Tax policy plays a critical role in the ability of manufacturers to thrive in the United States and effectively compete in a global economy. The NAM supports a federal tax system that meets the following principles:
"¢ Tax policy should promote economic growth, U.S. job creation and the ability of U.S. manufacturers to compete in world markets.
"¢ Simplicity and stability should be important goals of federal tax policy.
"¢ The tax burden should be as low as possible, broadly based and nondiscriminatory.
"¢ An important objective of long-term tax policy is to establish competitive tax rates that are low enough to attract the capital formation and investment necessary to ensure durable economic growth.
Capital investment is key to economic growth, U.S. job creation and competitiveness. Promoting investment should be an integral part of U.S. tax policy.
An effective way to spur business investment and make U.S. manufacturing more competitive is through a strong capital-cost recovery system. An ideal system would allow companies to expense capital equipment in the tax year purchased. First-year expensing lowers the cost of capital, increases the number of profitable projects a firm can undertake and promotes job creation and retention.
Tax policy should recognize that capital is not income but that investment in capital produces income and only the resulting income stream should be subject to income tax. The tax rate on capital gains for both individuals and corporations should be as low as possible.
Estate and gift taxes have an adverse effect on the capital and initiative needed for industrial activity and expansion of employment opportunities, as well as for the continuation of separate business enterprises. A long-term objective of tax policy should be to repeal estate and gift taxes. If repeal is not achievable in the short run, Congress should focus on significant reform of the existing system, particularly on reducing the tax rates and increasing the exemption amount.
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Corporations play an integral role in our society and are major contributors to our country's robust economic growth and strong democratic government.
See 1.02c above.
The tax-free treatment of corporate distributions and changes in corporate organization and ownership is an important factor in ensuring smooth continuity of business operations.
Income should be measured and taxed as it is accrued economically. It is inappropriate for the tax system to recognize income prematurely or to tax "phantom" income.
A mandatory, parallel tax system, e.g., the alternative minimum tax (AMT), is an unacceptable way of addressing perceived deficiencies in the tax system that adds complexity to an already complicated system. Both the corporate and individual AMT should be repealed.
1.04a. Corporate AMT
The corporate AMT distorts business decisions and imposes needless complexities and administrative burdens on both taxpayers and the Internal Revenue Service (IRS). By definition, companies paying the AMT are paying higher taxes than they would otherwise pay under the regular corporate income tax system. Eliminating the corporate AMT would simplify some of the most complex compliance provisions of the tax code and lead to more efficient audits.
Corporate AMT Credits
Because the AMT represents a prepayment of tax liability, any AMT repeal legislation also must address the problem of accumulated, unused AMT credits. Companies with unused AMT credits essentially are making interest-free loans to the federal government that only will be repaid when the company has sufficient regular income tax liability in the future. Congress did not intend for the AMT to serve as a permanent tax increase, which effectively becomes the case if taxpayers cannot use AMT credits. Moreover, even if the corporate AMT is not immediately repealed, companies with AMT credit carryovers should be allowed to realize those credits, without delay, through accelerated utilization, refunds, etc.
1.04b. Individual AMT
Many manufacturers are organized as S-corporations or other "flow-through" entities and are potentially subject to the individual AMT and higher taxes. The NAM believes that the individual AMT is a flawed system and should be repealed without imposing other tax increases.
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1.05. International Tax Policy
Global investment by U.S. companies plays an important role in the growth and vitality of the U.S. economy. Despite the benefits to the economy of having American companies expand beyond our shores, U.S. tax laws make it difficult for U.S. companies with worldwide operations to compete. The U.S. tax system, including high corporate tax rates and highly taxed exports, increases the cost of doing business for U.S. companies with global operations. In addition, the U.S. system taxes income regardless of where it is earned. As a result, U.S. multinationals generally have a higher tax burden than non-U.S. multinationals""a significant disadvantage when U.S. companies are competing against non-U.S. multinationals and local firms for business in a global marketplace.
1.05a. Territorial Tax System
See 2.0 below.
1.05b. Taxation of Export Income
The international array of U.S. tax and trade policies and practices limits the ability of firms located in the United States to compete effectively in export trade. Policy makers should look for ways to reduce tax system barriers to export-related activities activities. See also
IEAP-01 International Trade Policy Sec. 1.12.
1.05c. Foreign Investment in the United States
Foreign-owned companies play an important role in the growth and vitality of the U.S. economy. Like their domestic counterparts, they provide high-paying jobs for millions of Americans and are an important source of U.S. exports. Because of the importance of foreign direct investment to the U.S. economy, it is critical that policymakers avoid imposing discriminatory taxes on foreign-owned companies. Congress should focus on tax policies that attract and maintain more capital investment, rather than discourage it.
1.05d. Tax Treaties
The United States benefits from the proactive expansion of its current tax treaty network. Globally competitive tax treaties serve a critical role in clarifying many issues, such as the permanent establishment of business operations and how certain income flows are taxed, thereby promoting expanded cross-border investment among the signatory countries.
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1.06. Small Business Taxation
Almost 70 percent of manufacturers operate as "S"-corporations or other "flow-throughs," and thereby pay income taxes at individual rates. For "flow-through" entities, it is critical that the tax rates on individuals be as low as possible. Tax increases will take resources away from investment and jobs, and uncertainty in the tax code creates significant planning hurdles for manufacturers. In addition, the tax code should recognize the special type of risk factors involved in the operation of small businesses and their limited access to capital markets.
1.07. Taxation of Employee Benefits
Tax law should recognize that private sector employee benefit plans are an efficient means of delivering medical, health and retirement benefits. The tax treatment of employee medical, health and retirement benefit plans should permit employers to exercise reasonable discretion in determining the types, coverage, conditions of eligibility, contributions and investments necessary to attract and retain qualified workers in a globally competitive market.
1.07a. Retirement Security
The NAM believes tax policy should encourage, rather than impede, the adequate funding of private voluntary retirement plans. Accordingly, income and gains of the assets of such plans should be permitted to accumulate free of all taxes. The federal government can best help individuals attain economic security by fostering economic conditions and incentives that encourage individuals to seek retirement security through personal savings and investment.
Social Security Reform
The Social Security system should be adequately funded to preserve the current safety net for American workers. However, the NAM believes that the projected shortfalls in the system should not be paid for by increasing costs to employers.
1.07b. Health Care
Tax policy related to health care should focus primarily on containing health care costs and not on raising revenue. Tax incentive plans such as health savings accounts and flexible spending accounts should be available to encourage employees to make market-based decisions on health care choices. Additional information on NAM's health care policy positions is included in the Human Resources Policy (HRP) section.
1.07c. Retiree Health Benefits
Employers electing to provide retiree health benefits should be permitted maximum flexibility in plan design and funding. Strict rules for pre-funding, minimum standards for accrual, vesting and PBGC-like guarantees should be avoided. Such structures tend to discourage employers, especially small ones, from offering retiree health benefits.
1.07d. Long-Term Care
Long-term care insurance products should be taxed on the same basis as non-cancelable accident and health insurance and permit the tax-favored accrual of actuarially sufficient reserves for these products.
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1.08. General Tax Policy Issues
1.08a. Tax Accounting
Although tax accounting should conform to generally accepted accounting principles, differences that stem from tax policy objectives are appropriate. Treating deductions of an accrual basis taxpayer on a cash basis should be avoided unless it is accompanied by similar treatment for income items.
1.08b. Tax Changes
Tax rates, deductions, credits and exemptions should continue to be established by statute.
1.08c. Retroactive Taxation
The retroactive imposition or increase of taxes, through statute or regulation, is fundamentally unsound, unfair and punitive and is strongly opposed by the NAM.
1.09. Tax Administration
1.09a. Taxpayer Obligations and Rights
The obligations and rights of taxpayers should be established by statute, to the extent possible. Both statutes and necessary supporting regulations should be designed to improve the administration of the tax laws and include collection, enforcement and appellate procedures that minimize and penalize tax evasion and corrupt practices.
Tax laws and regulations should not penalize, unduly burden or harass conscientious taxpayers by presumptions of guilt, unreasonable burdens of proof or by onerous information and recordkeeping requirements.
1.09b. Payroll Tax Reporting
Procedures for withholding, collection and payment of individual income and OASI payroll taxes should be designed to assure the collection of revenues with minimum administrative cost to the government and minimum compliance burden on employers.
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1.10. Development of Tax Legislation
The NAM strongly supports long-standing procedures for the development of federal legislation. In particular, representatives of the taxpaying public should have the opportunity to present their views and recommendations. The NAM believes it is important for the committees of jurisdiction to hold fair and adequate public hearings on proposed tax policy changes before developing and considering legislation.
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1.11. State and Local Taxes
Trade among the states, and between the United States and other nations, must not be subject to rules that interfere with the free flow of goods and services in interstate and international commerce.
To preserve due process of law, no state, or political subdivision thereof or the District of Columbia, should have jurisdiction to impose or assess any franchise, income, gross receipts, sales, use or similar taxes on persons engaged in interstate or foreign commerce unless such persons maintain a sufficient physical nexus.
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1.12. Industry-Specific Taxes
The NAM believes the primary purpose of federal tax laws should be to raise revenues from as broad and fair a base as possible and in a manner that does not unfairly burden specific products or sectors of the economy. Congress should disclose the primary purposes of any new tax. If one such purpose is raising general revenue, then industry- or product-specific taxes are the least fair and least efficient means of meeting that goal, and other alternatives should be sought. As a matter of general principle, industry- or product-specific taxation inhibits the growth of the targeted sector, impedes the ability of targeted companies to compete globally, distorts resource allocation and unnecessarily complicates the tax code.
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1.12a. Environmental Taxes
Environmental taxes, when unilaterally imposed only on U.S. taxpayers, impair the ability of U.S.-based producers to compete in the global marketplace against foreign-based producers. If policymakers do use the tax code to achieve environmental changes, any environment-related tax proposal should meet the following policy criteria:
"¢ Direct Relationship. The tax should bear a direct relationship to the environmental objective.
"¢ No Add-Ons. The tax should be in lieu of and not in addition to direct environmental regulation. Business should not be burdened both with the cost of direct regulation as well as with taxes or fees imposed to accomplish the same objectives. That is simply an indirect form of double taxation.
"¢ Incentives. Tax incentives are preferable to tax penalties. As a method of inducing behavioral changes, penalty taxes increase the cost of production at the expense of economic growth.
1.13. User Fees
For purposes of this policy, a user fee is a charge paid only by a class availing itself of, benefiting from, or subject to, regulation under a governmental activity, service or product and is not imposed on the public generally. Income and payroll taxes are not considered user fees. Because of the role user fees play in financing government activities, the NAM believes utilization of such charges should be limited in accordance with the following principles:
"¢ Not for General Revenues. User fees linked to a specific activity, service or product should not be used to generate general revenues, since this disproportionately and unfairly burdens the economic sector from which the fees are derived with societal costs that should be more broadly distributed.
"¢ A Supplement to Government Funding. User fees consistent with the foregoing principle can play a key role in providing multi-year predictability and stability for certain government agencies. These fees should be additive to federal appropriations and not substitute the government's role in funding such activities.
1.13a. Environmental Taxes
Environmental taxes, when unilaterally imposed only on U.S. taxpayers, impair the ability of U.S.-based producers to compete in the global marketplace against foreign-based producers. If policy makers do use the tax laws as a device to achieve environmental changes, any environment-related tax proposal should meet the following policy criteria:
The tax should bear a direct relationship to the environmental objective.
The tax should be in lieu of and not in addition to direct environmental regulation. Business should not be burdened both with the cost of direct regulation as well as with taxes or fees imposed to accomplish the same objectives. That is simply an indirect form of double taxation.
Tax incentives are preferable to tax penalties. As a method of inducing behavioral changes, penalty taxes increase the cost of production at the expense of economic growth.
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1.14. Excise Taxes
For As a matter of basic principle, excise taxes should be imposed at nondiscriminatory rates across a broad base in order to achieve fairness, avoid disproportionately burdening narrow sectors of the economy and minimize regressive impacts on consumers.
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Adopted Winter meeting 2012, effective until Winter meeting 2016