Companies Keeping an Eye on Manufacturing Policy Issues as Election Approaches

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Results of a Design2Part Magazine survey highlighting the effects of public policy on manufacturing businesses, especially during an election year, showed companies both large and small are mostly interested in seeing less regulation, less taxation, and the creation of an equal playing field when competing with foreign companies.

Many respondents noted that tariffs should be imposed on Chinese imports. American exports to China are charged a value-added tax (VAT), but the U. S. doesn't have a VAT to charge Chinese imports, which therefore creates an imbalance when competing with other countries, said noted industry expert Michelle Nash-Hoff. "We negotiated our free trade agreements, but I think we're the only country out of 130 countries that doesn't charge a value-added tax," Nash-Hoff said in a phone interview. "We're not on a level playing field because the value-added taxes range from 12 percent up to like 20 percent. And then you take the currency manipulation in China, which some people estimate is anywhere from 30 to 50 percent, and that's why we're at a disadvantage."

China has been accused of keeping its currency artificially low, which helps make it easier to export its goods and thus undercut the prices of U.S. manufacturers. "I will label China as it is: a currency manipulator," said Republican nominee Mitt Romney during a 2011 GOP debate in Spartanburg, South Carolina. "And I will go after them for stealing our intellectual property. And they will recognize that if they cheat, there is a price to pay. We'll bring action against them in front of the WTO for manipulating their currency, and we'll go after them," Romney said.

President Obama has expressed that China has been very aggressive in gaming the trading system to its advantage and to the disadvantage of other countries, particularly the United States. Recently, he has taken action against illegal "dumping"--or selling below fair market value--of solar panels by Chinese manufacturers into the U.S. market. The Commerce Department, with Obama's backing, recently announced stiff tariffs of 31 percent or higher on solar panels imported from China. Domestic solar manufacturers praised the ruling, which faces approval by U.S. trade officials this fall, saying it will allow for the growth of the solar panel industry in the U.S., which employs about 100,000 people in manufacturing, installation, and services.

Trade Imbalance Puts U.S. Companies at Disadvantage

The government should consider putting a tariff on parts and goods brought into the U.S. that are solely made in other countries in order to boost U.S. production, said Chris Cornwell, who works in new business development for Karlee, a Garland, Tex.-based manufacturer of precision machine parts and sheet metal fabrications that also performs integrations for customers in the communication, defense, aerospace, medical, and commercial industries. "Any time we ship outside of the U.S., like Mexico, we have to pay a tariff to get it to that country, but we don't see the same tariffs to get it out of that country and to the U.S.," Cornwell said.

He also feels the government should make it cheaper to use parts and goods from the U.S., and says it's still extremely tough to compete with China on price. Most of the business being re-shored is due to quality issues, not pricing, he said. "China is cheap still, but they can't keep the quality of the product up coming from there and they've had to move it back," he said.

Putting a tariff on tooling that's made in China and coming into the U.S. would help generate more on-shoring, said Larry Megugorac, a manufacturer's representative through SourcePoint Associates (sourcepointassociates.com) in Brentwood, California. "Too much stuff goes offshore. It hurts when we don't do what we can to keep work here," he said. Representing nine companies, primarily in the medical device and high-tech markets, Megugorac said a 2.3 percent medical device tax set to begin Jan. 1, 2013, could hurt business. "Any tax, whether it's directly on the consumer or on the medical device company, is going to get passed onto the consumer anyway, so why does the government have to stick their hand in another spot to get revenue? The government needs to figure out how to do more with less and stop asking the tax payer to give more money," he said.

Less Government Controls and Regulation Cited

Getting bogged down in excessive mandated reports from the state has "taken away our ability to pay attention to doing business," said Be Cu Manufacturing Company's Phil Brick, vice president of sales and marketing, and a proponent of less government regulation. The Scotch Plains, N.J., company, which produces a wide variety of springs, electrical contacts, and assemblies, reports that it has become overburdened with government paperwork inquiring about arbitrary data, such as how much material is being used and what different types of metals are being used by the company.

"We don't ever see it (data) being utilized or reported back to us," Brick said. "And the reports are not consistent, so they're asking for different metrics," a process that is often time consuming and frustrating. "It's not easy to access from our database, especially for the small employer," Brick continued, adding that Be Cu has 23 employees. "It's a lot of clerical and administrative-type of requirement that could, instead, go toward business; not to filling out forms that we see have no value going forward. I have no idea what they're after with these reports. They (government) just make it so onerous, particularly New Jersey. It's just difficult to do business in the state because of the amount of regulation that's here," he said, adding that the company strives to be "green" and uses environmentally-friendly lubricants. The company's degreasing process is now 100 percent green. He wonders why state agencies don't focus more on companies that have violations. "It makes it difficult for the honest and green companies to do business," he said.

Brick said he was interested in seeing the government create more HUBZones (Historically Underutilized Business Zones) with less taxation requirements. He'd also like to see more hiring incentives and government-sponsored job training for skilled craftsmen, especially when reshoring is bringing so many jobs back to the United States. Tool makers, EDM workers, and machinists are hard to come by, Brick said, adding that his company has experienced difficulty in filling skilled labor jobs. "It's very difficult to find younger people that are entering into those trades, and if reshoring really does take hold, that's what we're going to need," he said. "We need to do it through vocational technical schools, and the government needs to support those feeder programs."

Changes to payroll tax rates have frustrated Paul Reason, general manager of ANB Aviation Parts, LLC, of Peachtree City, Georgia. According to Reason, every time the government changes them, HR and payroll costs go up, along with the direct money tax implication. "It's the manpower and resources and software upgrades, and the revisions that are costly as well," he said. "It would be nice to know what your paycheck is going to be and not have the government impacting it based on the payroll taxes. The burdens to the companies are astronomical if you looked at the national average. There's probably tens--if not hundreds--of millions of dollars that were spent just because they were monkeying around with politics on whether or not to extend a previous tax cut or modify it or let it sunset."

ANB Aviation Parts, a subsidiary of Worldclass Aviation and an FAA-approved aircraft replacement parts production company, strictly subcontracts work out to U.S. –based companies in order to maintain quality and oversight. Reason said a tax incentive in the aerospace industry that allowed any company to purchase, improve, repair, upgrade, and modify an aviation asset with a $1 million tax write-off for the year has recently expired. "So in 2012, we're seeing people not get things done because it's less appealing from a tax write-off point of view," he said. "The acquisition of new airplanes will be affected. It's less appealing to purchase new because that first million, right off the top, is not tax deductible; you have to go to a standard depreciation schedule. We will be affected because as people do fewer upgrades, repairs, modifications, or improvements, my sales go down."

ANB Aviation Parts is finding that its bigger customers are unwilling to make long-term commitments in an "uncertain" economy, Reason said. "They want to see who's going to be in office. They want to see where they think the political winds are going to blow before the November elections. If the Democrats retain the presidency and/or take control of the House, or gain a better foothold in the Senate, then the big businesses are going to be scared of higher taxes, higher corporation burdens, and they're not going to be as likely to engage in big, long-term contracts and big spending," he explained. He also added that if the Republicans gain control, then the corporations will feel like they're not being "targeted" to come up with money for all of the entitlement funds and then be more likely to spend, develop products, and research, he said.

Ten Ways the Candidates Compare on Manufacturing Issues Both President Obama and Republican nominee Mitt Romney have said they recognize the important role that U.S. manufacturing plays in strengthening the economy. Major factors in reshaping the economy through stronger manufacturing include creating incentives to bring manufacturing back home, tax reform, strengthening incentives for innovation, support of advanced manufacturing, and addressing the U.S. trade imbalance with China. Following are highlights of Obama and Romney's positions on how to strengthen U.S. manufacturing: Obama: Reduce overall corporate tax rates to 28 percent, with an even deeper cut to an effective rate of 25 percent for companies manufacturing in the United States. Double the tax credit for advanced manufacturing technologies from 9 percent to 18 percent. End tax breaks for outsourcing and provide a 20 percent tax credit for expenses of moving manufacturing operations back to America. Calling for a new minimum rate of tax on foreign income, ending tax incentives that make it cheaper to invest overseas. Proposed to expand, simplify, and make permanent the Research and Experimentation (R&D) Tax Credit. Signed into law a provision that allowed businesses--large and small--to immediately write off 100 percent of the cost of new investments in equipment. Has proposed extending this tax cut through the end of 2012. Continuing to expand the 18 small business tax cuts he has signed into law by including a temporary elimination of capital gains taxes on key small business investments, a tax credit for hiring unemployed workers, and a small business health care tax credit. Continuing to fight unfair trade practices in areas like tires, solar panels, and rare earth metals and creating a new trade enforcement unit. Continue to keep the U.S. on track with doubling its exports over the next five years. Build on initiatives to help workers develop advanced manufacturing skills. Extend his 30 percent Advanced Energy Manufacturing Tax Credit for clean energy manufacturing projects in the United States. Proposed a one-time, $1 billion investment to launch a National Network of Manufacturing Innovation to tackle manufacturing challenges with broad applications. Romney: Cut the corporate tax rate from 35 percent to 25 percent, enabling manufacturing companies to reinvest more profits. Make permanent the R&D credit promoting innovation and enabling investment. Would impose new tariffs on trade with China, and classify the nation as a "currency manipulator." Use unilateral and multilateral punitive measures to deter unfair Chinese practices and discontinue U.S. government procurement from China until China commits to Government Procurement Agreement (GPA). Create a small business team to review onerous regulations. Since most small businesses pay taxes at the individual level, not corporate taxes, Romney plans to lower the top rates from 35 percent to 28 percent. Would seek Patient Protection and Affordable Health Care Act waivers for all 50 states and work to repeal the law. Retrain American workers to ensure they have the education and skills to match the jobs of today's economy. Attract the best and brightest from around the world by raising visa caps for highly-skilled workers and granting permanent residency to eligible graduates with advanced degrees in math, science, and engineering. Believes free trade is essential to restoring robust economic growth and creating jobs. Would complete negotiations for the Trans-Pacific Partnership and pursue new trade agreements with nations committed to free enterprise and open markets. Increase Customs and Border Protection resources to prevent the illegal entry of goods into the U.S., and increase U.S. Trade Representative resources to pursue and support litigation against unfair trade practices.