eNews October 27, 2011

October 27, 2011



News Briefs

  1. House Votes to Repeal 3% Withholding Tax, Senate Battle Remains
  2. European Union Bolsters Bailout Fund, Negotiates Some Greek Debt Forgiveness in Crucial Talks
  3. President Signs Free Trade Agreements into Law
  4. Bellwether Manufacturing Index Foreshadows Hopeful Growth Period
  5. On Its First Anniversary, Congress Assesses Small Business Jobs Act
  6. A New Player Emerges in Trade Finger-Wagging at China over Trade

 

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House Votes to Repeal 3% Withholding Tax, Senate Battle Remains

The House of Representatives voted overwhelmingly to repeal an onerous tax provision carrying massive negative consequences for those with government contracts.

The House voted 405-16 on Thursday to repeal the 3% withholding tax, which is set to go into effect on government contracts in 2013 should the Senate fail to pass a full repeal. Earlier this month, the bill (H.R. 674) was approved by the House Ways and Means Committee by a voice vote, signaling that the legislation was non-controversial. More than half of the House chamber had signed onto the bill as cosponsors.

Challenges remain in the Senate, which most recently rejected a similar repeal measure introduced by Minority Leader Mitch McConnell (R-KY). Last week, McConnell moved to end debate on his bill, S. 1726, the Withholding Tax Relief Act of 2011, but the motion failed in a 57-43 vote. A movement for cloture, which ends discussion on a piece of legislation, ultimately requires three-fifths of the Senate, or at least 60 votes.

The Withholding Tax Relief Act was designed to be a carved out portion of President Barack Obama's jobs plan, the American Jobs Act. The failed cloture vote came along with another unsuccessful vote on a similarly isolated portion of the jobs bill, S. 1723, the Teacher and First Responder Stabilization Act, which would've given states money to hire or retain teachers, police, firefighters and other emergency responders.

Each vote fell along party lines, and was a purely political gesture. By carving out S. 1723 and forcing Republicans to vote on it, and reject it, Senate Democrats gained a talking point with which to hammer conservatives, arguing that they are unwilling to support tax increases for millionaires, even if those tax increases would help keep teachers and emergency responders employed. Similarly, McConnell's decision to isolate the 3% withholding repeal in S. 1726 gives Republicans a chance to portray Democrats, all but 10 of whom voted against the measure, as anti-business and to suggest that the entire party is committed more to taxes than economic growth.

Though the repeal's signature into law is still possible, it could become a victim of partisanship, and could either be watered down or rejected altogether by the Senate.

The 3% withholding tax was originally enacted as part of the Tax Increase Prevention and Reconciliation Act (TIPRA) of 2005. While its goal was to address the nation's tax gap, representing the annual $345 billion in taxes legally owed but left uncollected, the provision would ultimately do more harm than good, wreaking havoc on the cash flow of companies that do business with government entities.

NACM, long a vocal supporter of repealing the 3% withholding provisions, applauds the House vote and urges the Senate to follow suit. For more on NACM's fight to repeal this harmful withholding provision, click here.

Jacob Barron, CICP, NACM staff writer

Call for Nominations

Assist NACM in finding those who are worthy of recognition! Nominate your distinguished CBA, CBF and CCE colleagues, your favorite instructor or mentor, among others.

Find out more on NACM's Honors and Awards Program web page. Deadline for nominations is January 20, 2012.

Read the profile of a 2011 award recipient in the November/December issue of Business Credit, which features the first O.D. Glaus Credit Executive of Distinction. If your copy has not yet arrived, as an NACM member, you can login here to view the online version of this article and the entire November/December issue now!

European Union Bolsters Bailout Fund, Negotiates Some Greek Debt Forgiveness in Crucial Talks

The world was watching, and markets initially seemed at least partially pleased with plans by the European Union (EU) to address its growing debt problems among the PIIGS nations, especially Greece.

EU heads of state worked through a marathon session beginning on Wednesday, and into early Thursday, in Brussels to come up with plans to address problems revolving around crushing debts among several member nations. The first point agreed upon, as ratified by its 27-member states, was to force banks to set up higher capital ratios with the purpose of absorbing what are seen as unavoidable losses, notably from Greece, as nations' debt problems continue to grow. Banks, which had been required to hold a capital ratio of 5%, must raise the ratios to 9% by June 2012. This is seen as a way to create a cushion, in excess of 100 billion euros, for upcoming losses.

Also, in the interest of largely protecting the key economies of Italy and Spain from somewhat unlikely worst-case scenarios, the 17-member block of nations operating on the euro ratified plans to bolster the European Financial Stability Fund and pledged that it would be used for insurance and partial guarantees against losses going forward. It is anticipated this would help prevent bond markets from drying up to dangerous levels. It's worth noting the EU went out of its way to applaud the austerity and reform efforts in both Italy and Spain, as well as two nations that have already received bailouts (Ireland and Portugal).

Greece continues to be the biggest of the PIIGS problem to date, and the messiest to clean up. Seeing as how some level of default is nearly unavoidable in Greece, the EU came to an agreement, likely through considerable strong-arming, with financial institutions to accept up to 50% losses on Greek bonds. The EU, in accordance with the International Monetary Fund, also plans to increase the Greek bailout to upwards of 100 billion euro through 2014.

Though concerns were plentiful, including that banks forced to hold more capital may not be as willing to lend to businesses in anything but the highest borrowing category, there seemed to be at least a cautiously optimistic reaction to the EU's progress. Though the plan may not be finalized until December and could face bumps along the way, surges and rallies were seen in the bond markets of several PIIGS, and in the U.S. stock market and oil prices through the first few hours of business (EST) on Thursday.

Brian Shappell, NACM staff writer

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President Signs Free Trade Agreements into Law

President Barack Obama signed three free trade agreements (FTAs) with Panama, Colombia and South Korea into law last Friday. The three agreements had been pending since their original establishment during the Bush Administration.

Each FTA was enacted in its own bill, clearing the way for each to enter into force and make exporting to these three countries easier than ever. Including Panama, Colombia and South Korea, the U.S. has now negotiated FTAs with 20 nations.

The agreements could potentially generate a windfall for several industries and create several thousand new jobs. "We're eager for American businesses and workers to begin reaping the benefits of these hard-won agreements," said United States Trade Representative Ron Kirk following the President's signature. "We know that more exports of Made-In-America goods and services flowing to consumers and Korea, Colombia and Panama can support tens of thousands more jobs here at home. Supporting more American jobs with responsible trade policy has always been our goal."

Responses from Congress were also uniformly ecstatic over the passage of FTAs that were considered by many to be long overdue. "Today's signing of three jobs bills passed by Congress last week shows America is getting back in the game. Finally, we are sending a signal to our competitors and allies alike that the United States is committed to a robust trade agenda that levels the playing field for workers in Michigan and across America, consumers and businesses and creates new markets for our goods and services," said Rep. Dave Camp (R-MI), chairman of the House Ways and Means Committee. "But it's more than that—with 95% of consumers living outside of the United States, we have to move ahead with such agreements or else our competitors in Europe and Canada will seize these markets from us and from our workers."

"I commend the president for realizing that these trade agreements are a catalyst for creating hundreds of thousands of American jobs, something our economy desperately needs right now," he added.

Jacob Barron, CICP, NACM staff writer

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Bellwether Manufacturing Index Foreshadows Hopeful Growth Period

Recent months' talk of mixed conditions, outside of production related to the auto industry, and a slowing pace of expansion in the economy-carrying manufacturing sector could be giving way as a key regional report experiences a surprising bump.

The Philadelphia Federal Reserve bank reported last week that its monthly manufacturing activity/outlook index for October found growth in manufacturing activity at 8.7 points, the first positive showing in three months and significantly better than last month's -17.5. Also, the indicator of future activity, seen as key to the regional, and to some extent national, level of manufacturing business optimism, increased to a level of 27.2 in October from 21.4 the previous month. That index is now at its highest point in six months, said Philadelphia Fed contacts.

The gains are far from huge, and it's worth noting they are almost certainly more affected by a need for capital spending on the part of companies that already had pushed them back in the previous two or three years. Still, it at least stems the tide of declines, both in actual and psychological terms.

"This isn't the kind of news that sets hearts aflutter or anything like that, but it is the kind of news that puts aside some of the most pessimistic predictions about the next few months," said NACM Economist Chris Kuehl, PhD. "There is the sense that many manufacturers are seriously looking at expanding their capital investment." Also helping these decisions along at that end are ceding concerns over what banks would do in the uncertain face of reforms (Dodd-Frank) and signs of increasing consumer spending on consumer goods.

The Philadelphia news is particularly of note because it is one of the districts less dependent on automotive and other transportation-related industries. The Federal Reserve's Beige Book released last week, a region-by-region snapshot of conditions during a six-week period, intimated that manufacturing was increasing growth largely on the backs of auto/transportation needs, many of which were simply pent up from Japan's supply-line disruptions. The Fed characterized non-auto manufacturing as "mixed," with negative information coming out about several key industries in districts such as San Francisco and Dallas.

Still, the Philly Fed news doesn't assure anything even though some see its manufacturing index as a bellwether for much of the nation. A similar study last week out of Richmond found all manufacturing indicators moving into negative categories. Granted, the Beige Book painted Richmond's prospects as perhaps the most negative in the manufacturing/transportation category, outside of its port activity tied to commodities, and not necessarily indicative of the norm:

"Manufacturers of consumer products reported a softening in orders in Richmond...[contacts there] also indicated that imports and exports, in particular of consumer goods, were both somewhat soft during what is typically the peak season for trade."

Brian Shappell, NACM staff writer

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On Its First Anniversary, Congress Assesses Small Business Jobs Act

The Small Business Jobs Act of 2010 contained a multitude of provisions intended to stimulate the economy. It also carried a $30 billion price tag for perhaps its most notable measure, the establishment of the Small Business Lending Fund (SBLF), which was designed to incentivize banks to make loans to smaller companies.

A year after its enactment, however, both sides of the aisle, along with the still struggling American economy, have been left underwhelmed by the bill.

Both chambers of Congress took a deeper look at the Small Business Jobs Act and the SBLF recently, as the legislation celebrated its one-year anniversary. While Republicans seemed to consider the bill an abject failure, even Democrats seemed to wrestle with their opinions on the legislation, declaring the SBLF a minor success, albeit a qualified one.

"The Small Business Lending Fund (SBLF), a new and bold initiative, was a key element in the Small Business Jobs Act," said Sen. Mary Landrieu (D-LA), chair of the Senate Committee on Small Business and Entrepreneurship. "While it did not release as much as we had hoped, it was successful to a degree nonetheless. Under a barrage of criticisms and publicly declared obstructionism by the Senate Minority Leader and amidst confusing and false charges of a ‘TARP II,' this lending program was born. It is a wonder it survived it all, but it did."

Despite, as Landrieu noted, not delivering as much as originally hoped, some have suggested that Congress give the SBLF another chance and create a hopefully more successful sequel. "I intend to take the testimony given today as well as input from banks and small businesses to begin to develop Small Business Lending Fund II," Landrieu added. "Until this recession is at a distance in the rearview mirror, I believe that this committee has an obligation to turn out time-tested as well as new and innovative programs to get capital into the hands of small businesses throughout our country."

A second round for the SBLF seems unlikely, however, as the appetite for spending in the House seems to have hit an all-time low, not to mention the fact that the first SBLF is considered by most Republicans to have been a missed opportunity.

"During debate of the Small Business Jobs Act of 2010, [Treasury] Secretary [Timothy] Geithner and the Obama administration claimed that it would create 500,000 jobs through leveraging $300 billion of private sector lending," said Rep. Sam Graves (R-MO), chairman of the House Small Business Committee. "However, because of bureaucracy and red tape, that clearly has not happened. Only about $4 billion of the $30 billion SBLF was used before the program ended in September and, at the time of my committee's hearing in June, no funding had gone to any banks, nine months after the law's enactment. The performance of this program was atrocious; however, this shouldn't be a surprise. There were warning signs and red flags before the passage of this stimulus-like spending program, but it was rushed through just as many other bills were during the last session of Congress."

"Temporary quick-fix bursts of government spending will not solve our unemployment crisis and help our small businesses; instead, they need tax reform and relief from unnecessary regulations to bring about long-term certainty," Graves added, repeating the GOP's mantra as Congress continues to seek a means to create jobs.

Jacob Barron, CICP, NACM staff writer

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A New Player Emerges in Trade Finger-Wagging at China over Trade

The dangerous game U.S. lawmakers and businesses are playing with China on the issues of trade and currency policy, ones that perceivably give them unfair market advantages, took another step forward as a group of solar energy product manufacturers have fired a proverbial shot across the Chinese bow.

Stung by a steep downturn caused as much by foreign competition as domestic saturation and economic malaise at home, a group of solar product manufacturers has filed a formal petition asking for significant duties/tariffs on Chinese-made imports of such products. The Coalition for American Solar Manufacturing, comprised of more than a half-dozen U.S.-based firms and led by SolarWorld Industries America Inc., alleges that China has been offering its producers illegal subsides and its companies are "dumping" products in the United States, selling them at artificially low prices to undercut producers here.

The filing has generated at least some interest from the U.S. Department of the U.S. Commerce and International Trade Commission. It comes in the same month as a hot, renewed push by the U.S. Senate on a proposed bill to demand the Chinese government allow its perceived artificially low currency value appreciate to appropriate, accurate levels. The perceived undervalued currency provides what many see as a massive trade advantage over its partners.

Chinese government and solar manufacturing officials denounced the move, with talk similar to that following the proposed Senate bill. Parties bandied about words like "protectionism" and argued the move could hurt both trade relations and the entire solar/alternative energy movement itself.

The highly-publicized coalition filing comes on the heels of massive struggles on the part of U.S. solar product manufacturers. Stirling Energy Systems Inc. is the most recent to file for Chapter 7 protection in U.S. Bankruptcy Court in Delaware. It followed previous filings by SpectraWatt Inc., Evergreen Solar and recently controversial Solyndra, a firm with ties to the Obama Administration reportedly being investigated federally for fraudulent business practices. Months before, BP Solar halted its Maryland-based operation in favor of relocation abroad. The common theme outlined by all five solar operators was that they can no longer compete with Asian producers which are undercutting them so drastically on pricing and costs.

Brian Shappell, NACM staff writer

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