Tag: Timothy Geithner

Debt Ceiling: Uncertainty Rises and Business is Alarmed

The federal government hits the debt ceiling Monday, and Treasury will shuffle money around to avoid economic catastrophe. In fact, it look likes Treasury will be able to work with various accounts so it can meet its obligations at least through August 2.

Thus, no immediate global collapse, but the risks multiply. In a letter Friday, Treasury Secretary Timothy Geithner wrote: “A default would inflict catastrophic, far-reaching damage on our nation’s economy, significantly reducing growth and increasing unemployment.”

Agreed. The current state of affairs is untenable, worsening the sense of uncertainty that is the enemy of investment and economic growth.  Sixty-one national, state and local business groups — including the National Association of Manufacturers — last week sent Congressional leaders a letter urging action to raise the federal debt limit. From the letter:

Raising the statutory debt limit is critical to ensuring global investors’ confidence in the creditworthiness of the United States. With economic growth slowly picking up we cannot afford to jeopardize that growth with the massive spike in borrowing costs that would result if we defaulted on our obligations. It is critically important that the United States stands fully behind its legal obligations.

In making this recommendation, we remain extremely concerned about the level of the federal debt and large annual budget deficits and remain committed to working with you and the Administration to address our Nation’s fiscal challenges. Tough calls on U.S. spending must be made as part of a debate about the budget and we agree that restoring balance to our fiscal position will require that the government spend less and spend more wisely.

Coverage …

Meanwhile, Tim Carney of The Washington Examiner finds in the business association letter what he always finds, evidence of “big business” getting in bed with the federal government. You know,  unprincipled rent-seeking plutocrats like those at — well, let’s check the letter’s signers — the Oshkosh Chamber of Commerce, Northeast Pennsylvania Manufacturers and Employers Association, the Colorado Association of Commerce and Industry. Come to think of it, the National Association of Manufacturers has thousands of small member companies.

Smaller companies, too, tend to dislike uncertainty and shrink at the idea of the federal government defaulting on its obligations.

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R&D Tax Credit: Investment, Jobs, Innovation by Manufacturers

The Department of Treasury on Friday released a new report, “Investing in U.S. Competitiveness: The Benefits of Enhancing the Research and Experimentation (R&E) Tax Credit,” with the full .pdf available here.

The report, developed to support the Obama Administration’s promotion of a permanent and stronger R&D tax credit, reaffirms the credit’s value to the U.S. economy, especially the manufacturing sector. In 2008, manufacturers claimed $5.78 billion worth of tax credits, or 69.3 percent of the total. The top three manufacturing sectors claiming the credit were:

  • Computer and electronic product manufacturing: 31.5 percent of the total claimed.
  • Chemical manufacturing: 25.9%
  • Transportation equipment manufacturing: 20.5%

The Administration proposes:

  • Making the R&E Credit Permanent. The President proposed in his FY 2012 Budget to permanently extend the R&E credit so that businesses can make investments in research projects, confident that they can benefit from the credit in the future. The President has placed a high priority on making the credit permanent, proposing this in his previous two budgets as well.
  • Increasing the Alternative Simplified Credit Rate by More than 20 Percent. While the President has previously proposed making the R&E credit permanent, the Administration now also proposes to increase the rate of the alternative simplified credit from 14 percent to 17 percent. This will provide a larger incentive to increase research and simplify the credit by encouraging firms to switch to the alternative simplified tax credit base. The Administration’s proposal maintains the current regular research credit to prevent disruption to firms that choose to continue claiming the regular research credit.

Secretary Geithner gave brief remarks Friday that mentioned the tax credit when he visited NanoMech, a nanotech-products manufacturer in Northwestern Arkansas.

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Make R&D Tax Credit Permanent, Even in Revamped Tax Code

Bloomberg, “Treasury Department Supports Permanent Research Tax Break Even in Overhaul,” reporting on Treasury’s support for a more robust, permanent R&D Tax Credit as part of a revamped tax code.

Michael Mundaca, assistant Treasury secretary for tax policy, said that the economic benefits and high-wage jobs generated by the research credit make it worth preserving, even in a tax system with fewer targeted tax incentives.

“In a reformed system, you’d still want some incentives to be provided for research activity, and we think this is a good incentive to provide,” Mark Mazur, the department’s chief tax economist, said at a briefing with reporters in Washington yesterday.

The briefing accompanied the advance release of a new report, as reported by Reuters, “Obama tax credit will support 1 mln workers-report.”

Treasury Secretary Geithner will highlight the jobs connection when he visits a high-tech manufacturer in Northwest Arkansas today. From ArkansasBusiness.com, “NanoMech Ready for Appointment with Geithner“:

NanoMech Inc. chairman and CEO Jim Phillips grasps firmly the significance of U.S. Treasury Secretary Tim Geithner’s Friday visit to northwest Arkansas.

“He could’ve gone to the Silicon Valley, he could’ve gone to the Research Triangle,” Phillips said Thursday morning, “but he’s coming here.”

Geithner’s visit is multi-pronged. He will meet with a group of regional business leaders at the Arkansas World Trade Center and also is expected to address the release of a report detailing the economic benefits of President Obama’s Fiscal Year 2012 Budget proposal to enhance the Research & Experimentation tax credit.

NanoMech anticipates Secretary Geithner’s visit in a news release, “U.S. Treasury Secretary Timothy Geithner Makes Historic Visit to NanoMech Plant in Springdale.”

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A Beginning to a Debate on Taxes and Manufacturing

From CNBC, Monday, “CFOs from top companies will meet with Treasury Secretary Tim Geithner in Washington on Friday to discuss corporate tax reform. Anne Mathias of MF Global and Dorothy Coleman of the National Association of Manufacturers weigh in.”

The segment starts with John Harwood, who outlined the thrust of Geithner’s agenda and Friday’s meeting at The New York Times, “Changing Corporate Tax Is a Tricky Balancing Act.”

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Letter to Treasury: Don’t Give Trial Lawyers More Incentives to Sue

The National Association of Manufacturers has joined 75 business associations, legal reform groups and others in a letter to Treasury Secretary Timothy Geithner expressing strong opposition to any administrative move that would unilaterally grant a tax deduction for lawyers’ loans to the plaintiffs they’re representing in civil lawsuits.

This is the $1.6 billion tax break for trial lawyers that the American Association of Justice has failed to push through Congress. It almost fails the laugh test, and it certainly fails the political primary test. Chief sponsors of the legislation — Sen. Arlen Specter (D-PA) for S. 437 and Rep Artur Davis (D-AL) for H.R. 2519 — both lost their primaries, and no one has stepped forward to pick up the flag.

So AAJ went to its fall-back position, asking Treasury for a guidance or tax interpretation that would grant what Congress refuses to grant. Leading members of Congress have objected, saying that the Executive Branch should not supplant Congress is policymaking. Professional groups like the American Medical Association are alarmed (AMA letter), and business groups like the NAM protest the possibility of a huge tax break that would create an incentive for more litigation.

From the joint letter:

A change in IRS policy to permit the deduction envisioned by the trial bar is totally unwarranted. According to the Congressional Joint Committee on Taxation, permitting this deduction would result in a $1.572 billion loss of revenue for the federal government over a ten-year period.

Moreover, such change in policy would damage the economic recovery, not just as a result of losing billions in tax dollars, but also by fostering more questionable litigation. Contingency fee lawyers, enticed by the ability to immediately deduct their reimbursable expenses, would be more willing to take on new, spurious and highly speculative cases. Such a change in policy would further shift the litigation cost-benefit calculus to encourage pursuit of even more litigation. Ultimately, American taxpayers would bear the costs of this subsidized form of litigation. (continue reading…)

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Circumnetting on Taxes

The Hill, “Reid plans September showdown on extension of tax cuts“: ” Senate Democrats will hold a September showdown over trillions of dollars in expiring tax cuts passed under President George W. Bush.” 

AP covers Treasury Secretary Geithner’s speech at the Center for American Progress on Wednesday, in which he disavowed the economic value of maintaining lower tax levels, “Geithner: Extending tax cuts for wealthy a mistake.”

At Shopfloor, the  NAM’s Dorothy Coleman explains in rebuttal that the term “wealthy” also includes many, many, many small businesses and manufacturers who file as S Corporations.

AB Stoddard of The Hill mentions the NAM in this column, “Battle over tax-cut data“: “Democrats are in a corner on the tax-cut debate, and they know it. If they follow President Obama’s plan and allow tax relief for the top earners to expire, they get blamed for the ‘biggest tax hike in American history.’ But if they extend more than $3 trillion in tax cuts, most of them originally voted against in 2001, they get blamed for the biggest deficit in history.

New York Post,The people speak: Keep Bush tax cuts“: “Americans by a wide majority want to extend former President George W. Bush’s tax cuts, and more than half believe that letting them expire will further hurt the country’s shaky economy…Fifty-four percent said they wanted the Bush cuts to stay in effect, according to the Rasmussen survey of 1,000 likely voters taken Aug. 1 and 2.”

Bloomberg,New Jersey Voters Want Spending Cuts Over Higher Tax Following Budget Deal“: “New Jersey voters support lower spending over higher taxes by almost three to one after the state passed a budget which cuts funds for welfare, mental health and in-home nursing care, a survey shows. The state should ‘hold the line[' on spending even if that results in cuts to 'many' programs, according to 60 percent of the respondents to a Fairleigh Dickinson University PublicMind survey, released today [Aug. 4]. That compares with 22 percent who say the state should raise taxes to support services if necessary.”

Los Angeles Times, “San Diego to do the unthinkable: seek a tax hike

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A Myth About Manufacturing

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.”

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More on ‘Indigenous Innovation’ as an Excuse for Protectionism

From Kiplinger, a good review of the “indigenous innovation” issue, “China Restricting Entry by U.S. Firms“:

Doing business in China will keep getting harder for foreign companies. Beijing is leveraging its huge government purchasing power to encourage homegrown firms to develop import substitutes, with the aim of creating national champions to compete against multinationals both in China and worldwide.

“Japanese, European and American companies … used to think that China welcomes foreign technology, welcomes our presence to help develop,” says Frank Vargo, vice president for international economic affairs at the National Association of Manufacturers. “Increasingly, they don’t feel that way anymore. They feel they are being discriminated against, being shut out of certain market segments.”

Treasury Secretary Geithner highlighted the issue in remarks Tuesday at the Port of Tacoma:

[As] part of a program they call “indigenous innovation,” China recently proposed a program where the government would compile a list of what qualifies as innovative products, and provide advantages to the companies that make them. Those benefits would include preferential treatment in government purchases. Products exported to China from the United States might not be eligible for those benefits. And even products produced by American firms that operate within China may not make the cut.

American companies are very concerned that this approach has the potential to discriminate against foreign-made products and could disadvantage American exporters and investors as they compete with Chinese firms. We share those concerns. The Chinese government has taken some steps to address these concerns, but we have some more work to do in this area.

Our challenge is to help make sure that China does more to protect intellectual property rights and reduces subsidies and other preferences to domestic companies. We want China to give American firms the same opportunities to compete in China that Chinese firms face in the United States. This is a simple principle of fairness.

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Rethink China, Technology, Innovation, Investment

The Washington Post today runs a good big-picture, grand-scheme, peering-into-the-future op-ed on U.S.-China relations by James McGregor, former chairman of the American Chamber of Commerce in the People’s Republic of China, “Time to rethink U.S.-China trade relations.” Writing in anticipation of next week’s U.S.-China Strategic Economic Dialogue, McGregor focuses on technology and China’s recent protectionist procurement policy, “indigenous innovation.”

Most worrisome is the Chinese government mandate to replace core foreign technology in critical infrastructure — such as chips, software and communications hardware — with Chinese technology within a decade. The tools to accomplish this include a foreign-focused anti-monopoly law, mandatory technology transfers, compulsory technology licensing, rigged Chinese standards and testing rules, local content requirements, mandates to reveal encryption codes, excessive disclosure for scientific permits and technology patents, discriminatory government procurement policies, and the continued failure to adequately protect intellectual property rights. The poster child is the evolving “indigenous innovation” policy, which appears aimed at using China’s market power to coerce foreign companies to transfer and license their latest technology for “co-innovation” and “re-innovation” by Chinese companies.

McGregor’s cautions are warranted. The National Association of Manufacturers has been active on the “indigenous innovation” issue. In a May 10 joint submission to the Chinese government, the NAM and other trade association expressed strong (albeit diplomatically worded) objections to Beijing’s policy and procurement agenda. Excerpt:

We also urge China to proceed with an ongoing dialogue with stakeholders on best policies and practices that promote innovation and do not discriminate against foreign firms’ investments in and exports to the Chinese market. In that regard, as an essential first step, the Chinese government should undertake an immediate review of all innovation policies to ensure they do not discriminate between foreign and domestic suppliers and achieve the goal of the opening China’s market wider to foreign investment and exports promised by President Hu and Premier Wen.

Administration officials, meanwhile, are previewing their themes on their way toward the Strategic Economic Dialogue.

AFP, US commerce secretary urges China to import more

Bloomberg, “Geithner Urges China to Ensure ‘Level Playing Field’ With U.S.

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Health Care: It’s a Big Law, So Reasonable Leeway, Please

The National Association of Manufacturers has joined a dozen other business associations in asking Administration agencies to apply reasonable standards as they establish rules and compliance requirements under the Patient Protection and Affordable Care Act.

On April 30, the group sent a letter to Treasury Secretary Timothy Geithner, Health and Human Services Secretary Kathleen Sebelius, and Labor Secretary Hilda Solis making the request.

As Neil Trautwein of the National Retail Federation told Bloomberg: ““We’ve got a lot of existing and new costs to manage and face a lot of uncertainty over whether the health-care law will actually lower health-care costs. It’s not really a good idea to swamp the business community when we’re still struggling to get off the mat from the last recession.”

From the letter:

We recognize that the appropriate federal agencies are working diligently to quickly issue rules on many of the reforms in advance of their effective dates. However, given the September effective dates for the near-term requirements (e.g., no lifetime or annual limits, bans on cost-sharing for preventive services, dependent coverage changes, etc.) employers and health plans will be making coverage and policy decisions either in the absence of final regulations or with little time between the issuance of rules and the effective date of the new law. These changes include policy and contract revisions, IT system upgrades, modifications to employee benefit and marketing materials and development of employee and customer communications, just to name a few.

Given the amount of changes required, the uncertainty regarding the content of many pending rules, and the short time frame, we respectfully request that the applicable federal agencies provide affected entities with a good faith compliance standard as proposed in the attached document entitled, “Transition Period and Good Faith Compliance Standard under the PPACA Regulations.” We feel this standard, similar to those issued in the past, will provide the compliance environment to allow us to move forward in a spirit of partnership while we implement the numerous provisions of the law.

The full attachment is available here.

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