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Fiscal Cliff Avoided But Manufacturers Say Much More Should Be Done

Posted By David Brousell, January 02, 2013 at 2:10 PM, in Category: Industrial Policy

Congress may have avoided the so-called fiscal cliff when it comes to income taxes and a handful of other tax code provisions, but manufacturers say there is much more to be done in the coming weeks and months to get the nation’s financial house in order.

Chief among the pressing items on the continuing to-do list, say manufacturers, are federal spending decisions, especially with regard to entitlement programs such as Social Security and Medicare. In addition, a looming deadline on the U.S.debt ceiling will bring these issues into sharp relief once again.

In a statement, Jay Timmons, president and CEO of the National Association of Manufacturers, said that the nation’s fundamental fiscal issues were not addressed by the legislation passed on January 1.

“Our nation may have averted the fiscal cliff, but there is still much work to be done to address the country’s true fiscal problems,” Timmons said. “While the legislation passed by Congress contains some positive tax provisions for manufacturers, entitlement and wasteful government spending are not touched.

Apart from spending and entitlement program concerns, Congress also decided not to reverse a scheduled increase in the payroll tax that finances Social Security.The payroll tax will now rise by two percentage points, to 6.2%, from 4.2%, on all earned income up to $113,700, according to published reports.

This tax hike will directly affect the take-home pay of employees, a fact that has angered some manufacturing executives.

“This will hurt the wallets of everyone who works for me,” said Brad Heath, president and CEO of VirTex Assembly Services, Inc., an Austin, TX-based electronics contract manufacturer, and a member of the Board of Governors of the Manufacturing Leadership Council.

Heath said more than 100 VirTex production employees will see their payroll taxes rise by $40 to $50 per month, a significant amount for these workers.

Heath also said he was unhappy that Congress did not act on spending cuts, an issue that he believes will rear its head again as the debt ceiling debate gets under way. “I don’t mind paying more taxes if spending cuts accompany them,” he said.

The payroll tax increase also caught the attention of Val Zanchuk, president of Graphicast, Inc., a Jaffrey, NH, casting manufacturer.

“No one has said much about the payroll tax change,” said Zanchuk, a member of the Manufacturing Leadership Council, which last month {(issued a set of proposals to the Obama Administration and Congress) Saving Manufacturing from the Fiscal Cliff: Recommendations for Washington} on the fiscal cliff issue. “Many employees don’t even recognize the increase, but next week they will see a change. But I’m not sure that people will see payroll and income taxes as the same thing.”

Nevertheless, Zanchuk says that Graphicast employees, facing cost of living increases and a tough business environment, will feel the impact of the payroll tax increase.

Zanchuk also said that although some progress was made in the legislation passed by Congress—including establishing, through the new $400,000 household income threshold for income tax increases, “some boundaries” on who is a wealthy person—it is still going to be tough sledding in the weeks ahead to get the country’s fiscal condition in better order.

But he said it is essential that Congressional leaders make progress on fiscal issues so that businesses aren’t faced with continued uncertainty and can plan their futures.

“It will take several more sessions on the debt and spending to establish a base so that people can work toward something,” Zanchuk said.



Category: Industrial Policy
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Written by David Brousell

Global Vice President, General Manager and Editorial Director of the Manufacturing Leadership Council