a continuation of these policies that promote economic growth and job creation by fostering private savings and investment. In a nutshell the study finds that:

Taking into account both the corporate and investor level taxes on corporate profits and state level taxes, the United States has among the highest integrated tax rates among developed countries and these integrated tax rates will rise sharply in 2013:

• The current top US integrated dividend tax rate of 50.8 percent will rise to 68.6 percent in 2013, significantly higher than in all other OECD and BRIC countries.
• The current top US integrated capital gains tax rate of 50.8 percent will rise to 56.7 percent in 2013, the second highest among OECD and BRIC countries.

The reduced tax rate on capital gains and dividends was enacted in 2003 as part of an effort to reduce the burden of double taxation on corporate profits while also synchronizing the tax rates on dividends and capital gains in an effort to eliminate any bias for one type of investment over another.

Although obvious to the astute observer, it is essential that in this debate – and in any debate about corporate tax policy – one remember that capital is more mobile in today’s world than ever before and tax policy can go a long way to influence decision making of investors both on the individual and the institutional level.

The NAM has long held that an important objective of long-term tax policy is to maintain competitive tax rates that are low enough to attract the capital formation and investment necessary to ensure durable economic growth – making permanent the synchronized, lower rates on capital gains and dividends is essential to that task.

Despite what many would like you to think, U.S. companies shoulder a larger tax burden than their counterparts overseas.  There’s a lot of focus in Washington on the statutory federal corporate tax rate, which , at 35 percent, will be the highest among industrialized countries as of April 1, but that’s only part of the equation. 

When you factor in business deductions and credits, the average 28 percent “effective tax rate” paid by U.S. corporations also is higher than the rate paid by their foreign counterparts. 

In their latest video, the folks at the Tax Foundation do great job of debunking claims about the corporate tax burden and showing how U.S. companies tax bills stack up on a global basis. 

The short clip reinforces the Manufacturing Institute’s report  on the structural cost of manufacturing in the United States —it costs more to manufacture in the United States and taxes are a big part of the problem.