December 11th, 2008
From FMA’s “Fabrinomics Dec 10th issue…
There are many details to be developed before this plan is ready for implementation, and the whole process will not get under way in earnest until the Obama term actually starts in January, but there are clues that can be deciphered at this point.
There are two main thrusts of the program. The first relates to creating jobs as a means of stimulating the economy. The second relates to positioning the plan as an investment, as opposed to some form of economy-wide bailout or welfare plan. Phase one will place the emphasis on something that will have an impact in the first couple of quarters. The talk is of pushing projects that can begin immediately, as long as there is funding. This places emphasis on construction projects tied to infrastructure needs. This could include everything from roads and bridges to retrofitting federal facilities to improve fuel efficiency.
The longer-term play is more diverse and it is not at all clear that it will be funded - it all depends on how fast the economy reacts to the first attempts to stimulate. The second phase involves some longer-term construction projects like the expansion of the interstate highway system, building new high-speed railroads, constructing new “green” energy production facilities, and so on. Most of this is pretty extreme and unlikely to win approval from a Congress already set to blow the federal deficit into orbit.
There are implications for manufacturing in all the efforts from Congress these days. The decision to keep the auto industry afloat for another few months is good news for those who are producing parts for the Big Three, as well as for the companies themselves. The emphasis on public works will mean a boon for those who build construction equipment and for the producers of the equipment used in highways and bridge work. There are some areas that will get more attention in this administration than in past. Alternate energy is at the top of the list - good news for a sector already rapidly expanding.
Much of what has gone before in terms of economic stimulus has been rooted in monetary policy and the need to unlock credit markets. The notion has been that the credit crisis had to be broken before anything substantial would change. All the emphasis was on bailing out banks and other financial institutions in order to get them back in the lending game. Some of that activity has been noted, but the rapidity of the response has been less than overwhelming. Now it is the turn of the fiscal plans - based on getting money directly into the economy and promoting job growth. This is the idea behind the auto bailout and the stimulus.
December 11th, 2008
[WASHINGTON] Congressman Don Manzullo (R-IL) voted last night for legislation to stem the bleeding in the American auto industry and give Chrysler, GM and Ford time to restructure without burdening taxpayers with additional liability. The House passed the bill 237 to 170. It heads to the Senate for a vote later this week. The President has indicated he will sign it into law.
The legislation is not a bailout because it merely allows the Big 3 to tap into funds that were previously approved for their industry. NO NEW TAXPAYER DOLLARS ARE INVOLVED. Two months ago, Congress approved legislation allowing the U.S. auto industry to seek government loans up to $25 billion to help cover the cost of retooling their factories to meet the higher fuel economy standards mandated by Congress in the Energy Bill a year ago. Today’s legislation tweaks that bill to allow the Big 3 to use up to $14 billion of those previously approved loans for general operating expenses to stem the bleeding so they have time to restructure and again thrive.
In addition, Manzullo will continue to call for a vote on legislation to increase the demand side of the problem and encourage Americans to start buying cars again. Manzullo co-sponsored a bill – HR 7273 – that would allow Americans an income tax deduction on the sales tax and interest they pay on a new car. This would provide a $1,300 tax benefit on the purchase of a new $25,000 car. He is also considering a straight tax credit on the purchase of a new or used vehicle (if we offer a tax incentive to promote new car sales, we must also offer a tax incentive – albeit smaller – for used cars or the dealerships will be flooded with unsellable used cars).
“This legislation will allow Chrysler, GM and Ford to tap into previously approved money to stem the bleeding and restructure without putting further taxpayer dollars at risk,” said Manzullo, a member of the House Financial Services Committee who has questioned the Big 3 CEOs twice. Last week, Chrysler CEO Robert Nardelli testified that without this package, Chrysler could face bankruptcy and possibly liquidation after January 1, 2009. “I’m concerned about the 2,600 people who work at Chrysler’s Belvidere Assembly Plant and the thousands more who work at auto dealerships and auto suppliers in northern Illinois. With auto sales down 30 to 50 percent for each of the Big 3 last month, we must also consider offering tax credits or other incentives to encourage Americans to buy cars again.”
Manzullo supports several other free-market strategies to help American automakers, including:
- Accelerating the domestic manufacturing tax deduction Manzullo authored in 2004 to dramatically reduce taxes on the Big 3 and other American manufacturers. The acceleration would give U.S. manufacturers and extra 3 percent tax rate reduction retroactive to Jan. 1, 2008 on all of the product they manufacture in America.
- Allowing companies to repatriate their overseas profits back to the United States tax free for one year if the money is used to pay off distressed debt or support business expansion or job creation.
- Suspending the capital gains and “recapture taxes” for two years to encourage Americans to invest in America and encourage corporations to sell unwanted assets and acquire the capital they need to sustain and create jobs.
- Allowing companies to carry-back losses an additional two years, generating a tax refund and immediate capital.
- Directing the Securities and Exchange Commission to suspend the mark-to-market regulatory rules until the agency can issue new guidelines that will allow firms to mark these assets to their true economic value.
- Reducing the corporate tax rate from 35 to 15 percent.
- Ensuring unusually high pension funding requirements do not destroy America’s automakers in these troubled economic times.
