This morning, a report released under the Hamilton Project banner of “Innovative Approaches to Tax Reform,” proposes the “Elimination of Fossil Fuel Subsidies.”  Unfortunately, the paper ignores sound tax policy and takes aim at a package of long-standing tax provisions that enable oil and gas companies to explore and develop new domestic sources of energy.

Indeed, Manufacturers take umbrage to a number of assumptions in this paper. So let’s start at the top. The report argues that the so-called “subsidies” provided to the industry for domestic production “have a very small impact on production” and thus eliminating these (so-called) subsides would have “a very small impact on production, their removal will not materially increase retail fuel prices, reduce employment or weaken U.S. energy security.” This belies so many real-world facts that we just had to respond.

First, the provisions in question are not subsidies. They represent sound tax policy that, among other things, allow energy companies to deduct ordinary and necessary business expenses and recover their capital costs. In contrast, subsidies are direct payments from the government to entities. This is clearly not what the paper is talking about.

One thing on which manufacturers can agree with the author is the need to enact a “simpler, more efficient tax code” – this is true especially in today’s world where the U.S. has the highest corporate tax rate. This leads to the second fact that is ignored in this report… that oil and gas companies with a global market and worldwide consumers have to look at worldwide production opportunities and U.S. production projects have to compete with opportunities elsewhere. With this reality, good tax policy matters in attracting development and production–and jobs– in the U.S. Despite the author’s assertion that “none of the current tax expenditures for fossil fuels targets novel techniques or … promotes innovation,” horizontal drilling and the sophisticated techniques used in hydraulic fracturing are two innovations that are fairly recent, were costly to develop and have resulted in the development of game-changing resources that are still emerging. And these projects are a boon to local domestic economies where they are ongoing.

Continuing along with our fact-checking, how did the author conclude that oil and gas production is not manufacturing as a basis for his argument that the domestic manufacturing tax deduction for oil and gas should be eliminated? Merriam Webster defines manufacture as: “1) something made from raw materials by hand or by machinery; 2a) the process of making wares by hand or by machinery especially when carried out with division of labor, b) a productive industry using mechanical power and machinery; 3) the act or process of producing something.” That pretty much sums it up, by all accounts oil and gas production is manufacturing by its very nature. Perhaps a refinery tour is in order!

Finally, the report is a wolf in sheep’s clothing as it is apparent that the author seeks to use the tax code to advance an environmental agenda. Throughout the report the author refers to the environmental benefits of a reduction in carbon emissions resulting from a reduction in production and consumption. Manufacturers, like all concerned citizens are concerned about the environment. However, if the author wants to have an environmental debate and address what he proposes as environmental impacts, then that debate should not be engaged under the guise of tax reform.

Manufacturers strongly support comprehensive tax reform, one that lowers the corporate rate to one that is competitive, includes a territorial system of taxation, that includes a permanent and strengthened R&D credit, includes permanent lower rates for small businesses and that includes a robust capital cost recovery system. With these principles as a starting point manufacturers want to engage in a tax reform discussion but if the starting point is from the position taken by this author, then this debate may remain long-awaited.

A potential proposal of a carbon tax and all the damage that would accompany such misguided policies has been making headlines in Washington of late. Senators Barbara Boxer (D-CA) and Bernie Sanders (I-VT) have introduced legislation that would implement this damaging tax.

The NAM weighed in on the issue today with the release of a study conducted by NERA Economic Consulting, titled Economic Outcomes of a U.S. Carbon Tax. The report found that levying such a tax would impact millions of jobs and result in higher prices for natural gas, electricity, gasoline and other energy commodities. Manufacturing output in energy-intensive sectors could drop by as much as 15.0 percent and in non-energy-intensive sectors by as much as 7.7 percent.

This week Treasury Secretary Nominee Jack Lew said that, “the Administration has not proposed a carbon tax, nor is it planning to do so.”

Senator David Vitter (R-LA), the ranking Senator on the Environment and Public Works Committee, has sent President Obama a letter asking if the Administration will live up to Mr. Lew’s promise.

With the evidence from the NAM’s report so clear that a carbon tax would have a catastrophic economic impact, we hope that the President will uphold his promise to never propose such a foolhardy, punitive tax that would undermine the U.S. economy.

Even as Washington’s attention careens from one fiscal showdown to the next—which is reasonable with $85 billion in spending cuts due to go into effect in just a few days coming on the heels of December’s Fiscal Cliff–many manufacturers also await what could be an avalanche of regulations to implement the infamous Dodd-Frank Wall Street Reform Act that could prove to bury these derivatives end-users in excessive costs and regulatory burdens to “fix” aspects of the financial crisis that they neither caused nor contributed to.

For the past two and a half years since the passage of this voluminous statute, a number of unintended consequences of the 850 page statute have come to light as derivatives end-users—who use derivatives as a way to manage commercial risk and NOT for speculative purposes—come to recognize how their day to day business practice might be caught up in a slew of regulations from an array of regulators. These rulemakings have the potential to undo best practices, efficiencies and risk management strategies to improve business functions.

To combat this, for the past several years the NAM has served as a steering committee member of the Coalition for Derivatives End-Users working with a coalition of business associations and hundreds of end-user companies to mitigate the impact on end-users of Dodd-Frank’s implementation. The NAM drove an effort during the lame duck Congressional session to seek passage of two bills critical to manufacturers that use derivatives to manage risk.  The effort has served as a springboard for the Coalition’s activity this year.

Already this year, the Coalition has met with the staff, the Chairman of the CFTC as well as several of the Commissioners seeking relief from two of the most time sensitive concerns facing end-users including: the upcoming deadline of April 10th when, without no-action relief from the CFTC, end-users will need to begin reporting their inter-affiliate trades to a swap data repository within 48 hours of the trade; and, a June 10th deadline financial institutions are required to begin clearing trades – a deadline that will impact end-users who use centralized hedging centers to centralize inter-affiliate trades and use that hedging center to conduct external trades unless the CFTC provides exemptive relief to these centralized hedging units of non-financial end-users. The Coalition is working this week to submit requests for these relief actions to the CFTC.

Simultaneously, we continue our legislative effort and already this year the two priority end-user bills – one providing a clear end-user exemption from margin requirements and one exempting inter-affiliate trades from being treated in the same manner as external, market facing trades and rectifying the centralized hedging center issue described above. Those bills, H.R. 634 and H.R. 677, were introduced earlier this month in the House by bipartisan groups of members of both the House Agriculture and House Financial Services Committees–and we hope there will be companion legislation introduced in the Senate in the near term.

The NAM continues to lead both legislative and regulatory solutions to address the challenges facing end-users. Company participation in these efforts is critical to make the case for action and the NAM will continue to coordinate opportunities for members to weigh in on these matters.

Surprise, surprise. In a shocking turn of events today, the White House has again used energy companies as their boogey-man to raise taxes and shift blame on the sequester. I would say they dusted it off, but they drag out energy companies so often, this particular boogey-man doesn’t have time to gather dust.

Yet in using this tired line of attack again, they don’t offer any concept to how capital-intensive the energy production industry is – and what significant steps energy companies face in delivering resources to the market.

Respected accounts of how the sequester was conceived and implemented credit the President with the idea of across-the-board spending cuts, largely aimed at the defense sector. Now, as the Administration has finally caught up with the reality the NAM warned of for months - a crushing blow to the U.S. economy – they’re trying to play the blame game.

The “solution” the Administration has offered is predictable – more tax hikes, more picking winners and losers through punitive tax policies, and absolutely no effort to address the true drivers of our debt, runaway entitlement programs. Tax increases won’t do anything to protect the jobs of more than a million Americans – in fact, it will just put more in jeopardy.

The Administration says that the sequester is bad policy – we agree. What I can’t understand is why they would choose gasoline as their weapon of choice when fighting a fire. I’m sure that focus groups responded to the corporate jet and energy company attacks. But that doesn’t excuse substituting politics for sound policy.

Effective in 2014, the Patient Protection and Affordable Care law will impose a new tax on health insurance companies in the fully insured marketplace. Unfortunately, this punitive tax—known as HIT— will also drive up the cost of premiums paid by employers for their employees’ health insurance coverage, according to the non-partisan Joint Committee on Taxation.  Many smaller manufacturers will be among the employers paying more to provide health insurance for workers. According to a recent NAM survey, nearly 70 percent of NAM’s small and medium-size manufacturers buy health insurance in this market and would be subject to higher health care costs associated with the cost shifting.

We are pleased that Reps. Charles Boustany (R-LA) and Jim Matheson (D-UT) recognize that imposing a new tax on health care insurance is no way to encourage employers to provide health insurance coverage for their workers. Their new bill—The Jobs and Premium Protection Act of 2013— will repeal the HIT tax and help drive down health care costs that are currently rising for employers faster than the rate of inflation. In endorsing Reps. Boustany’s and Matheson’s bill in a February 19th letter, we noted that the additional cost of providing coverage from the HIT tax comes on top of average health insurance premium increases of nearly 10 percent experienced last year by NAM’s small and medium-size members. And it’s not just Manufacturers that are concerned. A February letter endorsing the bill was signed by 35 associations representing a cross section of industries in the business community that would also bear the burden of this new tax.

If policymakers are serious about driving down health insurance costs for employers and want to encourage employer-provided health insurance for employees, supporting this legislation would be a responsible step. Repealing the HIT would be a win-win for many manufacturers and their workers.

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.

The testimony of Texas Instruments’ (TI) CEO, Richard Templeton at the House Science and Technology Committee 2/6 hearing on  “American Competitiveness:  The Role of Research and Development,” endorsed key principles of NAM’s Innovation Policy Agenda with laser precision. His support of STEM (science, technology, engineering and mathematics) education; reversing the growing skills gap in the United State; boosting underfunded federal, basic research spending; fixing the high skilled immigration system; and providing robust, competitive R&D tax incentives are all smart policies that will drive future innovation and job growth in our country.

Templeton got it right about the role research plays in advancing America’s competitiveness: “…federal funding of fundamental scientific research is critical to our nation’s continued competitiveness, economic growth and workforce development” as basic research is the key to unlocking future innovation in the United States. This is important because innovation has a proven track record in helping manufacturers companies to grow. Manufacturers lead all industries in innovation investments, accounting for 70 percent of all private sector research and development spending. This investment results in new product development, increased productivity, and job creation, not to mention the societal spillover benefits that improve our country’s standard of living.

Other countries recognize the exponential value of being home to world class innovation and have enacted attractive innovation policies to lure future R&D activity outside the United States. Templeton’s testimony gives credence to this global competition by citing a disturbing trend — OECD (Organization for Economic Cooperation and Development) data showing a decline in the U.S. share of global R&D as a percent of GDP from 39 percent to 34 percent from 1999-2010. He cites other stark statistics such as our current skills gap that “…for every unemployed person in the United States, there are two STEM job postings,” which should be a wakeup call for policymakers.

The NAM joins Mr. Templeton in urging lawmakers to enact smart policies that will reverse this trend and drive future innovation in the United States. A first step would be to avert the across-the- board spending cuts from the sequester set to occur March 1. These arbitrary cuts will foolishly cut federal funding of basic research programs and STEM education. An op-ed coauthored by Mr. Templeton appearing 2/6 in Politico sums up the expected negative impact on innovation from sequestration:  “…there will be a significant, long-term irreparable price to pay if the U.S. government slashes its support for science and engineering and for those who pursue those fields.”

Doesn’t this impending sequester of federal programs that spur innovation reflect the old adage “penny wise, pound foolish”? These imprudent budget cuts if allowed to occur will be a direct hit at future innovation and economic growth that will reverberate for years to come.

NAM applauds Mr. Templeton’s voice for pro-innovation policy that will result in unleashing future American innovation and create a 21st century workforce to meet the needs of manufacturing. Lawmakers would be prudent to act on his recommendations.

Today H.R. 523 – the Protect Medical Innovation Act – was introduced in the House by Representatives Erik Paulsen (R-MN) and Ron Kind (D-WI). This bill aims to repeal the prohibitory 2.3 percent excise tax on medical device manufactures.

As of January 1st, the excise tax went into effect and manufacturers are already experiencing significant, negative consequences on job growth and innovation as a result of having to cut R&D budgets. A recent study found that as many as an estimated 43,000 jobs will now be at risk as a result of this tax. The NAM has always strongly opposed industry and product specific taxes, as they serve to inhibit growth in targeted sectors and impede on the ability of targeted companies to compete in the global marketplace.

Manufacturers are pleased to see members of Congress working together across the aisle to eliminate this avoidable hindrance to the global success of our medical device companies. We anticipate similar legislation will soon be introduced in the Senate by Senators Orin Hatch (R-UT) and Amy Klobuchar (D-MN). In addition, Senators Al Franken (D-MN), Pat Toomey (R-PA), Joe Donnelly (D-IN), Richard Burr (R-NC), John Cornyn (R-TX) and Robert Casey (D-PA) have also come out in support of repealing this onerous tax.

As this is clearly a bipartisan issue of great concern to American manufacturing, we hope to continue to see members of both parties come together to solve this problem in the coming months.

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.