Legislative Outlook: End of 2010 Provides Reasons for Optimism in 2011

by William R. Carteaux, SPI

While it may still be years before we return to what “normal” used to be, I believe the U.S. plastics industry is in the middle of a rebound from the economic dog days of late 2008 and 2009. Processors have focused on adopting lean manufacturing practices, and many have found that they have had to market themselves like never before in order to find new customers. As we head into 2011, processors also seem to be investing again. In fact, the latest SPI report on plastics machinery sales shows that injection molding, extrusion and blow molding machine shipments escalated in 2010 as processors – particularly in the automotive and packaging industries – started investing in capital equipment after holding back throughout 2009. Following are important legislative issues that could provide further fuel for our modest economic revival. In fact, the wheels were set in motion at the end of 2010.

Sowing the Seeds: November’s Elections

November’s election results were a harbinger of better days ahead for the plastics industry. The 112th Congress, particularly the House, most likely will have a more pro-business outlook in the year ahead and a better understanding of manufacturing concerns. The new Congress also will take a renewed interest in oversight of the federal agencies that deeply impact our industry – specifically the Environmental Protection Agency, the Food and Drug Administration and the Occupational Health and Safety Administration.

I was particularly pleased to see that two of our own were elected to Congress. Wisconsin’s Ron Johnson, president of Pacur, a PET sheet extruder, was elected to the Senate. In the House, Jeff Denham was elected to represent California’s 19th district. His Salinas-based company, Denham Plastics, manufactures containers for agricultural products and is a pioneer in plastics recycling. Their victories were two of several where the candidate who best appreciates U.S. manufacturing’s challenges was elected.

On the state level, the plastics industry also will be served well by pro-business gains in the governors’ races of Ohio (where Republican John Kasich unseated incumbent Ted Strickland), Pennsylvania (where Republican Tom Corbett won the office) and Michigan (where winner Rick Snyder consistently touted his long career as a businessman), as well as by gains in key state legislatures.

Throughout the election cycle, the voters’ anti-tax message came through loud and clear and reinforced advocacy efforts toward tax relief for plastics manufacturers. In December, just in time for the holidays, President Obama signed the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 into law on December 17th.

Largest Temporary Investment Incentive for Businesses in U.S. History

The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 extends tax cuts enacted by George W. Bush, introduces new tax incentives and extends jobless benefits. The Congressional Budget Office estimates that fully extending all the 2001-2003 individual tax rates will add between 600,000 and 1.4 million jobs in 2011 and between 900,000 and 2.7 million jobs in 2012. The new tax law also creates major new incentives for business and consumer spending. This bipartisan legislation contains provisions which will spur innovation and, in particular, strengthen the viability of many of our industry’s small and mid-size companies.

Which provisions in this new law should be of most interest to plastics processors? This law permits full, 100 percent first-year expensing of qualified purchases for 2011 – and even those retroactive to September 2010 – as well as 50 percent first-year expensing for 2012. This dramatically shortens the time period in which companies can recover the cost of capital equipment and machinery purchases, allowing them to write off their investments fully before the end of next year or by half on purchases made in 2012. Full, 100 percent first-year expensing lowers the cost of capital and increases the number of projects a plastics manufacturer can undertake – which, of course, helps to catalyze the growth in business investment.

Innovation, Jobs and the R&D Tax Credit

The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 also extends the R&D tax credit, which expired at the end of 2009, retroactively to the beginning of 2010 and forward to the end of 2011. The R&D tax credit, created by Congress in 1981, spurs the creation of U.S.-based innovation and economic activity. Not only has it fostered private sector R&D investment by companies of all sizes, helping to bring new, improved products and services to market, it also is solidly linked to job growth. More than 70 percent of the credit is attributable to salaries and wages of U.S. workers conducting research in the United States.

U.S. manufacturers perform half of all R&D in the nation, driving more innovation than any other sector. Innovation has always been the prime characteristic of our industry. From new polymers to new processes, bright ideas have propelled plastics through the decades to meet societal needs as they arise. The federal R&D tax credit continues to be essential to U.S. plastics manufacturers because it helps boost industry investment in research done in the United States and is essential for sparking innovation of new products and competitiveness in world markets. In fact, an Ernst & Young, LLP study found that the credit stimulates innovation-producing R&D investments in all 50 states by as many as 18,000 or more small, medium and large sized companies. Without the R&D tax credit, innovation is impeded as companies are wary of taking on the burden of research costs.

Speaking of small and mid-sized companies, the income tax aspect of the new law directly impacts the plastics industry segment paying taxes at individual rates based upon incorporation status (Subchapter “S” corporations, for example), but the indirect effects impact the entire value chain. Without passage of this legislation, tax rates on many of our industry’s small and mid-size companies would have risen nearly 5 percent in 2011.

It’s Not Magic, but Some Key Issues Should “Disappear” in 2011

While pleased by the developments brought about by the elections and the passage of the historic tax law, I also am optimistic about 2011 because of what will not develop. The “Employee Free Choice Act” (EFCA), for example – a top priority of organized labor – will most likely not be taken up by the new Congress. This so-called “card-check” bill and others like it would significantly alter the process by which employees form a union by replacing the federally-supervised secret ballot system with a system whereby a union is formed if a majority of employees sign an authorization card. This type of legislation has been advocated against for a number of reasons, including the fact that such legislation would force binding arbitration on the employer and the collective bargaining unit, making business planning difficult and reducing the amount of control employers have over operations and property. Passage of EFCA also could reduce employers’ incentives to grow their businesses in the U.S. as operations in other nations do not face similar binding arbitration statutes.

Other issues that I believe will be “off the table” in 2011 include environmental proposals such as rigid carbon taxes in the form of “cap and trade” and unworkable revisions to the Toxic Substances Control Act. While SPI’s and the plastic industry’s advocacy efforts have been partially rewarded, we should not rest on these laurels in 2011. In fact, with the improved climate on Capitol Hill, now is the time to make hay!

William (Bill) Carteaux is president and CEO of SPI. SPI’s member companies represent the entire plastics industry supply chain, including processors, machinery and equipment manufacturers and raw materials suppliers.