Reform the Tax Code, But Don't Rip Off the Bandage Too Quickly

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Manufacturers are strong and vocal advocates for reforming our current tax code to make it simpler, fairer and more competitive. Indeed, we stand with Diana Furchtgott-Roth in her recent support for tax reform discussed in "No Band-Aids, Let's Have Real Tax Reform." Where we disagree, however, is on how we get there. Manufacturers believe strongly that until policymakers agree on a final reform plan, it is important to keep the current tax system in place, including the so-called "extenders."

Piecemeal changes to longstanding rules will inject more uncertainty into business planning, making manufacturers in the United States even less competitive and threatening economic growth and U.S. jobs. In contrast, renewing the tax extenders will provide a bridge of certainty and predictability for manufacturers and the other businesses, individuals and non-profits the provisions impact.

Moreover, contrary to Furchtgott-Roth's assertions, many of the tax extenders represent longstanding and sound tax policy with a history of strong bipartisan and bicameral support. Members of Congress agree. In fact, both chambers have made good-faith efforts this year to move some or all of the extenders, but political gridlock has gotten in the way. Meanwhile, the "on-again/off-again" nature of the expiring provisions is taking a toll, not only on business planning but also on family finances.

Manufacturers' top priorities include the R&D credit, investment incentives for manufacturers of all sizes, deferral for global active business financing income and the "look-through" rules that make it easier for companies to redeploy earnings from active businesses in foreign markets. These provisions help manufacturers innovate and compete in a global marketplace and contribute to U.S. economic growth and job creation.

There is also a host of other provisions in the package important to families, including a deduction for local and state taxes and a provision that allows taxpayers to exclude mortgage loan forgiveness from income. Furchtgott-Roth herself mentions two provisions that support education: a deduction for supplies and books teachers purchase and a deduction for tuition and related expenses. If these provisions are not revived and extended, these families, like businesses, will see an increase in their tax bills.

It's clear to us that tax extenders are not a replacement for tax reform, but continuing existing policy will not remove the incentive for tax reform or tie the hands of future Congresses. In fact, renewing longstanding tax policy will ease the way for much needed tax reform by injecting some certainty in the current system and giving policymakers the time to complete work on a pro-growth, pro-manufacturing comprehensive overhaul of the tax system.

Manufacturers recognize the critical need for a more competitive tax climate that allows us to succeed in the global marketplace. Clearly, the fact that so much of our tax code is temporary is a problem, particularly when comparing our tax system to those in competitor nations. Nonetheless, Furchtgott-Roth's focus on why the United States uses tax extenders more than other developed countries-even if true-misses the point. We agree temporary tax provisions are generally not a good idea, and that is a discussion for another day. The issue at the moment, however, is the potential negative impact on U.S. taxpayers if Congress drops the ball and doesn't act on the tax extenders.

NAM members agree that comprehensive tax reform of the U.S. tax code is sorely needed, particularly in the current economic climate. But let's not dismantle the tax code prematurely. As we move toward tax reform, it is critical that Congress revive and extend these important incentives that are part of the current system and avoid making an uncompetitive system even worse.

Dorothy Coleman is Vice President of Tax and Domestic Economic Policy at the National Association of Manufacturers.  

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