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Health Reform Change will Help Massachusetts Employers

Posted by Katie Holahan on Oct 2, 2015 1:21:00 PM

A rare show of bipartisanship in Congress appears likely to give Massachusetts the ability to sidestep a provision of federal health reform that threatened to boost premiums for companies with 51-100 employees.

USCapitol1The House of Representatives and Senate this week passed by voice votes a bill that would amend a provision of Obamacare forcing those employers into the merged health-insurance market for small companies and individuals. The shift would have raised rates for many employers with payrolls of 51 to 100 because they would subject to more stringent actuarial value, cost sharing and essential health benefit requirements, as well as state rating rules that have not applied to them.

Instead, the Protecting Affordable Coverage for Employees (PACE) Act will continue to classify 51-100 employee companies as large employers unless states decide to treat them differently.

The White House indicates that President Barack Obama plans to sign the bill.

“The opportunity for Massachusetts to maintain the current health-insurance rating system for employers with 51 to 100 workers is great news for the state economy at a time when health costs appear to be accelerating,” said Richard C. Lord, President and Chief Executive Office of Associated Industries of Massachusetts.

“The PACE Act promises to provide predictability and benefit-plan flexibility for employers moving forward.”

AIM has been pressing for more than a year for regulatory or legislative relief from the expansion of the small-group market. The federal government in August approved a transition period allowing the 51-100 companies to buy insurance under current rating system until October 1, 2016, instead of the January 1, 2016 date established by the Affordable Care Act.

The cost of health insurance is already showing signs of accelerating for small employers after several years of moderate increases. The Massachusetts Division of Insurance has approved premium increases averaging 6.3 percent for the first quarter of 2016 for companies with 1 to 50 employees. That’s more than double the 3.1 percent average increase that small business saw in the first quarter of this year.

PACE "is a smart health care bill aimed at protecting workers’ benefits, lowering premiums and reducing costs to taxpayers,” Senate Majority Leader Mitch McConnell, R-Ky., said after clearing the bill.

Jeanne Shaheen of New Hampshire, the Senate bill’s lead Democratic sponsor, also applauded the move in a statement. “While the Affordable Care Act continues to divide Congress, today we’ve made real progress towards improving this law,” she said.

AIM continues to lobby for the same sort of state flexibility on a separate provision of federal health reform affecting rates for smaller employers. Massachusetts has for many years used 11 rating factors in its merged individual and small-business health insurance market, but federal health reform is phasing that number down to four, a change that is adding significant turbulence to the small-group health market.

Topics: Health Care Reform, Health Care Costs, U.S. Congress

Trade Vote Benefits Massachusetts Economy

Posted by Kristen Rupert on Jun 25, 2015 3:52:27 PM

Weeks of heart-stopping twists and turns in the debate over international trade agreements finally appear to have ended in Washington with a big boost for international commerce.

USCapitolYesterday, the U.S. Senate agreed on a bill to give the president "Fast-Track" authority for international trade deals.  The House of Representatives had already approved the bill. Also called "Trade Promotion Authority," or TPA, this legislation gives the president the power to ask Congress for a simple Yes or No vote when US-negotiated international trade agreements are presented for approval. No amendments or filibusters are permitted. 

The measure brings the United States a big step closer to concluding negotiations for the TPP, or Trans-Pacific Partnership, which involves 12 Pacific Rim countries representing 40 percent of the world's economic output. With China's influence expanding significantly, the U.S. and its longtime strategic partners in the Asia-Pacific region are seeking to finalize the deal promptly.

Meanwhile, the US is negotiating another large trade deal called TTIP, or Transatlantic Trade & Investment Partnership, with the European Union, although those negotiations will not conclude for several years.

Why does trade matter?

We live in a global world.  For centuries, Massachusetts companies have manufactured products and sold them in global markets.  In the next decade, millions of people in Latin America, Asia, Africa and the Middle East will enter the middle class.  Families from these emerging economies are purchasing consumer goods, paying for health care, and opening bank accounts.

The rising demand for US-made products and services gives Massachusetts companies an excellent opportunity to increase exports and expand jobs at home.  Bay State firms producing semiconductors, plastic containers, molding equipment, medical devices, software, pharmaceuticals, foodstuffs and financial services are already benefiting from globalization, and the trend is expected to continue.

Trade agreements remove economic barriers. The US currently maintains 20 such agreements with countries as varied as Morocco, Australia, Israel and Singapore, in addition to the North American Free Trade Agreement (NAFTA) with Canada and Mexico.

Making trade easier involves lowering or eliminating tariffs, streamlining regulations, standardizing testing and labeling requirements, easing restrictions, protecting intellectual property and workers' rights, and ensuring environmental protection.  All these issues are components of the two massive trade deals in which the US is engaged. 

Massachusetts companies exported more than $27 billion in commodities to world markets last year. Exports are a key driver of the Massachusetts economy, and trade agreements such as the TPP and TTIP will benefit Massachusetts employers in a variety of industry sectors and ultimately lead to more international trade. This week's Trade Promotion Authority bill, which President Obama is expected to sign shortly, is an important step in furthering free and fair trade.

Topics: International Trade, Massachusetts economy, U.S. Congress

Governor Baker Joins Effort to Re-Authorize Export-Import Bank

Posted by Brian Gilmore on Feb 23, 2015 9:09:00 AM

Charlie Baker has joined a bipartisan group of governors asking Congress to re-authorize the United States Export-Import Bank before its charter expires on June 30.

USCapitol1Associated Industries of Massachusetts, meanwhile, is dispatching its top international trade executive to Washington this week to meet with the Bay State Congressional delegation about extending the life of the 80-year-old lending institution. Kristen Rupert, Executive Director of the AIM International Business Council, is expected to tell lawmakers that Export-Import is an indispensable tool for smaller and medium-sized companies looking to expand markets overseas.

Reauthorization faces significant opposition from Congressional conservatives, who argue that the bank is putting taxpayer money at risk for a purpose better addressed by the private sector.

The Export-Import Bank helps American exporters sell abroad by offering low-cost loans, insurance and guarantees against potential losses. The bank authorized $27 billion in credit during 2013 to support an estimated $37.4 billion in U.S. export sales while returning $1.06 billion in interest and fees to the Treasury.

In Massachusetts, small businesses in industry sectors as varied as food, textiles, software, plastics, machinery, chemicals, jewelry and paper have benefitted from Export-Import Bank financing during the past few years. Bay State firms report that export growth translates directly to job growth. 

Baker is among some 30 governors to sign the letter to House Speaker John A. Boehner, House Minority Leader Nancy Pelosi, Senate Majority Leader Mitch McConnell and Minority Leader Harry Reid. Former Governor Deval Patrick signed a similar letter last year.

“As governors of states whose economies and workforces depend on exports, we strongly urge you to support legislation that provides for the long-term reauthorization of the U.S. Export-Import Bank (Ex-Im Bank) before its charter expires on June 30, 2015. The Ex-Im Bank is a crucial tool that both small and large businesses use to compete fairly in the world market, increase their exports, stimulate job creation, and contribute to the growth of our states’ economies,” governors’ letter reads.

“As the official export credit agency of the United States, the Ex-Im Bank assumes the credit and country risks that private sector lenders are unable or unwilling to accept, and without it, U.S. firms would lose many sales to overseas competitors. The Ex-Im Bank allows our companies and workers to compete on a level playing field against international competitors who receive extensive support from their own export credit agencies.”

The Ex-Im Bank helped 3,413 small companies across the nation start or expand their export business last year. In the Bay State, 57 exporters, most classified as small businesses, received assistance from the bank to facilitate more than $749 million in exports.      

 

Topics: International Trade, U.S. Congress

AIM Members See Limited Consequences from Sequester

Posted by Andre Mayer on Apr 12, 2013 11:06:00 AM

What do AIM members expect from the sequester?

SequestrationThe mandated reductions in federal spending, divided between defense and non-defense accounts, which took effect in March will of course be felt directly by some government contractors. Other employers may suffer some consequences as a result of reductions in certain services, such a federally-funded workforce development programs.

Many economists have been concerned about macroeconomic effects – a slowdown in overall growth because of reduced federal spending – although the prospective increase in tax rates, largely averted, was considered the more dangerous part of the 'fiscal cliff.' And a substantial body of opinion holds that the cuts won't hurt (or not much) in the short run, and will be beneficial in the longer term.

Member responses to a special question on AIM's March Business Confidence Survey indicate that the direct impact of the spending cuts is limited – only 3 percent of respondents cited direct effects (which they are already feeling).  A plurality of respondents, 57 percent expected indirect negative effects; and 40 percent did not foresee negative effects from sequestration.

Responses from manufacturers and from employers in other sectors were virtually identical; but there were clear differences by size. All of the companies reporting direct impact were in the medium size range (the respondents did not happen to include large defense contractors or healthcare/research institutions).  The small and medium-size groups otherwise responded similarly, with slightly more expecting negative effects than discounting them. Among larger employers, by contrast, more than three out of four (76 percent) expected negative indirect effects from the spending cuts.

These results are generally in line with past surveys showing small employers most concerned about government spending while larger ones are more likely to value government programs.

On this evidence, direct benefits (contracts) do not appear to be a major factor; but it is not clear to what extent the divergence is an effect of, for example, different tax situations, ability to access programs, or simply varying political and economic views. The balance of responses does hint at why fiscal issues, at least on the spending side, may be challenging for business organizations.

Topics: Budget, Issues, U.S. Congress

Time for Congress to Ensure an Efficient Workforce Training System

Posted by Andre Mayer on Mar 19, 2013 3:42:00 PM

With the “skills gap” much in the news, the Workforce Investment Act of 1998 (WIA) is up for reauthorization – again.  The law structures our nation’s workforce development system and was responsible for creating local employer-led workforce investment boards (WIBs) and one-stop career centers across the country.

Wrokforce TrainingReauthorization was due in 2003, but never happened. The decade-long partisan deadlock, on an eminently negotiable issue of great concern to both employers and job seekers, stands as a symbol of what’s wrong in Washington.  

The U.S. House of Representatives last Friday passed the Supporting Knowledge and Investing in Lifelong Skills (SKILLS) Act, a Republican bill that would consolidate or eliminate 35 federally-funded job training programs and increase employer influence in the workforce development system. (A Democratic alternative, introduced by Rep. John Tierney, D-MA, and two co-sponsors, was defeated on a party-line vote.)

The SKILLS Act, which would also freeze spending levels on the programs for seven years, prevailed by a 215-202 vote, reflecting something short of solid GOP support. It is unlikely to fare  well in the Democratic-majority Senate.

Apart from the funding freeze, the SKILLS bill has two controversial aspects. First, Republicans argue that the program consolidation would make the system more effective and efficient. Democrats cannot deny this, but charge that elimination of categorical grants would mean abandonment of targeted services for such groups as veterans, ex-offenders and at-risk youth.

Second, Republicans want to increase employer representation on workforce investment boards from 51 percent to two-thirds, to make them responsive to actual employment opportunities. Democrats counter that this would “lock out” unions, community-based organizations, and community colleges from influence.

As someone who has been involved in workforce development issues for more than three decades (two-thirds of that time with AIM), and who serves on the board of a WIB, I have mixed feelings.

There is no doubt that program consolidation could be a good thing. A 2011 Government Accountability Office report found that there are 47 federally administered training programs (some not under WIA) and that almost every one duplicated others. President Obama wants to "cut through the maze of confusing the programs" to make the system more accessible to job-seekers.

Employers complain that categorical programs, targeting specific populations, force them to discriminate among people who are equal in the workplace. WIBs and training providers must sacrifice efficiency of service delivery to carefully balance their clientele, and are precluded from reallocating resources as needed. Those who seek training find the over-complex system discouraging. I do not doubt that (as the Republicans insist) groups in need would continue to receive services without categorical grants, and that the overall system would be improved.

On the question of employer representation on WIBs, my experience suggests that both sides are wrong. A change in the balance of WIBs would not “lock out” labor, CBOs and community colleges – all of which, by the way, make important contributions. On the other hand, WIBs are not, in my view, doing a bad job of identifying needs and opportunities. The problem is how to respond. While the workforce development system as a whole is moving towards greater engagement with real workplace needs – notable progress is being made, for example, in adult basic education, and the recent community college reforms are promising – stronger employer involvement on the program delivery side would make much more difference than WIB super-majorities. And, at least here in Massachusetts, it hasn't been easy to maintain even the currently required simple majority of employers on these boards

Reauthorization of the outdated Workforce Investment Act, with or without a clever acronym, would be a good thing.  Consolidating programs to make the system more flexible, efficient and transparent would be a big step forward – for employers, service providers and job-seekers.  Letting reauthorization stall (for another 10 years?) over partisan issues that do not even reflect the concerns of supposed constituent groups would be simply irresponsible.

 

Topics: Business Center, U.S. Congress, Training

What Will the Fiscal Cliff Agreement Mean to Employers?

Posted by Brad MacDougall on Jan 3, 2013 2:05:00 PM

The American Taxpayer Relief Act of 2012 signed yesterday by President Barack Obama contains broad business tax provisions that will affect virtually every employer in Massachusetts. The so-called “fiscal cliff deal” extends 31 business tax breaks and 12 energy tax breaks while partially extending current tax brackets.

TaxThe bill does not, however, extend the temporary payroll-tax rate reduction, a policy sure to engender significant conversation between employees and their HR departments when the first paychecks of 2013 are issued.

Here is a summary of provisions of interest to business owners and managers:

Tax credit for research and experimentation expenses.  The bill extends for two years, through 2013, the research tax credit equal to 20 percent of the amount by which a taxpayer’s qualified research expenses for a taxable year exceed its base amount for that year and provides an alternative simplified credit of 14 percent.  The bill also modifies rules for taxpayers under common control and rules for computing the credit when a portion of a trade or business changes hands.

Work opportunity tax credit.  This bill extends for two years, through 2013, the provision that allows businesses to claim a work opportunity tax credit equal to 40 percent of the first $6,000 of wages paid to new hires of one of eight targeted groups.   These groups include members of families receiving benefits under the Temporary Assistance to Needy Families (TANF) program, qualified ex-felons, designated community residents, vocational rehabilitation referrals, qualified summer youth employees, qualified food and nutrition recipients, qualified SSI recipients, and long-term family assistance recipients.

15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements.  The bill extends for two years, through 2013, the temporary 15-year cost recovery period for certain leasehold, restaurant, and retail improvements, and new restaurant buildings, which are placed in service before January 1, 2014. The extension is effective for qualified property placed in service after December 31, 2011.

Bonus depreciation.  Under current law, businesses are allowed to recover the cost of capital expenditures over time according to a depreciation schedule.  For 2008 through 2010, Congress allowed businesses to take an additional depreciation deduction allowance equal to 50 percent of the cost of the depreciable property.  Federal law expanded this provision to allow 100 percent bonus depreciation for investments placed in service after September 8, 2010 and before 2012 and 50 percent bonus depreciation for investments placed in service during 2012.  This provision would extend the current 50 percent expensing provision for qualifying property purchased and placed in service before January 1, 2014 (before January 1, 2015 for certain longer-lived and transportation assets) and also allow taxpayers to elect to accelerate some AMT credits in lieu of bonus depreciation.  This provision also decouples bonus deprecation from allocation of contract costs under the percentage of completion accounting method rules for assets with a depreciable life of seven years or less that are placed in service in 2013. For regulated utilities, the provision clarifies that it is a violation of the normalization rules to assume a bonus depreciation benefit for ratemaking purposes when a utility has elected not to take bonus depreciation.

9% Credit Rate Freeze for the Low-Income Housing Tax Credit Program.  The low-income housing tax credit program provides a tax credit over a period of ten years after the housing facility is placed-in-service.  The credit provided each year is determined by present-value formula based on the federal cost of borrowing.  Over the past few years, as the federal cost of borrowing has declined, so has the amount of tax credits that can be used to build a LIHTC project.  To deal with this, in 2008, Congress adjusted the formula and set a minimum credit amount of 9%, which is based on the original credit rate when the program was created.  The provision is effective for facilities placed-in-service before December 31, 2013.  This proposal would extend the expiration date by changing the deadline to projects that have received an allocation before January 1, 2014.

New Markets Tax Credit.  Through the New Markets Tax Credit (NMTC) program, the federal government is able to leverage federal tax credits to encourage significant private investment in businesses in low-income communities. The program provides a 39 percent tax credit spread over seven years.  The bill extends for two years the new markets tax credit, permitting a maximum annual amount of qualified equity investments of $3.5 billion each year.

Employer wage credit for activated military reservists.  The bill extends for two years, through 2013, the provision that provides eligible small business employers with a credit against the employer’s income tax liability for a taxable year in an amount equal to 20 percent of the sum of differential wage payments to activated military reservists.

Returning Heroes and Wounded Warriors Work Opportunity Tax Credits. Currently businesses are allowed to claim a work opportunity tax credit (WOTC) for hiring qualified veterans in the following targeted groups and up to the following credit amounts:

  • Veterans in a family receiving supplemental nutrition assistance:  $2,400
  • Short-term unemployed veterans:  $2,400
  • Service-related disabled veterans discharged from active duty within a year:  $4,800
  • Long-term unemployed veterans:  $5,600
  • Long-term unemployed service-related disabled veterans: $9,600

A credit against Social Security taxes is also available to tax-exempt employers. Transfers are made from general revenues to make the Social Security trust fund whole.  The provision expires on December 31, 2012.  The proposal would extend these credits for an additional year, though 2013. 

Temporarily extend increase in the maximum amount and phase-out threshold under section 179. Under current law, a taxpayer with a sufficiently small amount of annual investment may elect to deduct the cost of certain property placed in service for the year rather than depreciate those costs over time.  The 2003 tax cuts temporarily increased the maximum dollar amount that may be deducted from $25,000 to $100,000.  The tax cuts also increased the phase-out amount from $200,000 to $400,000.  These amounts have been further modified and extended several times on a temporary basis, increasing up to a high of $500,000 and $2 million respectively for taxable years beginning in 2010 and 2011, and then to $125,000 and $500,000 respectively for taxable years beginning in 2012, before reverting to the permanent amounts of $25,000 and $200,000 respectively for taxable years beginning in 2013 and thereafter. The modified proposal would increase the maximum amount and phase-out threshold in 2012 and 2013 to the levels in effect in 2010 and 2011 ($500,000 and $2 million respectively). Within those thresholds, the proposal would also allow a taxpayer to expense up to $250,000 of the cost of qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property. This proposal expires at the end of 2013 and the amounts revert to $25,000 and $200,000, respectively.

Treatment of certain dividends of regulated investment companies (RIC’s).  The bill extends a provision allowing a RIC, under certain circumstances, to designate all or a portion of a dividend as an “interest-related dividend,” by written notice mailed to its shareholders not later than 60 days after the close of its taxable year. In addition, an interest-related dividend received by a foreign person generally is exempt from U.S. gross-basis tax under sections 871(a), 881, 1441 and 1442 of the Code. The proposal extends the treatment of interest-related dividends and short-term capital gain dividends received from a RIC to taxable years of the RIC beginning before January 1, 2014.

Look-through treatment of payments between related controlled foreign corporations under the foreign personal holding company rules.  The bill allows deferral for certain payments (interest, dividends, rents and royalties) between commonly controlled foreign corporations (CFC).  This provision allows U.S. taxpayers to deploy capital from one CFC to another without triggering U.S. tax. The proposal extends present law to the end of 2013.  The proposal is effective for tax years beginning after December 31, 2011.

Special rules for qualified small business stock.  Generally, non-corporate taxpayers may exclude 50 percent of the gain from the sale of certain small business stock acquired at original issue and held for more than five years. For stock acquired after February 17, 2009 and on or before September 27, 2010, the exclusion is increased to 75 percent. For stock acquired after September 27, 2010 and before January 1, 2012, the exclusion is 100 percent and the AMT preference item attributable for the sale is eliminated. Qualifying small business stock is from a C corporation whose gross assets do not exceed $50 million (including the proceeds received from the issuance of the stock) and who meets a specific active business requirement. The amount of gain eligible for the exclusion is limited to the greater of ten times the taxpayer’s basis in the stock or $10 million of gain from stock in that corporation. The provision extends the 100 percent exclusion of the gain from the sale of qualifying small business stock that is acquired before January 1, 2014 and held for more than five years. The bill also clarifies that in the case of stock acquired after February 17, 2009, and before January 1, 2014, the date of acquisition for purposes of determining the percentage exclusion is the date the holding period for the stock begins.

Reduction in S corporation recognition period for built-in gains tax.  If a taxable corporation converts into an S corporation, the conversion is not a taxable event. However, following such a conversion, an S corporation must hold its assets for a certain period in order to avoid a tax on any built-in gains that existed at the time of the conversion. The American Recovery and Reinvestment Act reduced that period from 10 years to seven years for sales of assets in 2009 and 2010.  The Small Business Jobs Act reduced that period to five years for sales of assets in 2011.  The bill extends the reduced five-year holding period for sales occurring in 2012 and 2013.  In addition, this bill clarifies rules for carryforwards and installment sales.

Empowerment zone tax incentives.  The bill extends for two years the designation of certain economically depressed census tracts as Empowerment Zones. Businesses and individual residents within Empowerment Zones are eligible for special tax incentives.

Payroll Tax Increase

The end of the payroll tax reduction creates employee-relations challenges for companies.

Effective January 1, employers should withhold 6.2 percent for employee Federal Insurance Contribution Act (FICA) contributions.  The payroll tax has increased to its previous rate of 6.2%.  In recent years, employees experienced a lower rate of 4.2% and therefore greater take home pay as a result of the temporary 2% decrease in employee contributions to FICA.  The Congressional Budget Office reports that the payroll tax increase will raise $95 billion.

Important for employers & employees:

  • Your next payroll and paycheck - Employers may want to consider communicating to employees that their next paycheck will be lower as a result of the payroll tax increase. The Tax Policy Center in Washington, D.C., reports that 80 percent of households with incomes between $50,000 and $200,000 will pay higher taxes.   Among the households facing higher taxes, the average increase would be $1,635.  Individuals can estimate how much more in FICA taxes they will pay in the new year by using this calculator.
  • Payroll accuracy and treble damages - For Massachusetts employers especially, accurate payroll accounting is vital given that state law mandates treble damages for any violation of wage and hour violations, event for honest mistakes.

Topics: Barack Obama, Issues, U.S. Congress, Taxes

Normalization of Trade with Russia will Help Massachusetts Exporters

Posted by Kristen Rupert on Dec 13, 2012 10:24:00 AM

Approval by Congress of Permanent Normal Trade Relations (PNTR) with Russia will create new market opportunities for companies in Massachusetts that have already boosted exports to Russia by 30 percent this year.

International TradeThe U.S. Senate approved PNTR status for Russia by a 92-4 last week. Senator John Kerry and Senator Scott Brown of Massachusetts both voted in favor of the measure.  The US House of Representatives voted 365-3 to approve the same legislation in November as seven members of the Massachusetts delgation voted in favor: Barney Frank, Stephen Lynch, Edward Markey, James McGovern, Richard Neal, John Olver and Nicola Tsongas.

PNTR will enable U.S. businesses to compete for a greater share of trade with Russia.  President Barack Obama is expected sign the legislation into law this month. 

The increased flow of Massachusetts-made products to Russia comes as that nation’s growing middle class presents a strong economic opportunity for US exporters.  Russia is now the world’s ninth largest market.

Russia became a member of the World Trade Organization in August.  In order to join the WTO, Russia was obligated to make reforms to protect intellectual property, prevent arbitrary imposition of trade barriers, and strengthen compliance with “rule of law.”  With these economic reforms now underway, and with the Russian market becoming more open to trade from western nations, the timing is right for Bay State employers to explore increasing trade with Russia.

Trade is a key economic factor for U.S. growth and jobs.  The 112th Congress has already demonstrated its commitment to strengthening the U.S. trade position with passage of legislation to re-authorize the Export-Import Bank and with approval of Free Trade Agreements with Korea, Colombia and Panama.  The Russia PNTR legislation completes the set of trade accomplishments by this Congress.

Topics: International Trade, Issues, U.S. Congress

Congress, President Must Act to Avoid 'Fiscal Cliff'

Posted by Rick Lord on Aug 8, 2012 11:10:00 AM

If you’re wondering what the looming “fiscal cliff” will mean to Massachusetts, think the ending of the 1991 Ridley Scott movie Thelma and Louise - with Congress taking Massachusetts along for the ride it as it drives into the economic abyss.

Fiscal CliffFailure by Congress and President Barack Obama to reach agreement on reducing the federal deficit will cost Massachusetts thousands of high-skill jobs in key industries such as health, education, research and defense. Associated Industries of Massachusetts and its thousands of member employers wish to tell federal policymakers in the strongest possible terms that such a scenario cannot be allowed to happen.

Under the Budget Control Act of 2011, Congress must act by January 2, 2013 to reduce the federal deficit, or automatic budget cuts (“sequestration”) will impose immediate, drastic reductions on both defense and non-defense spending, amounting to $1.2 trillion over 10 years.  The first-year cuts are $54.7 billion on each side of the ledger - a 10 percent reduction on defense spending and an average 8 percent reduction on most other discretionary accounts, including Medicare and Medicaid reimbursements.  

Sequestration, put in place in a failed attempt to force resolution of budget issues last year, is just part of the “fiscal cliff” before us in 2013 – we also face the expiration of extensive tax reductions initially enacted under President Bush, and of the employee payroll tax cuts included in President Obama’s stimulus package.  All of these will take effect automatically if Congress does not act.

The budget cuts and tax increases will go a long way towards eliminating the budget deficit.  But they will also bring an end to the already weak economic expansion we have been experiencing. Economic forecasts suggest that sequestration alone would push the nation into recession and raise unemployment by two percentage points. 

Massachusetts sits about in the middle among the states in terms of the projected impact of sequestration – but important sectors of our economy would suffer extreme disruption from the federal budget cuts, on both the defense and the non-defense sides.

Our state ranks fifth in Defense/Homeland Security contracts, with almost $14 billion in contracts, 2,500 contractors, and 130,000 jobs.  Our largest employment sector is health and education - we rank third in National Science Foundation funding and second in National Institutes of Health grants. The hardest-hit employment sector nationally would be research and development, which is the core of our economy on both sides of the defense/non-defense line.

AIM’s perspective on the federal fiscal crisis is a product of its non-partisan position and of the breadth of its membership, which includes employers in every sector of the economy. The key components of our view may be summarized as follows:

  • The ongoing political deadlock over federal finances is itself having a serious impact on business confidence, evident in AIM’s own Business Confidence Index and in national studies. Inaction in Washington, and the impending crisis created in a failed attempt to force action, is a principal source of the uncertainty that is depressing job creation and investment in the private-sector economy.
  • Whatever resolution is eventually achieved will have enormous implications for the business climate across all industries nationally, and perhaps especially for economic activity in Massachusetts.
  • To frame the choices before us as basically between defense spending on the one hand and expenditures on domestic programs on the other is to continue to evade decisions that are difficult, complex, and ultimately unavoidable.
  • Attaining long-term federal fiscal balance will require discipline with regard to spending and revenues, and economic growth that will make manageable for our children and grandchildren the massive public debt accumulated over the past generation.
  • A primary component of any long-term program to achieve fiscal balance must be control of health care costs, which push up the pricetag of all federal programs and pose the principal threat to the viability of entitlement programs (notably Medicare). The fact that all businesses, as well as state and local governments, bear similar burdens makes this the number-one issue for AIM and its members.
  • Our state should be treated fairly in this process, bearing in mind that we depend heavily on both defense and non-defense expenditures – and that (unlike many states) we nevertheless pay significantly more into the federal treasury than we receive back in federal spending.

Accordingly, we call upon national political leaders of both parties, including members of the Massachusetts Congressional delegation, to get to work towards timely action on this most pressing matter. We do so in full understanding that the issues are complex, the decisions hard, and any solution to some degree necessarily painful.

But Massachusetts does not want to be in the passenger seat as the car accelerates over the cliff.
 

Topics: Budget, Issues, U.S. Congress

Trade Opportunities with Russia Await Congressional Action

Posted by Kristen Rupert on Jul 12, 2012 12:57:00 PM

The Russian parliament voted this week to approve Russia’s bid to join the World Trade Organization (WTO), the body that sets global trade rules. The action means that tariffs on imports into Russia will decrease, key sectors of the Russian economy will be open to foreign investment and U.S. companies will benefit.

International TradeThere is, however, one obstacle.  American businesses cannot take advantage of the Russian market opening unless the U.S. Congress terminates the application of the Jackson-Vanik Amendment, enacted in the 1970s to pressure the former Soviet Union to allow Jews to emigrate – a purpose long since achieved.

Because the Jackson-Vanik amendment is inconsistent with WTO rules, Russia could deny U.S. exporters the concessions Russia made to join the WTO and put U.S. companies at a disadvantage versus manufacturers in Asia, Europe and elsewhere. 

The solution - Congress needs to approve a bill extending permanent normal trade relations (PNTR) to Russia and repealing Jackson-Vanik. Associated Industries of Massachusetts (AIM) and numerous other national business organizations have signed a letter encouraging Congress to approve PNTR for Russia before the August recess. 

Russia has already completed a number of economic reforms that were pre-requisites to WTO membership.  Russia is now obligated to open its market to imports, protect intellectual property, safeguard foreign investors, and strengthen its compliance with “rule of law.”  Other countries will be able to hold Russia accountable for fulfilling its trade commitments.  The threat of WTO sanctions will discourage Russia’s arbitrary imposition of trade barriers.

An open Russian market is a benefit for US companies.  Russia is the eleventh largest economy in the world and its rapidly growing middle class is already a lucrative market for high-quality goods and services.

Although Russia is not a major export destination for Massachusetts products at present (2011 exports from Massachusetts to Russia totaled $120 million), Bay State makers of industrial machinery, pharmaceuticals, medical devices, auto parts, pharmaceuticals and insurance are expected to benefit from Russia’s WTO membership.  Many experts predict that US-Russia trade will double or even triple if Congress acts.

Topics: International Trade, Business Center, U.S. Congress

Trade Agreements Split Massachusetts Delegation

Posted by Kristen Rupert on Oct 13, 2011 4:11:00 PM

Congress last night approved free-trade Agreements with South Korea, Colombia and Panama in votes that divided the Massachusetts delegation.

Trade AgreementsSenators John Kerry and Scott Brown both supported the agreements, which AIM believes are critical to Massachusetts employers and employees.

Support was harder to find in the House of Representatives, where only Richard Neal of Springfield voted in favor of the agreement with South Korea. Neal, John Olver and Nikki Tsongas supported the agreement with Panama. The remainder of the House delegation - James McGovern, Barney Frank, John Tierney, Edward Markey, Michael Capuano, Steven Lynch and William Keating – opposed all three agreements.

“Massachusetts employers are grateful to Senators Kerry and Brown, and to Representatives Neal, Olver and Tsongas for backing agreements that will create thousands of jobs in Massachusetts. Exports are a key element of the Massachusetts economy and the three agreements will help Massachusetts companies save millions of dollars, because most tariffs will disappear immediately,” said Richard C. Lord, President and Chief Executive Officer of AIM.

The Korea Free Trade Agreement passed the House by a vote of 278-151 and the Senate by an 83-15 margin. The agreement with Panama passed the House 300-129 and the Senate 77-22, while the votes in favor of the Colombia agreement were 262-167 in the House and 66-33 in the Senate.

Massachusetts companies traded $900 million worth of goods last year with South Korea, $73 million with Colombia and $16 million with Panama. Analysts say the numbers are much higher if the value of services is included.

The House and Senate votes capped nearly five years of negotiations on the deals. The agreements have been hung up over differences between the Bush and Obama Administrations and Congressional Democrats and Republicans over worker rights and safety in Colombia, and concerns over U.S. workers who might lose their jobs as a result of less-expensive goods from the trading nations.

Topics: International Trade, U.S. Congress, AIM International Business Council

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