TDEP-01 Tax Policy

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.

1.04b. Corporate AMT Credits

Because the AMT represents a prepayment of tax liabilities, 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 Moreover, even if the corporate AMT is not immediately repealed, companies with AMT credit carryovers should be allowed to realize those credits, without delay, through accelerated utilization, refunds, etc.
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1.05. International Tax Policy

The U.S. tax system, including high corporate tax rates, highly taxed exports, and the "double tax" impact of a worldwide tax system, increases the cost of doing business for U.S. companies. While a total rewrite of our international rules might be the best solution, given current fiscal constraints and political realities, the better approach would be to address the problem on several fronts, i.e., lower corporate tax rates, strengthened deferral and foreign tax credit rules and provisions to make it easier for companies to bring back foreign earnings to the United States.

1.05a. Foreign Investment by American Companies

Investment abroad by U.S. multinationals creates strong foreign markets for U.S. goods and supports jobs in the United States. Despite the benefits to the U.S. economy when American companies expand beyond our shores, U.S. tax laws still make it difficult for U.S. multinationals to thrive and compete in the global marketplace. Foreign business earnings of global American companies should be taxed only when they are received as dividends in the United States by a U.S. taxpayer.

A long-held core principle of U.S. tax law is that corporate earnings are not taxed until distributed to shareholders. The tax on the earnings of an American corporation's foreign subsidiary typically is not imposed until those earnings actually are brought back to the United States. Since 1918 U.S. law has recognized that foreign income taxes imposed on subsidiaries of American companies should offset any U.S. tax that would otherwise be imposed on the same income.

Unfortunately, even though the foreign tax credit and deferral rules were designed to prevent double taxation and level the playing field between U.S. companies and their foreign competitors, both of these mechanisms have been limited to the point that widespread double taxation of American companies is prevalent. In addition, these foreign tax credit rules that prevent American companies from paying tax twice on foreign income should be simplified so that the costs of operating in the United States are not improperly allocated to foreign source income. The complex rules of present law that require this type of over-allocation actually make it more costly for American firms to invest in the United States.

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 United States economy, it is critical that policy makers avoid imposing discriminatory taxes on foreign-owned companies. Congress should focus on tax policies that attract and maintain more capital investment, rather than repel it.

1.05d. Tax Treaties

The United States benefits from the continued expansion of its current tax treaty network. 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.

1.05e. Territorial System

If policy makers consider moving away from a worldwide tax system as many of our major trading partners have done, any new "territorial" or exemption system should be structured to enhance U.S. competitiveness, not to raise revenue. Consideration of any territorial system should be based on the principle that there should be no double tax burden imposed by the United States. At a minimum, a new system must exempt all active foreign earnings from taxation and avoid the imposition of a stealth tax on foreign earnings through expense allocations. No other country that has adopted a territorial system employs a cumbersome and complex expense allocation rule.
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1.06. Small Business Taxation

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.

1.06a. The Individual Alternative Minimum Tax

Many small and medium sized 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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1.07. Taxation of Employee Benefits

Tax law should recognize that private sector plans are an efficient means of delivering medical, health and retirement benefits. The taxation of employee medical, health and retirement benefit plans should permit the exercise of 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

Many small and medium sized 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.

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. Taxpayers should be allowed to use any inventory methodology that is permitted under generally accepted accounting principles.

1.08b. Tax Changes

Tax rates, deductions, credits and exemptions should continue to be established by statute.

1.08c. Current Reserves

Reasonable additions to reserves created to fulfill future obligations arising from current operations should be recognized for tax purposes.

1.08d. Retroactive Taxation

The retroactive imposition or increase of taxes is fundamentally unsound and unfair.

1.08e. R&D Incentives

The tax system should provide a strengthened, permanent credit against income tax liability for research and development expenditures.
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1.09. Tax Administration

Many small and medium sized 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.

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 collection of the 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 House Ways and Means and the Senate Finance Committees should hold fair and adequate public hearings on proposed tax policy changes before considering legislation. Representatives of the taxpaying public should have the opportunity to present their views and recommendations.
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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. Fundamental Tax Reform

The NAM is pleased to participate in the dialogue over restructuring the U.S. tax system and applauds congressional efforts to rewrite the federal tax code. Our current system is too complex and discourages investment and savings. Because of the importance of manufacturing to our nation's economy, NAM supports the thoughtful consideration of an appropriate and timely path to make the tax code fairer and simpler. In developing a tax reform plan, policy makers should be guided by principles that will promote economic growth and job creation. In addition to the tax policy positions outlined elsewhere in this section, the NAM offers the following policy guidelines:

• Savings and Investments. Any alternative plan should encourage savings and investment while minimizing the double taxation of corporate earnings.

• Competitiveness. A new system must include rules that permit U.S.-based manufacturers to compete effectively in the global marketplace.

• R&D Incentives. It is critical that any tax reform plan recognize the important role of research and technology investment in the growth of U.S. jobs and innovation.

• A Single System. It is imperative to our members that there is a single system for taxing business. A new system should eliminate both the individual and corporate alternative minimum tax rules, which are inherently complex and unfair.

• No Net Increase in Business Taxes. Any alternative that shifts more of the current tax burden onto business will hamper economic growth and job creation.

• Fairness. Any alternative should treat all businesses fairly without regard to size or type of entity.

• Administrability. A new system should incorporate rules that make it easier for Treasury to administer the law and for taxpayers to comply with the law. Unnecessary complexity is not productive from an economic perspective and undermines taxpayers' confidence in the fairness of the law.

• Transition Rules. The changeover from the current tax system to a new system is a major concern to our members. A new system must include broad and strong transition rules that provide fair and equitable treatment for taxpayers that have committed substantial resources based on current law. In particular, to the extent that proposals under consideration treat interest paid as non-deductible by businesses, transition rules for outstanding debt will be needed. In addition, it is important for transition rules to allow future timely utilization of tax attributes, e.g., net operating losses, alternative minimum tax credits, foreign tax credits, depreciation etc., that are accrued but not yet utilized under the current system.

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1.13. Industry Specific Taxes

The current "pay as you go" rules in Congress have led to a proliferation of targeted tax proposals intended to raise revenue. 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 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.

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:

• 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.
  

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1.14. 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:

• 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.

• 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. It is essential that a strong public resource commitment be maintained and that a high rate of corporate support not undermine public confidence in the government's independence.

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1.15. Excise Taxes

As a matter of basic principle, excise taxes should be imposed at nondiscriminatory rates across a broad base, so as to achieve fairness, avoid disproportionately burdening narrow sectors of the economy and minimize regressive impacts on consumers.

Adopted Winter meeting 2008, effective until Winter meeting 2012