Tag: Taxation

Ask an Expert: What would a permanent R&D incentive mean for manufacturers?

Members of Congress and the Administration seem to agree on what manufacturers have long known: enhancing investment in research and development, or R&D, drives economic growth. But that growth cannot be sustained without a permanent R&D incentive.

The uncertainty of an on-again, off-again tax credit upends the innovation, new product development and job creation that manufacturers contribute to the economy. When there is no telling whether the incentive would be around for the entire length of a manufacturer’s R&D project, investment in the U.S. manufacturing base suffers. A JP Morgan Chase report released in August found that private spending on R&D slowed to 2.4 percent in 2013. We cannot allow investment to tumble any further. With the credit set to expire for the sixteenth time at the end of the year, that outcome becomes increasingly possible.

That’s why the NAM is advocating a permanent and strengthened R&D incentive as one of our priorities for comprehensive, pro-growth tax reform. The United States has been a leader in promoting R&D for over 30 years, but more and more countries have provided greater certainty for businesses in recent years by enacting permanent—and more generous—R&D incentives. A strong and permanent R&D credit will allow the United States to remain competitive in the global race for R&D investment dollars, particularly as manufacturers are courted by other countries with more generous and more stable R&D tax incentives and lower corporate tax rates.

The certainty provided by a strengthened, permanent R&D incentive would enhance its incentive value and help ensure the United States’ leadership in global innovation.

Christina Crooks is the director of tax policy for the National Association of Manufacturers.

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An Uncertain Future for Manufacturers

For many small manufacturers in the defense industry, innovation and investment is the lifeblood of their business. They are driven by the ability to stay a step ahead of their competitors through the development of new and effective products. One such company is Nanocerox, an Ann Arbor, MI. based manufacturer of advanced materials for laser systems, missile optics and radiation detection. A younger company, founded in 1996 by Dr. Richard Laine, Nanocerox sprung from licensed technology from University of Michigan chemistry laboratories. Like so many companies, Nanocerox was born with an idea and has since flourished due to their innovative products.

Unfortunately, Nanocerox is under serious duress as a result of the impending fiscal cliff. They are part of a group of defense manufacturers set to be hit with a ‘double whammy.’ In addition to the massive tax increases that are set to take effect on January 1st, 2013, Nanocerox is facing significant cutbacks in business due to the required defense cuts, also set to take place at the beginning of next year.

The NAM released a study detailing how manufacturers are already feeling the squeeze and Nanocerox is a prime example of this. They have already undergone a reduction of 30% of their workforce, redone their benefits, limited executive pay and yet they are still facing serious hardship.

Nanocerox’s CEO Mike Kelly said, “We don’t have the capacity to cut any more – we’re down to the bone here. In preparation for the fiscal cliff we took several serious steps to reduce our costs – and it still seems like it might not be enough if we go over this cliff. Based on what I’ve seen out of Washington, I don’t have a lot of faith that they can come to an agreement that will offer any sort of long-term solution to provide certainty to businesses like Nanocerox.”

Certainty is key to small and medium-sized manufacturers. In the absence of certainty, manufacturers are forced to stand on the sidelines, unable to make the needed investments and hiring decisions to keep themselves growing.

Nanocerox has firsthand experience with the impact of uncertainty. In efforts to shore up the business, Mr. Kelly has attempted to lead significant diversification efforts for their products and expand into the private sector for sales. But with the defense cuts facing the United States, it is incredibly difficult to acquire the capital investment needed to make such an important expansion.

Kelly says that, “it’s a tough situation. We want to expand beyond the defense sector to protect ourselves and our employees against the impending cuts – but it’s these very cuts that are preventing us from achieving that. I need an answer from Washington, and I need it soon – otherwise I have no idea what the future will hold for Nanocerox.”

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Business Coalition Weighs in on Need for Tax Extenders

Once again a number of important tax incentives are scheduled to expire on December 31st, clearing the way for a tax increase on millions of U.S. taxpayers that benefit from these provisions. Manufacturers have an interest in a number of these provisions including the Controlled Foreign Corporation (CFC) look through rules, deferral for active financing, and the R&D tax credit that help us create and retain jobs and compete in the global marketplace.

Because of the importance of these and other provisions to the business community, the NAM today joined more than 1,500 other companies and organizations on a letter to all members of Congress urging them to act quickly to extend these pro-growth, pro-job provisions.

While many in Congress focus on much-needed tax reform, the letter makes a strong case for why these “extenders” can’t wait until negotiators agree on how to revamp the tax code.

“The lack of timely congressional action to extend these provisions would inject more instability and uncertainty into the economy and further weaken confidence in the employment marketplace… Even though Congress has begun to consider tax reform proposals, a wide-ranging group of taxpayers is making decisions right now related to current law which will have an immediate impact on the economy.”

Plain and simple, “tax extenders” mean jobs and competitiveness for the U.S. economy It’s something that we can ill-afford to wait for in these unsettled economic times.

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Repeal of 3 Percent Withholding Passes House

Today the House passed the repeal of the 3 percent withholding requirement by a wide, bipartisan margin (405-16). This is great news for manufacturers in the U.S. and a step forward in eliminating one of the burdensome tax requirements looming over businesses.  Despite not being scheduled to go into effect until January 2013, the existence of this rule is having a negative impact on manufacturers right now. Manufacturers, especially those with thin profit margins, need certainty as they plan for the future and, with this ill-advised requirement on the horizon they have to plan for a future where they have less to reinvest in their business and their workforce. Plain and simple, it’s costing jobs in America and this is exactly why we need to eliminate this harmful provision as soon as possible. 

Fortunately, based on the broad bipartisan of today’s vote, it seems that Congress recognizes the serious issues that 3 percent withholding will pose to manufacturers in the U.S. and job creation. The legislation now moves to the Senate, where we believe there is bipartisan support for repeal. The NAM is part of a strong coalition working toward full repeal. We’re going to continue to put pressure on the Senate to do the right thing and get the 3 percent withholding provision off the books for good.

Carolyn Lee is the Senior Director for Domestic Tax Policy, National Association of Manufacturers

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A List of Those Attending CEO Meeting with President Obama

Manufacturers are included in the list, we’re pleased to see. From ABC, “The Presidential Planner“:

Greg Brown, Co-CEO, Motorola, Inc.
John Chambers, Chairman & CEO, Cisco Systems Inc.
Kenneth Chenault, CEO, American Express
Dave Cote, Chairman, President & CEO, Honeywell International Inc        
Scott Davis, Chairman & CEO, UPS        
John Doerr, Partner, Kleiner Perkins Caufield & Byers
Mark Gallogly, Managing Partner & Co-Founder, Centerbridge Partners  
Lew Hay, Chairman & CEO, NextEra Energy   
Jeffrey Immelt, Chairman & CEO, General Electric      
Ellen Kullman, CEO, DuPont
John Lechleiter, President and CEO, Eli Lilly   
Andrew Liveris, President, CEO and Chairman, Dow Chemical      
James McNerney, Chairman, President & CEO, Boeing
Indra Nooyi, Chairman & CEO, PepsiCo          
Paul Otellini, CEO, Intel
Penny Pritzker, Chairman & CEO, Pritzker Realty Group     
Brian Roberts, Chairman & CEO, Comcast         
Jim Rogers, Chairman, President & CEO, Duke Energy         
Eric Schmidt,  Chairman & CEO, Google
Robert Wolf, President & COO, UBS     

From Politico 44:

POLITICO’s Morning Money reports that there will be five main discussions, each led by one or more of the executives: Trade and exports (Boeing’s James McNerney); incentives to invest in the U.S. (GE’s Jeff Immelt); skills and work force training (Penny Pritzker of Pritzker Realty); the deficit commission findings (Honeywell’s Dave Cote); and innovation (Eric Schmidt of Google and John Doerr of Kleiner Perkins). Treasury Secretary Tim Geithner and outgoing adviser Larry Summers also are expected to spend much of the day there.

The President delivers a statement to the press at 9:15 a.m. and meeting with the CEOs is scheduled to start at 9:30 a.m. at the Blair House. (Does he walk over?)

Here’s the most relevant passage from White House spokesman Robert Gibbs’ briefing with the media Tuesday: (continue reading…)

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Overcooked Duck?

If you’re a tax lobbyist, virtually every phone call and meeting these days is centered around predicting the outcome of the lame duck session.  Will Congress finally take responsibility and fix the tax mess?  What’s so remarkable about this situation is that we’ve gotten to this point in the first place, after all, Congress has known about this expiration date for a decade.

Congressman Dave Camp, who will likely be the next Chairman of the Ways and Means Committee, said it perfectly today, “Frankly, it is ridiculous and irresponsible for this problem to have lingered this long.  The continued practice of dealing with expired and expiring tax policies after the leaves have begun to fall isn’t fair to taxpayers and doesn’t inspire much confidence in Washington.”

Proposals from the Administration that would treat some tax rates more favorably than others – the so-called “decoupling” compromise also don’t inspire confidence.  It’s too late in the game to be playing politics.  We’re down to the wire now and that means Congress needs to take care of this in the simplest manner possible – extend current tax rates for as long as possible.

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Faulty Rationale

Presidential Advisor David Axelrod was making the rounds on the Sunday morning talk shows yesterday — touting the Administration’s plan on taxes.  “We want a tax cut for the middle class up to $250,000,” Axelrod said. That would be stimulative, because people who need money in their pocket to spend and pay for the things that they need to live would have more money in their pocket. That makes sense.” 

Except – it doesn’t make sense.  There are two problems with Axelrod’s comments.  1.) NOT getting a tax increase isn’t the same as getting a tax cut.  Does he really think that people will spend more because their taxes will stay the same?  2.) The Administration’s plan will raise taxes on small manufacturers – kicking the top rate up to nearly 40 percent.

In this case, we’re in agreement with Axelrod – this will mean more money coming out of businesses – meaning they have less money to pay for things…like wages and benefits.

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Tax Increases Add to Uncertainty for Business, Investment

RMS McGladrey has released early results of a survey of top executives that reports serious concern about the effects on business and investment of federal tax increases. From the release, “RSM McGladrey 2010 National Manufacturing and Wholesale Distribution Survey finds significant concern among companies about potential tax increases“:

Distributed to more than 23,000 C-level executives at U.S.-based manufacturing and distribution companies, recipients were asked about the impact of potential various tax increases on their company as the federal government looks for potential revenue sources.

The results were significant enough that RSM McGladrey has released an early report on tax policy rather than waiting to include this information in the full survey report scheduled for release in early June.

“Increased taxes have a negative impact on cash flow and small and mid-sized companies, who don’t have the resources of large companies, are particularly hard hit,” said Tom Murphy, executive vice president of MWD at RSM McGladrey. “They are struggling to recover from the recent recession, and less cash flow is a barrier to investment in capital equipment and to the hiring of additional employees, both of which are needed to capture growth opportunities.”

Of the total 1,088 respondents included in the survey analysis, 91 percent were private companies and the remaining 9 percent were publicly owned. Of the private companies, 35 percent were structured as C-Corporations, 63 percent were pass-through entities (S-Corporations, LLCs, or Partnerships) and two percent identified themselves as “other.” Respondents reporting as pass-through entities are of particular importance since the earnings of these companies are “passed through” to individual shareholders, and taxed at individual tax rates, as compared with C-Corporations that are taxed at the corporate rate.

The NAM held a coffee for reporters with Murphy and our tax people earlier this week, and The Hill wrote an item. The point being made: Tax increases on the so-called wealthy are also tax increases on many small businesses.

That National Association of Manufacturers (NAM) on Tuesday urged lawmakers to extend the Bush tax cuts for upper-income taxpayers, saying the rate increase will hit small businesses that pay taxes based on individual rates.

Approximately 70 percent of firms belonging to NAM are taxed at individual rates, said Dorothy Coleman, VP of tax and policy at the organization.

NAM released a poll by RSM McGladrey today showing that 87 percent of manufacturers and distributors are concerned about the impending rate increase.

Every time you hear a politician talk about “a tax on the wealthy” just revise that to, “a tax on the wealthy and small business.”

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