|Legislative Outlook: End of 2010 Provides Reasons for Optimism in 2011|
|by William R. Carteaux, SPI|
|Industry Winter 2011|
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
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
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
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
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.