April 3, 2008

Washington Post: Wrong on Relief

The Washington Post’s lead editorial today, “Wrong Relief,” is, to put it quite simply, wrong. The premise of the opinion piece—that allowing companies to “carry back” current losses to earlier, profitable years is an “unwarranted bailout” —ignores the whole point of the so-called extended net-operating-loss provision, or NOL. The rules help smooth out swings in income (and tax payments) resulting from business cycle fluctuations and unexpected financial losses and are a godsend to businesses in cyclical industries, like manufacturing.

Under current law, companies can carry back NOLs for a two-year period and the Senate bill would increase this period to four years. Allowing companies in a downturn to “carry back” current losses to earlier, profitable years—like this provision would do—frees up funds that can be used for investment and job creation.

This is exactly what we need to get our economy back in business—more investment and job creation. Extending the NOL period is one way we can do that. In fact, an extended net operating loss carryback provision enacted in 2002 provided much needed relief to a number of manufacturers. In one case, a National Association of Manufacturers' member company was able to reopen a plant within months after the change was enacted, in part because of the refund the company received because of the NOL provisions.

When policymakers were putting together the first stimulus package earlier this year, the NAM pushed for inclusion of an the extended NOL carryback period. We’re pleased the Senate has decided to include it in their latest effort.

Posted by Dorothy Coleman at 10:41 AM | Click here to comment | Send to a Friend

February 14, 2008

Small Business Speaks Out on Unfair Taxation

For years, manufacturers of all sizes — particularly smaller ones — have been blindsided by unexpected tax bills from states where they have no real connection, e.g., facilities or employees. The House Small Business Committee this morning took a closer look at the problem and an NAM member from California was willing to share his frustrating and expensive story with the committee.

In his statement, Jerald Otchis, Vice President Finance and Administration at Bobrick Washroom Equipment, Inc. in North Hollywood, explained that his company has no problem paying business activity and other taxes in the five states where they have facilities — California, Colorado, New York, Oklahoma, Tennessee. It’s the tax bills from other states that cause them concern. In fact, the company right now is challenging an assessment from Texas — an effort that already has cost them more than $100,000 and an untold amount of staff time. And it’s not over yet.

Here’s the deal — different states have different rules about taxing out-of-state companies and challenging these tax assessment can be frustrating, timing-consuming and expensive. Unfortunately, many times the amount of taxes involved in an individual case is small in comparison to the cost of challenging, making it less costly for a company — particularly a smaller one—to pay the taxes. But all these extra taxes do add up.

Fortunately, help is on the way. Last week House Judiciary Committee members Rick Boucher (D-VA) and Bob Goodlatte (R-VA) introduced the Business Activity Tax Simplification Act (H.R. 5267) that would establish a bright-line physical presence test to determine when a state can tax out-of-state companies. There’s a similar bill in the Senate. NAM is pushing for quick action on the legislation and we’re hoping that Mr. Otchis’ story and others like his will help spur legislators to act.

Posted by Dorothy Coleman at 12:17 PM | 1 comment; click here to read it or submit your own! | Send to a Friend

February 7, 2008

Falling Behind While Standing Still

Here at the NAM, we’re getting more and more anxious about the impact of our high corporate tax rates on the ability of U.S. manufacturers to compete in the global marketplace. We’d like to see the U.S. government follow the lead of our trading partners and lower the federal statutory rate down to 25 percent or lower.

It looks like Treasury Secretary Hank Paulson shares our concern that, by standing still, we are falling behind. According to BNA’s Daily Tax Report (subscription only), in comments yesterday to the Senate Budget Committee, Secretary Paulson noted that while corporate rates were lower in the 1980s than in the 1970s, they have been creeping up since, relative to international competitors. “The direction of change is what I find alarming," he told budgeteers.

While the Secretary didn’t endorse a specific solution to the problem, he did suggest one possibility that appeals to us—reducing the rates and simplifying the system. He commented that "the whole momentum" of tax policy has been going away from simplification. We couldn’t agree more.

(Paulson's opening statement is here.)

Posted by Dorothy Coleman at 2:47 PM | Click here to comment | Send to a Friend

February 4, 2008

Let's Unlock Those Capital Assets

When a corporation sells an investment, “capital gains” is the amount left over after the company pays taxes on their profit. Companies use this money to invest in new business ventures or pay shareholder dividends.

And right now, there’s not much money left over after paying IRS. The 35 percent tax rate corporations currently pay on capital gains is one of the highest tax rates on corporate capital investment in U.S. history and 20 percentage points higher than the top rate paid by individuals. Rather than paying this 35 percent toll charge, many businesses choose either not to sell underproductive assets or to borrow against them, increasing their debt.

The NAM is working to lower this tax rate, at least to the 15 percent rate that individuals pay. Ending the “lock-in effect” of high taxes could unleash trillions of underused assets into the economy and help businesses operate more effectively and create more jobs. More broadly, it will help promote U.S. economic growth and competitiveness. As an added bonus, since companies will be paying taxes on sales that wouldn’t otherwise take place, Treasury will probably see billions of dollars of new revenue. This happened when Congress lowered the tax rate on individuals’ capital gains.

Now is the time for policy makers to make this change. The National Association of Manufacturers is cohosting a forum today with James Tisch of the Loews Corporation in New York City where corporate executives, legislators and economists will talk up this issue and get the ball rolling on an idea that will benefit, the economy, corporations, their shareholders and their workers.

For more details on today's forum, please go the website of America Gains, a coalition urging reform of current capital gains taxation. A news release for the event is available here.

Posted by Dorothy Coleman at 7:08 AM | Click here to comment | Send to a Friend

January 17, 2008

Corporate Rate Cuts Gaining Popularity on the Hill

Treasury Secretary Paulson has called for it, Chairman of the Ways and Means Committee Charles Rangel has proposed it, Bulgaria has already done it. Now we can add more voices to the growing chorus. Yesterday Minority Deputy Whip Eric Cantor introduced the Middle Class Jobs Protection Act (news release here) . Notably, the bill will slash the corporate rate from 35 percent to 25 percent.

Sound familiar? We thought so, too. It’s in fact exactly what the NAM has proposed in our Tax White Paper – A 21st Century Tax Policy to Promote Job Creation and Economic Growth.

In addition to a corporate rate cut, Cantor’s bill (H.R. 4995) also provides for 50 percent bonus depreciation for 2008 and 2009, brings back the five-year carry back period for net operating losses, expands section 179 expensing for purchases up to $1 million, and increases the carry back period for business tax credits from one year to three.

They call it middle class jobs protection – we call it pro-growth and pro-manufacturing.

Dorothy Coleman is vice president of tax and domestic economic policy at the National Association of Manufacturers.

Posted by Dorothy Coleman at 12:26 PM | 1 comment; click here to read it or submit your own! | Send to a Friend

January 9, 2008

The Hippocratic Oath and Stimulus

When you’re talking stimulus, it’s clear that economic growth and tax increases don’t mix. We’re happy that House budgeteer and member of the Ways and Means Committee Paul Ryan (R-WI) echoes our concern:

House Budget ranking member Paul Ryan, R-Wis., said the most important immediate step would be to block any potential Democratic plans for tax or spending increases. "Most important of all for the markets and economic growth is tax certainty and good fiscal policy. My concern is that Democrats are banking on enormous tax increases," Ryan said. "I think the first order of business for good economic growth is 'Do no harm.'"

From Congress Daily (subscription).

Dorothy Coleman is vice president of tax and domestic economic policy at the National Association of Manufacturers.

Posted by Dorothy Coleman at 4:51 PM | Click here to comment | Send to a Friend

January 8, 2008

Economic Stimulus? Consider These Strategies

Today’s New York Times has a story on President Bush’s economic assessment in Chicago. In recent days, the President has suggested that a stimulus package might be needed to counteract disconcerting economic indicators. Some Democrats also are talking stimulus. According to the Times, Speaker Pelosi has met with advisors to develop her own stimulus plan before the State of the Union at the end of this month. If policymakers are looking at stimulating the economy, we have a few suggestions:

1.) First, let’s start with what we know works: Reinstate a retroactive and strengthened, multi-year extension of the R&D Tax Credit. Despite bipartisan support for this proven incentive, Congress last year failed to pass legislation to extend the tax credit before it expired December 31st. This is a jobs issue -- more than 75 percent of the the credit dollars are used for salaries of employees engaged in R&D. If Congress and the President are serious about keeping unemployment numbers low, then they’ll immediately reinstate and strengthen this pro-growth credit.

2.) Get serious about lowering the corporate tax rate. Paulson’s recommended it, Rangel’s in favor of it, and countries around the world are doing it. (Tax Foundation backgrounder.) Major U.S. trading partners, including Germany, France and Spain all recently have cut theirs and the United States is on its way to having the highest corporate tax rate in the OECD. If you want to grow business in the United States -- and attract new investment -- cutting the corporate rate is a great start. (Tax )

3.) Permanently repeal the death tax. The estate tax rate is phased down again in 2009, it’s repealed in 2010 and then the rate goes back up to 55 percent in 2011. Can you say planning nightmare? Our small- and medium-sized manufacturers report paying an average $90,000 a year in planning costs alone for this tax. Permanently repealing the tax will provide certainty and free up a lot of cash for expanding businesses and growing jobs.

And, one more note to policymakers: A stimulus is not a stimulus if it includes tax increases. In the last session of Congress, legislators proposed a number of ill-advised, anti-growth tax increases that would cost manufacturers billions of dollars and make it even more difficult for them to weather economic storms.

Dorothy Coleman is vice president of tax and domestic economic policy at the National Association of Manufacturers.

Posted by Dorothy Coleman at 3:20 PM | Click here to comment | Send to a Friend