At the recent National Association of Manufacturers (NAM) Board of Directors meeting in Dana Point, California, members gathered for an update on NAM activities and to express their visions and concerns for the upcoming year. The vast majority of those polled at the meetings are the most optimistic they've been in recent years—86 percent responded that their business outlook was either somewhat or very positive. This is the highest level of confidence among this group in the past 24 months; reasons noted included the improving economy, new product development, increased production efficiency and increased export activities.
This optimism, however, remains tempered; respondents indicated the top business challenges continue to be unfavorable business taxes, regulations and government uncertainties, as well as legislators’ inability to solve problems. Also included in their concerns were items directly related to the Patient Protection and Affordable Care Act and impacts of rising health care and insurance costs.
At each NAM board meeting, the first day begins with a meeting of the SMM Board, a subcomponent of the full NAM board primarily representing middle-market, closely held businesses that also predominantly are pass-through entities for tax purposes. As members discussed their business outlooks and concerns, they reiterated the items already discussed above.
Industry leaders agree competitive tax rates are a necessity for American businesses to remain productive. U.S. companies face competition from the north, where the Canadian corporate tax rate is just 18 percent, as well as from China, Mexico and numerous other foreign countries. The U.S. continues to have one of the highest corporate tax rates in the world.
During this meeting, Dorothy Coleman, NAM’s vice president of tax and domestic economic policy, indicated that tax reform is being discussed, and a series of meetings have been ongoing in Washington, D.C. House Ways and Means Committee Chair Dave Camp, R-Mich., has initiated the tax reform debate in Congress. The substantive items included in his proposed plan are to reduce the corporate tax rate to 25 percent, permanently lower tax rates for small and midsize manufacturers, modernize the international tax system and make permanent the research and development (R&D) tax credit. Also included in the 1,000-plus-page document are the repeal of the alternative minimum tax (AMT), extension of bonus depreciation and increased limits for Internal Revenue Code Section 179.
NAM members indicated that shifting the tax burden among taxpayers to balance the tax revenue generated by the government is not the answer to the problem, saying true tax reform has to be put in place to reduce the effective tax rate of all taxpayers and businesses. Corporate and individual tax rates must be in concert with one another, as the majority of U.S. small businesses are pass-through entities, which are taxed at individual tax rates.
While the above plans are in action, a recent survey of a Washington, D.C., law firm resulted in a resoundingly negative outlook for actual tax reform being successful in the near term. Survey respondents don't believe actual tax reform will occur in 2014 because of Congress’ inability to act.
Manufacturers continue to face several areas of concern, and industry leaders say national leadership needs to become more engaged in working to address and resolve many issues.