The nonpartisan Congressional Budget Office (CBO) yesterday confirmed what manufacturers have been saying for a long time: cancelling the spending cuts and tax increases set to go into effect on January 1, 2013, will stimulate much-needed economic growth and job creation. 

The CBO’s report , “Economic Effects of Reducing the Fiscal Restraint that Is Scheduled to Occur in 2013,” concludes that ,if Congress derails the spending cuts under sequestration and extends current tax relief provisions, GDP will grow at a 4.4 percent rate in 2013, raising employment by two million jobs, on average.  Conversely, doing nothing and allowing some $607 billion of across-the-board spending cuts and tax increases to hit our economy will stop our economic recovery in its tracks, sending the country back into a recession.

In fact, CBO estimates that if we fall off the $600B fiscal cliff, the economy will contract by 1.3 percent in the first quarter of 2013 and overall growth in 2013 will be about 0.5 percent.  As CBO does point out, though, the short-term benefits of avoiding the fiscal cliff doesn’t eliminate the need for policy makers to make a serious effort to address our nation’s long-term debt and deficit challenges, a position shared by manufacturers. Congress and the Administration need make the hard decisions on tax and entitlement reforms and spending policy to put the nation on a long-term path to growth and job creation.

NAM members have long held that the U.S. tax code represents a drain on our economy and any long-term plan to address our nation’s fiscal challenges should include comprehensive reform of the tax code that encourages job creation, investment and growth.

Last night, the Senate rejected efforts to begin debate on the “American Jobs Act” (S. 1660), which includes a so-called “millionaires surtax,” a new permanent tax on taxpayers with income over $1 million, including many small manufacturers. 

In the lead up to the vote, NAM Senior Vice President for Policy and Government Relations Aric Newhouse sent a letter to the Senate expressing Manufacturers’ opposition to the surtax, which would amount to over $450 billion in new taxes. Newhouse noted that Manufacturers are particularly concerned that the proposal would impose an anti-growth surtax on top of an already out of date tax code:  

“Now, more than ever, is the time for tax reform to promote, jobs, growth, jobs and competitiveness that will make the United States the best country in the world to manufacture products.”  He added that such a significant change to our nation’s tax policy – especially one which would raise nearly a half of a trillion dollars – “should not be considered as a rifle-shot effort to address a specific need for revenue.” (continue reading…)

Yesterday’s Washington Post “Outlook” section included a column entitled “5 Myths about Millionaires”  that seeks to dispel some of the myths that are central to the need for the so-called “Buffett Rule.”

               3. Millionaires pay proportionately less income tax than poorer people.

In a speech on Monday, Obama said raising taxes on millionaires isn’t class warfare, but “math.” His math may be off: According to the IRS, those with adjusted gross incomes of more than $1 million paid an average of 23.3 percent in federal income taxes in 2008; those earning between $100,000 and $200,000 paid 12.7 percent; and those earning between $50,000 and $100,000 paid 8.9 percent. Nearly half of American families don’t make enough money to pay federal income taxes at all.

Quite simply, despite what the President and his advisors are saying in interviews, the nation’s top earners already pay the lion’s share of federal income taxes. And increasingly these earners are the nation’s job creators. And a review of the facts makes this clear.

The NAM has long advocated for making permanent the lower tax rates on small and medium size manufacturers. More than 70 percent of manufacturers operate as “flow through” entities and pay taxes at individual rates. Raising taxes on these and other businesses that operate in this manner will only hurt jobs. In 2008, these types of entities employed 54 percent of the private sector workforce.

In his testimony to the U.S. House of Representatives Committee on Budget on September 14^th, Scott Hodges, President of the non-partisan Tax Foundation pointed out that:

Fully 68 percent of private business income is earned by taxpayers with AGI above $200,000—the target range of President Obama’s proposed tax rate increases. Some 35 percent of all private business income is earned by taxpayers with AGIs above $1 million.

Another way of looking at the distribution of business income is to see how many taxpayers at the highest tax brackets have business income. According to Tax Policy Center estimates, more than 74 percent of tax filers in the highest tax bracket report business income, compare to 20 percent of those at the lowest bracket…more than 40 percent of private business income is earned by taxpayers paying the top marginal rate. (continue reading…)

Yesterday Senators Rubio (R-FL) and Ayotte (R-NH) had a colloquy on the Senate floor where Senator Rubio made a very strong point about now not being the time to increase taxes business owners.

Here is the excerpt from Senator Rubio’s remarks:

“We don’t need new taxes. We need new taxpayers, people that are gainfully employed, making money and paying into the tax system.”

As we have said before, tax increases on manufacturers will only dampen economic growth and hurt job creation. Manufacturers are faced with countless regulations and tax burdens that harm their ability to grow. If manufacturers are able to create jobs then there will be additional taxpayers paying into the system. Piling on with additional tax increases will only harm our recovery.

Dorothy Coleman is vice president for tax and domestic economic policy, National Association of Manufacturers.

On Fox News Sunday today, Sen. Claire McCaskill (D-MO) called for tax increases on higher income brackets, including small businesses and millionaires, millionaires, millionaires, millionaires. (See post below.) Also on the program was Sen. Lindsey Graham (R-SC) who offered a different point of view about extending the current tax rates beyond their Dec. 31 expiration. From the transcript:

GRAHAM: I’m not going to vote to increase taxes on anybody in America, millionaires included. We’re in a very weak economy. If you want to make it weaker, raise taxes on anybody is a bad idea.

There will be bipartisan support in the lame duck to extend all the tax cuts for two or three years, and I think that vote will be had before the end of the year.

And if the president doesn’t support that, I think he’s running a risk of making the economy weaker at a time where he could help make it stronger through bipartisan support by Democrats and Republicans to extend all the tax cuts. And stop playing class warfare. Let’s get the economy going.

Concise and correct, Senator. Thank you.

Caterpillar CEO Doug Oberhelman was in the news Thursday thanks to an excellent third quarter financial report, which announced a quarterly profit of $792 million, 96 percent higher than the same three-month period in 2009.

Neil Cavuto interviewed Oberhelman on Fox News (video here), asking important questions about China, competitiveness, and the political climate. Oberhelman observed that Caterpillar was a net exporter to China.

We’ve hired year to date, 15,000 people worldwide. About 45 percent, almost half of those are here in America, good manufacturing jobs, good office jobs. It’s great to do it. I’m happy to do it. I love those kind of announcements.

For some reason in this country, the debate has changed from hiring in America to, if …any American company hires one person outside the United States, it’s a bad thing.

In fact, when we hire people in Belgium, or in China, Australia, wherever it is, likely there’s somebody back here in America supporting that job in some form or fashion. Those are markets we have to penetrate. Our competition will get them if we don’t. Then what we do we do with our workers, when we say, we don’t have an export, thus we don’t have a job, then what do we do? We have to learn to deal with this.

And on tax policy, Oberhelman said:

What I worry about is gridlock going into January 1 and tax rates going up for all of us. The last thing we need is a huge tax increase on this economy in this country. I have never seen a recession – and we’ve studied them all the way back – where you tax yourself out of recession. And if that happens, our risk of going big-time slow down next year is much greater…

Oberhelman was elected vice chairman of the Board of Directors of the National Association of Manufacturers at the NAM’s board meeting earlier this month. He takes office for a two-year term in January.

John Engler, president and CEO of the National Associaton of Manufacturers, spoke to the NAM’s Board of Directors on Wednesday, assessing the political and economic consequences of the just-recessed 111th Congress. He observed:

You think about elections as sort of a performance review. Congress is going to have a pretty hard time arguing that they deserve to keep their jobs.

Think about this: They didn’t pass a budget. They failed to enact a single appropriations bill. Not one. We’ve got the return to the killer 2001 tax rates – that’s looming. The estate tax is poised to go back up to 55 percent, and we’ve got no R&D tax credit. Other than that …

Judging from his Washington Post column today, Charles Krauthammer must have been in the audience and been inspired by Engler. In “The Colbert Democrats,” Krauthammer notes Congress’ failure to enact budgets and appropriations bills and elaborates:

Congress adjourned without even a vote — nay, without even a Democratic bill — on the expiring Bush tax cuts. This is the ultimate in incompetence. After 20 months of control of the White House and Congress — during which they passed an elaborate, 1,000-page micromanagement of every detail of American health care — the Democrats adjourned without being able to tell the country what its tax rates will be on Jan. 1.

It’s not just income taxes. It’s capital gains and dividends, too. And the estate tax, which will careen insanely from 0 to 55 percent when the ball drops on Times Square on New Year’s Eve.

Nor is this harmless incompetence. To do this at a time when $2 trillion of capital is sitting on the sidelines because of rising uncertainty — and there is no greater uncertainty than next year’s tax rates — is staggeringly irresponsible.

No, Krauthammer really wasn’t in attendance — he’d be welcome at the NAM, to be sure — and really, Krauthammer and Engler are only stating the obvious. The really obvious. The outrageously obvious: Congress failed to act on taxes.

Sixty votes were required to invoke cloture.

The National Association of Manufacturers sent a “Key Vote” letter Monday opposing S. 3816, the Creating American Jobs and Ending Offshoring Act.

We’ll post the roll call when it becomes available.

UPDATE: The roll call vote is here. Joining the Republicans in voting now were Sens. Max Baucus (D-MT), Jon Tester (D-MT), Ben Nelson (D-NE), Mark Warner (D-VA) and Joseph Lieberman (ID-CT).

Earlier posts here.

Stephen Moore at The Wall Street Journal’s Political Diary takes note of the recent letter from 31 House Democrats urging the extension of the current tax rates for all income levels. By rejecting the “middle class tax cut” rhetoric, these House members are reflecting the views of their constituents, Moore reports in “Let Them Eat Tax Hikes.”

As a matter of political analysis, he concludes:

The best bet now is there will be no vote on the tax cut extensions in the House before the elections. Democrats will have to face voters in November essentially promising a tax hike on everyone in January. Now that’s tax fairness.

Rep. Harry Mitchell (D-AZ) posted the letter on his official website on Monday addresses to Speaker Pelosi and Majority Leader Hoyer:

We urge you to consider legislation to extend all of the income tax cuts contained in The Economic Growth and Tax Relief Reconciliation Act of 2001 (P.L.#107-16).  In recent weeks, we have heard from a diverse spectrum of economists, small business owners, and families who have voiced concerns that raising any taxes right now could negatively impact economic growth.

Given the continued fragility of our economy and slow pace of recovery, we share their concerns.  We believe in times of economic recovery it makes good sense to maintain things as they are in the short term, to provide families and businesses the certainty required to plan and make sound budget decisions.  Providing this certainty will give small businesses, the backbone of our economic recovery, confidence and stability. (continue reading…)

Manufacturers disagree with Treasury Secretary Geithner’s  comments this afternoon at an event sponsored by the Center for American Progress and the American Action Forum in which he stated it is a “myth” that tax increases would hurt small businesses.  Nearly 68 percent of all manufacturers are organized as S-Corporations or other entities taxed at the individual rate. This means they pay individual tax rates on their business income. So, when the Administration says it supports letting the 2001 and 2003 tax cuts expire for the top 2 percent in this country, these manufacturers are included.

Since 2007, these manufacturers organized as S-Corporations have lost more than 850,000 jobs – 42 percent of the total jobs lost in the goods-producing sector.  Increasing taxes would deal a painful blow and create more uncertainty and increase costs for an industry trying to lead our nation in recovery. 

Manufacturers have been hit hard especially as a capital-intensive business.  Manufacturer’s equipment is expensive, they have more employees and higher payroll costs, so the money flowing through their business tends to be higher. Further, the company’s profit does not equal the manufacturer’s take-home pay as they reinvest in their business with new equipment and new employees.  Often it also means building new facilities.

In a March 2010 survey of small and medium-sized manufacturers firms, 86 percent said they were concerned about the expiring tax rates – of those, 62 percent said they were very concerned.  I don’t think these manufacturers would at all agree with Secretary Geithner’s claim that these tax hikes will not have an impact on them.

With unemployment continuing to hover close to 10 percent, we will continue to urge the Administration and Congress to put policies in place that will stimulate private sector growth and jobs – which includes extending the 2001 and 2003 tax cuts.  We also encourage them to enact the policies explained in the NAM’s “Manufacturing Strategy For Jobs and a Competitive America.”