Optimism and change in manufacturing
INSIGHT ARTICLE |
I attended the National Association of Manufacturers (NAM) spring 2017 board meeting in early March. Some 200 members of the organization joined together to get an update on issues affecting the industry from representatives of NAM leadership, the new White House administration and others.
There is no question that the new administration has the industry cautiously optimistic, as many manufacturers anticipate action in the coming months on a number of key issues.
Following are highlights of some key issues that were discussed:
While it may be far too early to know what shape tax reform will ultimately take, both the White House and members of Congress are signaling their intention to lower corporate and income tax rates to bring the United States more in line with rates in most other major economies around the world. The attendees, including middle market companies, were excited about the prospect of lower taxes and more capital for investment. In addition, multinational manufacturers could see changes in transfer pricing that would affect their tax strategies and business plans as the border adjustment tax is debated.
Although these proposed reforms are focused on reducing tax rates, certain tax incentives might be repealed or restricted. Many of the proposed changes will affect not only federal and international tax positions, but state and local taxes as well. There are actions that manufacturers can take now to prepare their companies for what is to come.
While the process is notoriously fluid and unpredictable, it will likely be late 2017 before we have final tax reform legislation, and the implementation plan remains to be seen.
The increasing volume of federal regulations and the related costs of compliance have had a significant effect on manufacturing1 over the course of several administrations.2 The attendees from the various industry segments I spoke with told me how regulations have created challenges and costs for their businesses. Industry leaders are eagerly looking to the new administration for regulatory reform, particularly from the Environment Protection Agency and the Department of Labor.
An executive order designed to dismantle the Clean Power Plan, for example, was signed in late March, but it is not clear if it will have the intended effect of increasing coal production and coal-related jobs and may not be for some time. The administration is also indicating that the United States may not meet its pledges made in the 2015 Paris Agreement on climate change. While there is concern over the administration’s policy toward renewable power generation, it must be remembered that many states have standards mandating a significant mix of renewable sources of energy in their portfolios, including wind, solar and biomass.
As we have noted in our Monitor surveys, most manufacturers offer fully compliant coverage to employees as required by the Patient Protection and Affordable Care Act (ACA). Yet in my conversations with NAM members, most agree that there is room for improvement. Draft legislation for the American Health Care Act—the Republican plan to replace the ACA—was intended to shift the focus from mandates to incentives. However, as there was not enough support for the bill, a vote was not held. No changes have been made to the ACA and all of its provisions are still in effect. Employers and individuals must continue to comply with the ACA or face potential penalties.
Benefits and compensation for employees will doubtless be on the minds of manufacturers as the middle market is facing a tight labor market. Some businesses are facing significantly higher wage costs as the economy moves towards full employment and various industries compete for the same labor pool.
There is often said to be a so-called skills gap in the United States, which means manufacturing companies can’t find enough qualified workers to fill all their available jobs. But skills are only part of the workforce dilemma to attract and retain personnel. Millennials and, right behind them, Generation Z—in other words, the ones who will be replacing the boomers who are retiring—want jobs with a sense of purpose, interaction with their bosses and a highly collaborative environment, among other features. Investments in employee training, safety and employee engagement initiatives offer opportunities for positive returns benefitting both management and the workforce.
There is a call for creating a more reasonable regulatory environment, particularly for middle market manufacturers, who make up approximately 40 percent of U.S. gross domestic product. Currently, perhaps the biggest unknown is where the trade agreements and talks are headed. The administration has put a halt to participation in the Trans Pacific Partnership and indicated its intent to revisit NAFTA.
At the NAM meeting, many participants discussed the House Republican proposal for a destination-based tax—commonly referred to as a border adjustment tax—where income from goods and services are taxed based on where they are consumed, as opposed to where they are produced. If implemented, it would be the most significant change to the U.S. tax code since at least 1986.
What should you do?
We believe all manufacturers should closely examine these issues, quantify the potential negative or positive impact of any changes, formulate alternatives, and share their thoughts with their elected senators and representatives. You have a voice, and you should use it. As a member of the NAM board, I will certainly do my part to advocate for you and the industry.
We are committed to keeping you informed of these changes as they are debated, proposed and enacted. These are potentially the most sweeping changes to affect manufacturers and business in many years. Understanding them and reacting appropriately is the key.
2. Whoriskey, P. “Regulations an economic burden to manufacturers, report says” (Aug. 21, 2012) Washington Post