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CONTACT: HANK COX (202) 637-3090
FOR IMMEDIATE RELEASE
Engler Says Now Is Not The Time For Tax Increases
WASHINGTON, D.C., January 18, 2008 – “The National Association of Manufacturers supports the bipartisan commitment of Congress and the Administration to move on a legislative package to boost economic growth and foster confidence,” said NAM President John Engler.
“Manufacturers recognize that while the U. S. economy remains strong, it faces significant challenges, including potential fallout from the current housing recession and high energy costs,” Engler said. “NAM members strongly agree with policy makers in both parties that it is critically important to act as quickly as possible. We were encouraged by House Majority Leader Steny Hoyer’s comment earlier this week that a package could be done in 30 days and we pledge to work with Democrats and Republicans to make this a reality.”
Engler said a successful growth package should focus on increasing business investment and boosting confidence in the economy. “Any efforts to increase taxes during this crucial time would discourage investment and send the wrong signal to businesses,” he said. “In short, a growth package that includes any tax increases will not provide a stimulus.
“As policy makers work to put together the package, we offer the following recommendations that, we believe, will provide quickly the job creation and investment needed for sustained economic growth,” Engler said.
· A Retroactive, Permanent and Strengthened R&D Credit. This is a jobs credit—the bulk of all credit dollars are used for salaries of workers performing R&D in the United States. This proven incentive expired at the end of 2007. Restoring the credit will in the short term maintain and create R&D jobs in the United States, and in the long-term spur economic growth from the innovations derived from R&D. This is also a competitiveness issue. Most of our trading partners have permanent and strong R&D incentives and right now we have none. The NAM believes strongly that the credit should be renewed retroactively, made permanent, and strengthened.
· Bonus Depreciation: One of the most effective ways to spur business investment is through an enhanced capital-cost recovery system. While an ideal system would allow companies to expense capital equipment in the tax year purchased, a 50 percent bonus depreciation provision, coupled with expensing provisions, would lower the after-tax cost of investment and provide a very powerful incentive. In fact, the temporary bonus depreciation and expensing measures enacted in May 2003, resulted in a 4 percent increase in business spending in the first six months alone. Moreover, small companies can use bonus depreciation in tandem with the current expensing rules, further reducing the cost of new investments.
· A Five-Year Carry-Back for Net Operating Losses (NOLs): Allowing companies in a downturn to “carry back” current losses to earlier, profitable years, will free up funds that can be used for investment and job creation. The net operating loss (NOL) carryback provisions enacted in 2002 provided much needed relief to a number of manufacturers. In one case, an NAM member was able to reopen a plant, in part because of the refund the company obtained from the NOL provisions.
· Repatriation of Foreign Earnings: In general, U.S. companies pay a 35 percent “toll charge” when they bring foreign earnings back to the United States. A temporary “tax holiday” enacted in 2004, which gave companies the opportunity to reinvest foreign earnings in the United States at an effective 5.25 percent tax rate, brought back some $300 billion to the United States and generated some $17 billion in tax revenues. Reinstating this provision would provide additional funds for much needed investment and job creation.
· Lowering the Corporate Capital Gains Rate: For corporations, capital gains represent the after-tax proceeds retained by a company for future investment in new business ventures or for dividend payments to shareholders. The current 35 percent rate on corporate capital gains—one of the highest tax rates on corporate capital investment in U.S. history—creates a “lock-in” effect that discourages corporate taxpayers from selling appreciated assets because the tax cost significantly reduces their after-tax return on investment. In contrast, reducing the corporate capital gains rate will enable U.S. companies to redeploy and invest capital in its most productive use and contribute to economic growth and job creation.
“Moving forward, as outlined in NAM’s white paper, A 21st Century Tax Policy to Promote Job Creation and Economic Growth, there are a number of other tax law changes that policy makers should consider to promote U.S. jobs and competitiveness and ensure continued economic growth,” Engler said. “In particular, we urge policy makers to consider our recommendation to reduce the corporate tax rate to 25 percent or lower. American businesses compete in a fiercely competitive global marketplace, and the more efficient and competitive we are, the healthier the U.S. economy.
“Today, however the United States has the second highest corporate tax rate among our major competitors,” Engler said. “Reducing the corporate income tax rate would lead to greater economic growth, higher wages for workers, an increase in productivity levels, more business investment and lower inflation.”
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The National Association of Manufacturers is the nation’s largest industrial trade association, representing small and large manufacturers in every industrial sector and in all 50 states. Headquartered in Washington, D.C., the NAM has 11 additional offices across the country.
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