Manufacturers appreciated the highlight of the industry from the President last night. And, as long-time advocates for pro-growth tax reform, we were glad to hear the President calling for “comprehensive” reform, that is an effort that includes both corporate and individual tax reform.

While many larger manufacturers operate in corporate firm, about two-thirds of manufacturers—mostly small and medium-size companies—operate as a “flow through” and are taxed as individuals. Unfortunately, the good news on taxes stopped there.

The President made clear that he looks at tax reform as a way to help “bring down the deficit.”  The NAM, on the other hand, doesn’t view tax reform as a revenue raiser, but as an engine for much-needed economic growth and competitiveness.

Speaking of competitiveness, we were dismayed to hear the Administration again bring up the illusory “tax breaks for companies to ship jobs overseas.” Manufacturers in the United States know firsthand the challenges of competing in a global marketplace under our outdated world-wide tax system.  Making the current system worse—as the President suggested—is going to make manufacturers in America even less competitive. In order to promote competitiveness, we need to move to a territorial tax system, similar to systems in most industrial countries, structured to enhance U.S. competitiveness, not raise additional revenue.

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

For more than a year, manufacturers have been telling policy makers that the pending sequester, now set for March 1st, will impair our national security and cripple a vital part of the manufacturing sector. This morning at Georgetown University, Defense Secretary Leon Panetta delivered the same message, and laid out the true national security ramifications.

On the need to maintain the defense industrial base, he told the audience, “The last damn thing we need, if we face a crisis, is to have to contract out that responsibility to another country.” As the deadline fasts approaches for the across-the-board cuts to kick in, we strongly urge Congress and the Administration to work together to replace the sequester with less damaging cuts in federal spending and not job-killing tax increases.

Manufacturers supported the Budget Control Act of 2011 that, among other things, included some $917 billion in spending cuts and set up a “Super Committee” to find an additional $1.2 trillion to $1.5 trillion of deficit reduction. If the Super Committee failed, as it did, the penalty was a “sequester,”  $1.2 trillion in across-the-board spending cuts divided between defense and nondefense spending. NAM members feel strongly that we need to get our nation’s fiscal house in order and get government spending under control but we oppose the “chain saw” approach of the sequester. Arbitrarily cutting federal programs, particularly in the defense area, threatens jobs, national security and the economy.

As a result, we’ve urged lawmakers to abandon the “across-the-board” approach and instead take a critical and deliberative look at cutting government spending with a focus on entitlement reforms and potential cuts in discretionary spending, keeping in mind the impact spending cuts will have on our economic and national security. In short, we have a spending problem and the focus should be on spending cuts. 

So we’re surprised at recent proposals from Congressional Democrats and today, President Obama, who want to replace the sequester with a mix of spending cuts and tax increases.  As the NAM and many other groups have pointed out, the sequester will cost U.S. jobs and economic growth.  And tax increases will do the same.

Replacing the sequester with tax hikes is substituting one bad idea for another.  Rather, let’s use this opportunity to begin a much needed and very important debate on actually cutting federal spending.

The headline of the New York Times Feb. 3 editorial, “A Million Jobs at Stake,” caught the attention of Manufacturers who’ve been warning Congress and the Administration of the potential job-killing impact of the sequestration now set to kick in on March 1st. Indeed, we agree with the Times that the sequester was never supposed to happen and that allowing it to kick in will hurt our struggling economy. But we strongly disagree that the solution to avoid sequestration is tax increases, particularly those directed a specific industries or tax payers. Yes we need to cut federal spending, but imposing new tax increases or arbitrarily lopping off some spending is not the way to go.

Rather, we believe strongly that the solution is thoughtful reductions in federal spending—particularly entitlement spending. As NAM Board member Della Williams so aptly told the House Armed Services Committee last summer, “sequestration is cosmetic surgery with a chainsaw.” There’s no way to avoid it: policy makers need to take a hard look at all federal spending—including entitlement spending with an eye to avoiding unintended and damaging impacts. Clearly our nation’s fiscal challenges are of critical importance not only to the future of American manufacturers but to the future of all Americans. Any plan to address these our fiscal problems will have a long-lasting and significant impact on our economy.  We urge policy makers not to take the “easy way out” and let the sequester “happen” but to use this opportunity to tackle our real fiscal challenges.

Manufacturers are very concerned about the impact on the economy and jobs of the across-the board cuts in federal spending now set to kick-in on March 1st. But replacing these job-killing cuts with job-killing tax increases on the energy industry, as suggested by the White House and Senate Majority Leader Harry Reid (D-NV), is not an acceptable solution to the problem.

The manufacturing sector is the largest energy consumer in the United States, using one-third of the nation’s energy. Imposing new energy taxes will result in higher energy costs for manufacturers, driving up the cost of domestic production. And it doesn’t stop there. Raising taxes on domestic energy producing companies will make it more expensive to produce everything in this country. Increased fuel costs will affect all Americans, both manufacturers and consumers, by increasing the cost of products made and the cost of products purchased. As with the sequester, jobs will be lost.

Millions of current jobs will be at risk and future job creation thwarted if new energy taxes were enacted. Given our nation’s persistent, high unemployment rate and anemic economic growth, both the sequester and new energy taxes are bad ideas. It’s time to find new ideas to jumpstart our economy and stop trying to pick winners and losers based on a partisan agenda.

President Obama’s assertion last night that the sequester “will not happen,” was encouraging news to manufacturers who are extremely concerned about the impact on jobs and the economy of the $1.2 trillion in federal spending set to begin January 1^st. Although the administration walked back the comments a bit following the debate, it is still an important commitment that we hope the President will uphold.

Earlier this year, we released a report showing that the defense cuts will reduce U.S. employment by more than 1 million jobs in 2014 alone. Similarly, the Information Technology and Innovation Foundation (ITIF), a non-partisan think tank, in September released a study called Eroding Our Foundation: Sequestration, R&D, Innovation and U.S. Economic Growth concluded that close to 200,000 jobs per year could be in jeopardy if across the board cuts to federal R&D investment are implemented. But avoiding the sequester addresses only part of the problem. Pending tax increases for a wide range of individual taxpayers and small businesses along with the spending cuts under sequestration will hit the U.S. economy with a $500 billion fiscal shock on January 1^st, a shock that likely will send our already weakened economy into a tailspin.

So, while manufacturers appreciate the President’s commitment to avoiding the sequester, we also believe it is critically important to maintain the status quo on current tax policy for all Americans. Almost 70 percent of all manufacturers (about 200,000 nationwide) pay income taxes at the individual rate. The average taxable income for these small manufacturers is $570,000 – so unless Congress extends current tax rates, these employers will be subject to new tax rates of almost 40 percent and subject to new restrictions on itemized deductions and exemptions. Not exactly good news for job creation and investment.

It’s not just manufacturers who are apprehensive about the “fiscal cliff” looming at the at the end of the year.  According to an October 16^th news story in The Street, the financial services sector is scared as well. According to a survey of fund managers by the Bank of America Merrill Lynch taken earlier this month, 72 percent of respondent said that the impact of the pending expiration of tax rate cuts and new spending cuts has not be “substantially priced into global equities and macroeconomic data,” i.e., people don’t believe it’s going to happen.

Moreover, an increased number of fund managers (42 Percent, up from 35 percent in September and 26 percent in August) said that the impending fiscal cliff is the no. 1 tail risk for the market. Washington—it’s up to you.  We have a fiscal crisis heading our way and it is imperative that Washington act as soon as possible to derail the $500 billion hit to our already weak economy set for January 1.

Manufacturers were pleased to see a Congressman with first-hand experience actually running a company  weigh in on the critical need for progrowth tax reform and the certainty that goes with it. In an op-ed in The Hill, Rep. Reid Ribble from Wisconsin drew on his experience owning a roofing company to make a strong argument for a simpler, fairer tax code, particularly for the many small businesses that pay taxes at individual rates.

Rep. Ribble fully recognizes the importance businesses place on certainty in moving ahead on investment and hiring plans.  Manufacturers couldn’t agree more with Rep. Ribble that “the more important and necessary outcome of comprehensive tax reform is certainty. When businesses have certainty they have confidence, which will boost economic activity and spur job creation.  Let’s hope that after November there are more Rep. Ribbles in Congress.

The good news today coming out of the Senate Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations is that Sen. Carl Levin (D-MI) recognizes that something is wrong with our international tax system. The problem though is that his focus is on companies that actually pay taxes and not the tax code itself, which is in desperate need of reform.

The basic problem is fairly simple: U.S. tax laws make it difficult for U.S. companies with worldwide operations to compete. Our “worldwide” system taxes income regardless of where it is earned, unlike most other developed nations that only tax income earned within their borders. 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. And, if U.S. companies cannot compete abroad, where 95 percent of the world’s consumers are located, the U.S. economy suffers from the loss of both foreign markets and domestic jobs that support foreign operations.

That’s why the NAM strongly supports moving from the current worldwide tax system to a territorial tax system structured to enhance U.S. competitiveness, not raise revenue. The current focus on tax reform presents a great opportunity to advance a permanent territorial system that would go a long way to improving the global competitiveness of U.S. manufacturers.

Let’s face it, territorial systems are now the international norm. The vast majority of our trading partners have a territorial system of taxing foreign income. Japan and the United Kingdom—two of the largest economies—recently abandoned worldwide taxation systems in favor of a territorial approach. Adopting a tax system that is not more burdensome than the tax systems applying to foreign manufacturing companies is critical to the ability of U.S. manufacturers to compete in the global marketplace. A competitive tax system will impact jobs at U.S. headquarters, increase exports from U.S. manufacturers and improve the efficiency of their supply chains.

With Washington metropolitan area businesses bracing today for yet another round of serious wind and rain storms, we’re pleased to see that the House tomorrow will take up the Disaster Loan Fairness Act of 2012 ( HR 6296) introduced by Rep. Lou Barletta(R-PA). The legislation would lower the interest rates on Small Business Administration disaster loans and make the program simpler and more transparent.

This measure is welcomed news to the thousands of small businesses that have—or will—sustain losses because of natural disasters. And there have been many.  According to Rep. Barletta, since January 2011, over 200 congressional districts have been impacted by a major disaster declared by the president. Communities in almost every state in this country have been flooded by a tropical storm or a hurricane, burned by a wildfire, crippled by a snowstorm, or destroyed by a tornado. Let’s hope no one suffers damage from today’s series of storms and rest assured that, if disaster does strike, businesses will be able to obtain the financial resources to rebuild.