Manufacturers Need Comprehensive Tax Reform That Makes Them More Competitive
Congress is considering comprehensive tax reform in this session, but the details are not yet clear. As this process moves forward, FIA remains committed to comprehensive tax reform that lowers all tax rates and broadens the tax base as it addresses our key principles outlined below.
Treats all manufacturers alike, regardless of corporate structure.
Modern forging is capital-intensive, yet many U.S. forging companies are small or medium sized enterprises, often family-owned or closely held, and organized as pass-through entities such as Subchapter S Corporations, Limited Liability Companies (LLCs), or Partnerships, so taxes are paid by their owners at individual rates. Many small businesses are structured as pass-throughs, in part, because for family owned businesses, such structurers provide flexibility for the next generation of manufacturers to take over the company.
Stimulates economic growth and enhances U.S. manufacturers’ global competitiveness.
Under the current tax system, U.S. businesses face significant tax burdens that place them at a competitive disadvantage globally. The U.S. corporate tax rate is now the highest in the industrialized world and 8% higher than our nine largest trading partners (China is 15% lower). In addition, the current system penalizes companies who operate globally by imposing additional taxes on income generated outside the U.S. when those funds are returned. The current system also does not provide for adequate cost recovery for major capital investments.
Recognizes the global nature of manufacturing and its supply chains.
FIA is aware that there is much discussion of the border adjustment tax proposal in the House GOP Blueprint. Like many stakeholders, we have many questions regarding WTO legality and increased prices relative to the dollar that we hope will be answered by congressional hearings and further discussion. FIA members sell their products to original equipment manufacturers who may then export the end product. FIA members themselves do very little exporting. It is unclear at this time what effect the border adjustment tax would have on FIA members and it would certainly depend on the final tax rate to determine if a BAT is good or bad for a U.S. forger. FIA looks forward to reviewing detailed legislative text with transition plans to ensure that any proposed comprehensive tax reform legislation makes FIA members more globally competitive.
Repeal of Last In-First Out (LIFO) Accounting Method Is Not Part of Tax Reform
FIA believes that Congress must resist the temptation to include unrelated items in any comprehensive tax reform legislation, such as repeal of the Last In-First Out Accounting Method (LIFO). Many manufacturers, including approximately 38% of surveyed forgers, utilize this method, which has been part of the U.S. tax code since 1939, because it is the most accurate method of accounting for businesses that maintain large inventories of raw materials and work-in-progress. Repeal of LIFO and a requirement that LIFO reserves be repaid could bankrupt some small companies that have been using LIFO for years, and would do nothing to reform the tax system. We urge Congress to reject this approach in considering comprehensive tax reform.