Tag: 2003 tax cut

Whether On Small or Medium, Tax Increases Still Do Harm

In a letter to the editor in today’s Wall Street Journal, Assistant Treasury Secretary Michael Mundaca argues against Kevin Hassett and Allan Viard’s Sept. 3 op-ed claiming that small businesses will be hit by raising individual income tax rates.  Mundaca writes:

The problem with their argument, however, is that it counts any type of partnership income, sole proprietor income, or S corporation income as small-business income… Our analysis indicates that small-business owners under this definition, who would be affected by allowing the top two rates to increase as scheduled, have an average gross income of over $1 million.

So, what we’re quibbling with here is the definition of small-business income.  Mundaca is arguing that a small business with gross income over $1 million isn’t small.  We’ve made the point over and over that manufacturers are capital intensive – one manufacturing press alone could cost $1 million.  Frankly, a small manufacturer with only $1 million in gross income is small!

But, we’re flexible.  If it makes folks feel better, we’ll call them “medium-sized” businesses.   It doesn’t change our position though.  We think that raising taxes on a “medium sized” manufacturer with $1 million in income (which incidentally, would be a $35,000 tax increase) is a bad idea.  And we think it will hurt job creation.

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Wary, Cautious, Even Skeptical — Manufacturing

A roundup of business reaction to the President’s latest proposals:

Bloomberg TV, “NAM’s Timmons Interview on Obama Tax Policy,” an interview with Jay Timmons, executive vice president of the National Association of Manufacturers:

Margaret Brennan, Bloomberg: In reading these specific proposals, it sounds like the President is nodding toward or taking a page from something that you’ve been asking for a while, and a number of Republicans have here:

Timmons: It actually is a page right from our Manufacturing Strategy and our playbook, and what we think needs to occur to improve our economy and create jobs. The problem is, the tax incentives that the President is talking about – two very, very good incentives – it sounds like those are going to be coupled with tax increases in other areas, which could harmful to business, the economy and jobs. And you can’t fix one problem by creating two others.

Brennan: So what are you talking about there? You’re not talking about the individual tax rate on those making more than $250,000 a year.

Timmons: Well, actually, that is one of the issues. You know, 70 percent of manufacturers – this is a fact that most people don’t know – 70 percent of manufacturers file as individuals or S corporations. Higher taxes on manufacturing will harm their ability to make investments, buy new plants and equipment, even if the other tax incentive that the President is talking about exists. And that hurts jobs, and of course, job creation.

Dow-Jones, “Businesses Wary Of Obama Proposal To Expand R&D Tax Credit“:

The R&D tax credit expired at the beginning at this year, and a proposal to extend it for 2010 have run into a Senate logjam.

“It’s good that the president called for a strengthened credit, but the most important message is that there be no gap in the R&D credit for this year,” said Monica McGuire, a senior director at the National Association of Manufacturers.

Forbes, Brian Wingfield, “Obama, Boehner Show Little Will To Reduce The Deficit“:

What about the president’s other ideas? Wednesday, he also argued for allowing businesses to write-off all of their equipment expenses in 2011 rather than deducting the expenses over time. In addition, he’d make permanent the research and development credit. Business groups like the U.S. Chamber of Commerce and National Association of Manufacturers would normally jump at the idea. But a senior administration official says the R&D credit would be paid for by closing tax “loopholes” on multinational companies–not something business groups are likely to endorse.

Human Events, John Gizzi, “Business Leaders Denounce Obama’s Tax Increase“:

Jay Timmons, vice president of the National Association of Manufacturers, agreed. Referring to the selected tax credits supported by the President, Timmons told HUMAN EVENTS, “At face value, a 100% tax credit for plants and equipment and an expanded tax credit are extremely good for business and the economy and jobs.”

However, he quickly added, “unfortunately, the most effective economic growth tool is an extension of the ’01 and ’03 tax cuts, which the President refuses to do in total. Additionally, it is likely there will be a tax increase included which will raise energy prices and other taxes on business.”

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Targeted Tax Cuts, Across-the-Board Tax Hikes

President Obama speaks in Cleveland this afternoon to discuss the economy and offer changes in the tax law to encourage business investment and job creation. Jay Timmons, executive vice president of the National Association of Manufacturers, appeared on a Fox Business segment Tuesday discussing President Obama’s sudden flurry of economic proposals.

You have to look at all the components of the proposal, and I’m afraid we haven’t seen those yet. Taken in isolation, the President’s proposal to create 100 percent expensing for property, plants and equipment over the course of the next 18 months, to expand and make permanent the R&D tax credit, those things are good, not only for manufacturing but for businesses in general. The problem is, we haven’t seen the other shoe that’s about to drop, and that is tax increases that are likely to be part of the proposal…

The expiration of the 2001 and 2003 tax cuts will have a serious impact on the some 70 percent of the small manufacturers that file as S Corporations, paying the individual income tax rates, Timmons argued. 

“By not extending all across the board the individual tax rates, that harms manufacturing and that also hurts their ability to expand, invest and create jobs,” he said.

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Orszag: Higher Taxes Would Crimp Consumer Spending

While we might not agree with everything he says, Peter Orszag makes a compelling argument for extending the 2001-03 tax rates for a few more years.

The former OMB director, writing in his new capacity as a New York Times columnist, today argued:

Higher taxes now would crimp consumer spending, further depressing the already inadequate demand for what firms are capable of producing at full tilt. And since financial markets don’t seem at the moment to view the budget deficit as a problem — take a look at the remarkably low 10-year Treasury bond yield — there is little reason not to extend the tax cuts temporarily.

We couldn’t have said it better ourselves.

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