Sen. Claire McCaskill (D-MO) and Sen. Lindsey Graham (R-SC) appeared on Fox News Sunday today. Chris Wallace asked both about extending the current tax rates. Sen. McCaskill indicated the Senate Democratic position was shifting from the original proposal — raise tax rates on joint taxpayers earning $250,000 or more — to raising tax rates on joint taxpayers earning $1 million or more.

To drive home the point, she managed to include “millionaire” as a quasi-epithet four times in her first 99 words.

WALLACE: Senator McCaskill, would you support a temporary extension for several years of the Bush tax cuts both for the middle class and for those making more than $250,000 a year?

MCCASKILL: Well, I think we should draw the line in the sand for millionaires. Honestly, with all the talk and the righteous indignation about the deficit, are we really going to hold up tax cuts for all of America just for the millionaires? And I think that’s where we should draw the line.

Our deficit is serious. Anybody who believes that that small tax differential for millionaires is going to make a big difference on job creation hasn’t been paying attention. There’s many things we can do that’s much more stimulative to the economy than taking care of the millionaires.

Class warfare proved such an effective political message in the 2010 campaigns, let’s redouble the rhetoric!

The Wall Street Journal on Saturday published a timely letter from Louis B. Mendelsohn reacting to an op-ed on tax rates by John Engler, president of the National Association of Manufacturers, and Jerry Howard of the National Association of Home Builders, “Tax Hikes and the Small Business Job Machine.”

In his letter, “Create Jobs? I Know How It’s Done,” Mendelsohn relates how he built his software development company founded in 1979 into a multi-million-dollar operation with more than 50 highly compensated employees and customers in more than 125 countries. Indeed, Mendelsohn is President and CEO of Market Technologies, renowned as a pioneer in the application of personal computers and trading software to the global financial markets. He observes: (continue reading…)

John Engler, president and CEO of the National Associaton of Manufacturers, spoke to the NAM’s Board of Directors on Wednesday, assessing the political and economic consequences of the just-recessed 111th Congress. He observed:

You think about elections as sort of a performance review. Congress is going to have a pretty hard time arguing that they deserve to keep their jobs.

Think about this: They didn’t pass a budget. They failed to enact a single appropriations bill. Not one. We’ve got the return to the killer 2001 tax rates – that’s looming. The estate tax is poised to go back up to 55 percent, and we’ve got no R&D tax credit. Other than that …

Judging from his Washington Post column today, Charles Krauthammer must have been in the audience and been inspired by Engler. In “The Colbert Democrats,” Krauthammer notes Congress’ failure to enact budgets and appropriations bills and elaborates:

Congress adjourned without even a vote — nay, without even a Democratic bill — on the expiring Bush tax cuts. This is the ultimate in incompetence. After 20 months of control of the White House and Congress — during which they passed an elaborate, 1,000-page micromanagement of every detail of American health care — the Democrats adjourned without being able to tell the country what its tax rates will be on Jan. 1.

It’s not just income taxes. It’s capital gains and dividends, too. And the estate tax, which will careen insanely from 0 to 55 percent when the ball drops on Times Square on New Year’s Eve.

Nor is this harmless incompetence. To do this at a time when $2 trillion of capital is sitting on the sidelines because of rising uncertainty — and there is no greater uncertainty than next year’s tax rates — is staggeringly irresponsible.

No, Krauthammer really wasn’t in attendance — he’d be welcome at the NAM, to be sure — and really, Krauthammer and Engler are only stating the obvious. The really obvious. The outrageously obvious: Congress failed to act on taxes.

In today’s Wall Street Journal, Craig Barrett and James Moore cut through the heated political rhetoric about “outsourcing” and get right to the heart of the problem—a misunderstanding among some Congressional leaders on how jobs actually are created. In fact, they say, if the Creating American Jobs and Ending Offshoring Act rejected by the Senate this week ever became law, job losses would accelerate and even more companies would relocate jobs overseas.

In their column, “Outsourcing and the 21st-Century Economy” (subscription), Mssrs. Barrett and Moore explain that companies outsource for two reasons:

The first centers on the nature of the global. In today’s world, outsourcing can save companies money, reduce the time it takes to deliver products and services to customers, and provide access to skilled employees unavailable in the U.S. Outsourcing also allows companies to capitalize on incentives offered by foreign governments to attract investment…

The second reason U.S. companies outsource is that our own government pursues policies that drive investment and job creation offshore: excessive taxes, needless regulations, lengthy permit processes, a decreasing supply of U.S. citizens with technical and engineering degrees, and a general governmental misunderstanding of how to support private-sector jobs. For example, taxing new U.S. corporate investment at 35%—when the world average is just over 18%—pushes U.S. companies to invest offshore to increase return to shareholders.

They go on to argue, “Politicians who accuse the business community of being solely responsible for the loss of U.S. jobs are disingenuous at best and urge legislators to “recognize the competitive nature of the 21-st century world economy.”

Manufacturers could not agree more. In fact, NAM’s Manufacturing Strategy for Jobs and Competitive America sets out a roadmap for policymakers. On tax policy, rather than looking at ways to punish worldwide American companies, lawmakers should lower the corporate tax rate, provide a permanent and strengthened R&D credit and advance fair and competitive rules for taxing foreign income of U.S. companies, all changes that will make the U.S. a better place to do manufacturing.

From the Senate Finance Committee, chaired by Sen. Max Baucus (D-MT), “Baucus Introduces Bill to Create Jobs and Extend Family, Worker, Employer Tax Cuts”:

Washington, DC – Senate Finance Committee Chairman Max Baucus (D?Mont.) today introduced fully paid-for legislation to create jobs and extend critical tax cuts for individuals, families and employers, while closing tax loopholes for wealthy investment fund managers and large corporations. The bill would cut taxes for families paying college tuition, state and local taxes, and property taxes. It would cut taxes for employers to spur research and development and investment, freeing up cash to expand and hire new workers. And the legislation would bolster career training programs and provide wage assistance to help employers hire workers to help our economy grow.

The bill features many one-year extensions of current tax programs, exemptions, incentives and the like. For example, the R&D Tax Credit would be extended for one year,  retroactively from the start of 2010.

News coverage …

• CQPolitics.com, “Senator Takes Another Shot at Moving a ‘Tax Extenders’ Package“
• WebCPA.com, “Baucus Introduces New Tax Cut Extenders Bill“
• Business Insurance, “Newest tax bill retains punitive damages provision“
• Bloomberg, “Build America Bond Extension for 1 Year Offered in Senate Bill“

(continue reading…)

The Wall Street Journal last weekend published an op-ed by Tufts University professor Amar Bhidé arguing against the efficacy of the federal research and development tax credit, “Don’t Expect Much From the R&D Tax Credit.”

Bhidé’s argument falls short because he barely acknowledges the global competitive realities faced by manufacturers in the United States, including the growing race for R&D investment dollars worldwide. (It’s an odd oversight coming from a professor from Tufts, an institution with a sterling reputation for studies in diplomacy and international economics.)

Congressional failure to renew the R&D tax credit, which expired last December, would represent a unilateral surrender in this competition. Innovation and jobs would both suffer as companies adjusted their domestic R&D to reflect the U.S. abandoning the race.

A few key facts:

• In 2009, 21 OECD countries offered R&D tax incentives — 16 of which offered stronger incentives than the United States — compared to just 12 OECD in 1996. This 75 percent increase over 15 years is anything but coincidental, but rather a targeted effort by countries to jumpstart technological advancements and innovations by the private sector.
• The U.S. share of global R&D has fallen from 39 percent in 1999 to 33 percent in 2007, while China’s share increased fourfold. (Source: Organization for Economic Co-operation and Development, “Ministerial Report on the OECD Innovation Strategy,” May 2010)
• China surpassed Japan’s ranking in 2009, taking the No. 2 spot behind the U.S. in world R&D spending.

Nearly 18,000 companies use the credit, far more than just the largest companies with large R&D budgets. Indeed, companies of all sizes doing R&D on American soil continue to be courted, in some cases aggressively, by other countries to move their U.S.-based R&D offshore.

The U.S tax credit is available only for research and development performed in the United States. IRS statistics further show that the R&D credit is a jobs credit – 70 percent of the claims made against the credit are for employee salaries.

Manufacturers are keenly aware of the tax credit’s incentives and impact. The manufacturing sector accounts for nearly 70 percent of R&D credit claims and performed 70 percent of all business R&D in the United States. The emphasis is understandable: R&D fuels the innovation that drive new product development and increased productivity — two necessary factors for growth in manufacturing.

The professor’s arguments make might sense in a theoretical setting, but manufacturers live in the real world where many countries are competing for companies that do research and development. From a manufacturer’s perspective, a more accurate title for Professor Bhidé’s op-ed might have been, “Don’t Expect Much if the R&D Tax Credit is NOT Renewed, Strengthened & Made Permanent.”

• The Hill, “Import ban bill has manufacturers worried,” on H.R. 4678, the Foreign Manufacturers Legal Accountability Act: “U.S. manufacturers and Embassy Row are up in arms over a House bill that would ban imports from manufacturers that don’t have a U.S. agent.”

• American Spectator, “A Real Small Business Assist“: [If]  if Obama really wanted to help small business, he would instruct Senate Majority Leader Harry Reid to stop using ‘legislative maneuvers’ to block ‘up or down’ votes on amendments that, unlike the underlying bill, would actually ease the burden of the majority of small businesses. Dozens of amendments have been proposed to the “Small Business Jobs And Credit Act” that would help small entrepreneurs by providing regulatory and tax relief.”

• Washington Times, “‘Green’ jobs no longer golden in stimulus: Environmental projects fail to live up to hype“: “Noticeably absent from President Obama‘s latest economic-stimulus package are any further attempts to create jobs through “green” energy projects, reflecting a year in which the administration’s original, loudly trumpeted efforts proved largely unfruitful….The long delays typical with environmentally friendly projects – combined with reports of green stimulus funds being used to create jobs in China and other countries, rather than in the U.S. – appear to have killed the administration’s appetite for pushing green projects as an economic cure.”

• Pittsburgh Post-Gazette, “Economy to occupy Congress“: “On the House side, Democrats will continue to push their ‘Make it in America’ agenda — designed as a boost to U.S. manufacturing and an attempt to restore confidence in the economy. “We need to create an environment from a tax standpoint, a regulatory standpoint and a confidence standpoint that we can make it in America,” said Majority Leader Steny Hoyer, D-Md., in a conference call last week, touting private sector and manufacturing job growth as signs of light, despite the nation’s 9.6 percent unemployment.”

• Los Angeles Times, “U.S. hard-pressed to stem domestic R&D losses“: “President Obama’s proposal to boost the research tax credit for businesses is widely seen as necessary to bolster American competitiveness in the global economy. But even if the $100-billion plan is approved, it won’t begin to address the fundamental questi n of how to turn that research and new technology into jobs and renewed prosperity for Americans.”

• Wall Street Journal, Arthur Brooks and Paul Ryan, “The Size of Government and the Choice This Fall“:  [Finding] the right level of government for Americans is simply impossible unless we decide which ideal we prefer: a free enterprise society with a solid but limited safety net, or a cradle-to-grave, redistributive welfare state. Most Americans believe in assisting those temporarily down on their luck and those who cannot help themselves, as well as a public-private system of pensions for a secure retirement. But a clear majority believes that income redistribution and government care should be the exception and not the rule.”

A roundup of business reaction to the President’s latest proposals:

Bloomberg TV, “NAM’s Timmons Interview on Obama Tax Policy,” an interview with Jay Timmons, executive vice president of the National Association of Manufacturers:

Margaret Brennan, Bloomberg: In reading these specific proposals, it sounds like the President is nodding toward or taking a page from something that you’ve been asking for a while, and a number of Republicans have here:

Timmons: It actually is a page right from our Manufacturing Strategy and our playbook, and what we think needs to occur to improve our economy and create jobs. The problem is, the tax incentives that the President is talking about – two very, very good incentives – it sounds like those are going to be coupled with tax increases in other areas, which could harmful to business, the economy and jobs. And you can’t fix one problem by creating two others.

Brennan: So what are you talking about there? You’re not talking about the individual tax rate on those making more than $250,000 a year.

Timmons: Well, actually, that is one of the issues. You know, 70 percent of manufacturers – this is a fact that most people don’t know – 70 percent of manufacturers file as individuals or S corporations. Higher taxes on manufacturing will harm their ability to make investments, buy new plants and equipment, even if the other tax incentive that the President is talking about exists. And that hurts jobs, and of course, job creation.

Dow-Jones, “Businesses Wary Of Obama Proposal To Expand R&D Tax Credit“:

The R&D tax credit expired at the beginning at this year, and a proposal to extend it for 2010 have run into a Senate logjam.

“It’s good that the president called for a strengthened credit, but the most important message is that there be no gap in the R&D credit for this year,” said Monica McGuire, a senior director at the National Association of Manufacturers.

Forbes, Brian Wingfield, “Obama, Boehner Show Little Will To Reduce The Deficit“:

What about the president’s other ideas? Wednesday, he also argued for allowing businesses to write-off all of their equipment expenses in 2011 rather than deducting the expenses over time. In addition, he’d make permanent the research and development credit. Business groups like the U.S. Chamber of Commerce and National Association of Manufacturers would normally jump at the idea. But a senior administration official says the R&D credit would be paid for by closing tax “loopholes” on multinational companies–not something business groups are likely to endorse.

Human Events, John Gizzi, “Business Leaders Denounce Obama’s Tax Increase“:

Jay Timmons, vice president of the National Association of Manufacturers, agreed. Referring to the selected tax credits supported by the President, Timmons told HUMAN EVENTS, “At face value, a 100% tax credit for plants and equipment and an expanded tax credit are extremely good for business and the economy and jobs.”

However, he quickly added, “unfortunately, the most effective economic growth tool is an extension of the ’01 and ’03 tax cuts, which the President refuses to do in total. Additionally, it is likely there will be a tax increase included which will raise energy prices and other taxes on business.”

In his full-bore populist speech in Cleveland today, President Obama repeated the now all-too familiar line about tax breaks for companies that ship jobs overseas.

And then he added something new.

This week, I proposed some additional steps to grow the economy and help businesses spur hiring. One of the keys to job creation is to encourage companies to invest more in the United States. But for years, our tax code has actually given billions of dollars in tax breaks that encourage companies to create jobs and profits in other countries.

I want to change that. I want to change that. [applause]

So now it’s bad to create profits overseas?

A reminder from a recent NAM Key Vote letter:

An estimated 22 million people in the United States – more than 19 percent of the private sector workforce and 53 percent of all manufacturing employees – are employed by companies with operations overseas. …Some of the proposed tax increases, which are mischaracterized as closing tax loopholes, actually represent significant changes to pro-growth tax policy supported by Congress and the Administration.

Which raises a larger point. Save perhaps for the familiar R&D tax credit, these new, large-scale tax policy proposals that the President rolled out this week — with just a month or so left before Congress leaves town again — cannot be adopted in isolation. Their impact extends throughout the tax code, changes that require serious examination for their impact on businesses, taxpayers as well as their potential unintended consequences.

Here’s the most detailed presentation on the President’s proposals we’ve seen at Whitehouse.gov, provided by Communications Director Dan Pfeiffer at the White House blog, “Rebuilding Our Economy to Work for Middle Class Americans Again“: (continue reading…)

The editors of National Review Online analyze President Obama’s flurry of new spending and tax proposals and find them wanting. From the excellent editorial, “Scattershot Stimulus,” which does a good job of drawing distinctions on the worthy R&D tax credit that others gloss over, while still calling for an extension of the 2001 and 2003 tax cuts.

Obama also proposes to expand and make permanent a tax credit for research-and-development expenditures. This would be an improvement over the status quo, under which this tax credit has been “temporary” for government accounting purposes but consistently reauthorized since its creation in 1981. By itself, the policy isn’t objectionable, but it’s being offered in exchange for a worse overall tax climate: The administration has almost certainly oversold the benefits of expanding the credit, which would be small compared to the costs of raising tax rates in a weak economy. Increasing tax rates on income, dividends, and capital gains, even if those hikes were confined to the top two brackets, would weaken incentives for some of the country’s most productive individuals and profitable small businesses to work, invest, hire, and grow. A slightly bigger write-off for R&D isn’t sufficient to cushion that blow, and business owners know it.

And, the conclusion:

If this summer’s employment and housing numbers heralded the death of the latest Keynesian revival, then Obama’s latest raft of stimulus proposals indicates that he has reached the bargaining stage of grief. He is tacitly acknowledging that tax relief is the best medicine for an ailing economy, but he is trying to hold on to the idea that government still knows best where that relief should be “targeted,” and he’s asking for just $50 billion more in new spending in exchange. He still thinks we should let the Bush tax cuts expire, even as key senators in his party and his own former OMB director have abandoned that view. The sooner Obama gets over the denial stage, reaches the acceptance stage, and embraces a pro-growth tax policy, the sooner we’ll exit the depression stage and get on the road to recovery. 

Various reactions to the sudden flurry of proposals from the White House on taxes and infrastructure.

Wall Street Journal, “Obama to Push Tax Breaks”:

Jay Timmons, executive vice president of the National Association of Manufacturers, described the expensing proposal as “good at face value.”

But he questioned the administration’s logic in proposing to raise some business taxes in order to lower others.

Larry Kudlow, National Review, The Corner, “Obama Gets Write-Offs Right“:

It’s all midterm-election politics, but Obama’s last-minute idea for 100 percent tax write-offs for corporate investment is, in fact, a good idea.

He proposes a two-year window to incentivize businesses to bring forward their investments. From the standpoint of investment, it’s the right way to go. Perhaps Larry Summers now thinks tax cuts are the right way to go, too.

CEOs like Fred Smith of FedEx have argued for full cash expensing for many years, along with a big drop in the corporate tax rate itself. This is what Team Obama should have done in the first place: Slash business tax rates and accelerate investment-depreciation schedules.

Conn Carroll, The Heritage Foundation, “Morning Bell: The Obama Tax and Spend Hikes“:

[Spending] is just one side of President Obama’s economic prescription for the country. Not only is he advocating another $50 billion in spending on top of the $814 billion in economic stimulus spending he has wasted so far, he is also advocating for a $921 billion tax hike set to take effect this January 1, 2011. The administration wants us to believe that this massive tax hike will have no effect on our economic recovery. But that is just not so. Raising taxes on work and investment would mean less work and less investment and can be regarded only as an overtly hostile anti-jobs policy. That is just one of the myths exposed by Heritage analyst JD Fosters’ new paper: Obama Tax Hikes Defended by Myths and Straw Man Arguments.

Byron York, The Examiner, “Obama’s ‘pivot’ to the economy comes far too late“: