The Cutting Edge — December 2003

Public Policy

By John Satagaj, WMMA Legislative Counsel (email@jsatlaw.com)

Last month I wrote that I was waiting to see whether Congress would assist companies with domestic production capacity or continue to reward those with extensive foreign production. I thought for sure I would have an answer for you by now. Well, guess what? As only Congress can do, they have postponed a decision.

This is all about what tax benefits should be put in place to replace the Foreign Sales Corporation (FSC)/Extraterritorial Income (ETI) tax benefits. We have been reporting for months that Congress has been under the gun to repeal the FSC/ETI program because the World Trade Organization has ruled it to be an illegal subsidy and the European Union (EU) was poised to impose $4 billion worth of retaliatory tariffs on January 1, 2004. Congress has been locked in a bitter battle over what type of tax benefits should be enacted in place of the FSC/ETI. The battle has been particularly bitter in the House, pitting House Ways and Means Chairman Bill Thomas (R-CA) against House Small Business Chairman Don Manzullo (R-IL). Each version of the replacement bill "rewards" different manufacturing structures and philosophies. The Manzullo version seems to be more useful to WMMA members and their customers.

The reason I still do not have an answer for you is a simple one. The EU has given the Congress more time to procrastinate, indicating it will not impose sanctions until March 1, 2004. The good news is that it will allow us to make our voices heard. WMMA has announced February 11, 2004 as our public policy day in Washington for 2004. It will be the perfect time to influence the outcome of this particular debate. While I would have rather had this behind us, it does give us a chance to be in Washington when the pot is boiling. In recent years we have been knee deep in the ergonomics debate and the stimulus debates when we marched on the Hill!

In addition to this important tax debate, the WMMA Public Policy Committee has targeted a short list of priorities for our day in Washington. One item that would be beneficial to many WMMA members (and help you sell your machinery) would be to make the direct expensing increase permanent. Section 179 of the Internal Revenue Code allows businesses to expense (fully deduct from taxable income) a limited amount of the cost of new business equipment in a year. Under current law, businesses can expense up to $100,000 as long as they do not spend more than $400,000 for equipment in a taxable year. The higher expensing limit and the overall cap remain in place for 2004 and 2005, but would revert back to 2002 levels in 2006 if it is not made permanent

The Public Policy Committee has targeted two “cost of doing business in the United States” concerns. We need to get Congress focused on containing the costs of health care. As employers, you are running out of options to deal with those increases on your own. Private health insurance premiums increased 13.9 percent in 2003, the third consecutive year of double-digit increases, according to the 2003 Annual Employer Health Benefits Survey released by the Kaiser Family Foundation and Health Research and Educational Trust. This was also the largest increase since 1990.

WMMA’s other “cost of doing business in the U.S.” priority is tort reform, specifically enacting a federal statute of repose for our machinery. WMMA is seeking an 18-year limit on our product liability exposure.

The Committee placed one specific international competition issue on its plate. WMMA believes China needs to be convinced to allow its currency to float to its natural level in the world monetary system. China maintains an exchange rate system that is pegged to the U.S. dollar. Under this system, China's central bank issues a reference dollar/yuan exchange rate along with a limited band (about 0.3 percent) in which the reference rate is allowed to fluctuate. This system has been in place since 1994 at a peg of about 8.3. yuan to the U.S. dollar. There are some estimates that China's currency is significantly undervalued compared to the U.S. dollar by as much as 40 percent.

WMMA will once again have a full public policy plate in 2004. Since 2004 is both a presidential and congressional election year, the common consensus is that, if we are to be successful, we will need to act early in the year. By springtime, campaign priorities will slow the legislative process. WMMA’s Public Policy Committee has proven we can have an impact on the process. If you are interested in participating, please drop WMMA an email!

For last month’s article, “Tax Planning,” click here.

Members, to learn more about the Public Policy Committee activities, click here.