May 16, 2005

The Honorable Connie Mack
Chairman
The President's Advisory Panel on Federal Tax Reform
1440 New York Avenue, NW, Suite 2100
Washington, DC 20220

Dear Senator Mack:

The Bush Administration and the Advisory Panel on Federal Tax Reform are to be complimented for seeking advice and recommendations from American citizens, companies, and non-profit entities on the question of creating a simpler and fairer national tax system.  This truly reinforces the concept that the people should have a direct voice in shaping major policy issues that directly impact on them, their families and the nation.

In responding to the President's "Manufacturing in America: A Comprehensive Strategy to Address the Challenges to U.S. Manufacturers" of January 2004, the National Council for Advanced Manufacturing brought together 145 representatives from 35 national manufacturing organizations on March 1, 2004 to vet the 57 recommendations contained in that document and to develop more specific recommendations in seven critical policy areas, including the area of tax policy. 

NACFAM's goal is to give greater focus to these policy recommendations so that they can, when adopted and implemented, enhance the productivity and competitiveness of the U.S. - based manufacturing sector and strengthen the nation's economy. 

If American manufacturers are to be more competitive in a growing international marketplace, they must have a more predictable tax system that encourages investment, saving, and innovation.

On March 29, 2005, senior executives from major companies and associations participated in a NACFAM Tax Policy Workshop that examined tax recommendations outlined in the "Manufacturing in America” strategic plan -- permanent full expensing of new capital equipment, repeal of the corporate AMT tax and allowance for use of AMT 
The Honorable Connie Mack
May 16, 2005
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accumulated credits, improving the R&E tax credit and expanding it to provide full credit for collaborative research, and deepening the pool of investment capital through new incentives.

After considerable discussion, the workshop attendees adopted by consensus the following Tax Policy recommendations:

Preamble:  American manufacturers are substantially overtaxed in comparison with their principal foreign competitors.  This distinct competitive disadvantage can be best overcome by lowering the effective tax rate for American manufacturers by the adoption of the following tax base reforms.  Adoption of these reforms will also help assure that increased savings resulting from any individual savings incentives or enhancements which Congress may adopt will be invested in American manufacturing facilities.

Recommendation # 1: The tax code, which through overly-long depreciation lives currently operates to discourage investment in American manufacturing, should move towards the ultimate goal of full expensing of new capital equipment.  This productivity-enhancing reform should be made available to all businesses, regardless of their size or tax status, (e.g., AMT taxpayers or producers of long-lead time items, who are subject to percentage-of-completion accounting rules.)

Recommendation # 2:  The corporate Alternative Minimum Tax (AMT), which perversely penalizes investment by capital-intensive, marginally profitable manufacturers (particularly during periods of economic downturn), should be repealed, and any unused AMT credits accumulated by these businesses should promptly be made available to them. 

Recommendation # 3:  The Research and Experimentation (R&E) Tax Credit should be improved by making it available to more research-intensive companies (along the lines of the provision adopted by the Senate last year) and by expanding it to include a full credit for collaborative research (also adopted by the Senate last year).  In addition, it should be made permanent.

Recommendation # 4:  The unfair, premature reporting of taxable income by defense contractors and other builders of long-lead time products currently required by percentage-of-completion accounting rules (Section 460) should be repealed.

Recommendation # 5:  Employers' deductibility of health insurance they provide their employees should be retained in the tax code.

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May 16, 2005
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The adoption of these tax policy recommendations will encourage U.S. - based manufacturers to make significant investments in new technologies and related capital equipment, which should further increase their productivity and competitiveness.  A more investment-centered tax policy will also encourage employees, who seek to function more efficiently in their ever-changing workplaces, to acquire the knowledge and skills needed by manufacturers wanting to grow and compete in the 21st century economic environment.

NACFAM and its members look forward to cooperating with U.S. - based manufacturers, national and state trade associations, the Bush Administration, the Congress and the states to reshape the nation's tax codes so they will support a productivity-centered economy.

Sincerely,

Eric Mittelstadt
Chief Executive Officer

National Council for Advanced Manufacturing (NACFAM)
2000 L Street, NW, Suite 897
Washington, DC 20036
Voice: 202-429-2220, ext. 109
Fax: 202-429-2422
Email: mittelstadte@nacfam.org
www.nacfam.org