Letter Urging Congress to Consider Legislation to Stimulate Economic Activity and Spur Job Growth
November 7, 2008
TO THE MEMBERS OF THE UNITED STATES CONGRESS:
The U.S. Chamber of Commerce, the world's largest business federation representing more than three million businesses and organizations of every size, sector, and region, urges Congress to consider legislation to stimulate economic activity and spur job growth.
The U.S. economy, which is already in recession, continues to be buffeted by the unwinding of the housing market, a severe liquidity crisis, and the general deleveraging of the financial markets. The already weak economy threatens to slow further, making credit even less accessible to Main Street businesses. This downturn will likely last longer and run much deeper than either of the two previous economic crises.
The stimulus bill enacted earlier this year was focused on increasing consumption and investment. Congress again needs to take action to provide additional stimulus not only to the economy as a whole, but also to address the severe negative effects that the economic downturn has had on specific sectors and industries, such as housing, automakers, infrastructure, and travel.
SHORT TERM RECOMMENDATIONS
The Chamber believes that including the following provisions in stimulus legislation would have an immediate positive impact on the economy:
- Issuing rebate checks would infuse cash into the economy, putting money in workers'
pockets and stimulating consumption.
- Extending the carry back period from two years to five years would enhance the liquidity
of businesses with current losses.
- By temporarily allowing foreign subsidiary earnings of U.S. companies to be repatriated at a reduced tax rate, those earnings could be used to ameliorate some of the liquidity challenges confronting companies, relieve some stress on the commercial paper market, make contributions to their pension plans in order to meet funding requirements and generally increase funds available to businesses. All of these outcomes could be achieved while producing a positive revenue effect for the U.S. Treasury.
- Extending bonus depreciation and increased Section 179 expensing provisions, and
adopting a temporary investment tax credit would promote investment during the current
economic downturn and stretch scarce capital by lowering the cost of undertaking new
- Reducing the corporate capital gains rate to 15% would unlock appreciated assets held by companies, generating substantial tax revenues and at the same time providing much needed capital that could be redeployed more efficiently into the economy.
- Extending the reduced tax rate on dividends and capital gains will give taxpayers greater incentives to save and invest, which will add to our capital stock and increase productivity.
- By temporarily reducing borrower and lending fees for Small Business Administration 7(a) and 504 lending programs, Congress would incentivize banks to lend and make it more affordable for small businesses to borrow these funds for their enterprises. Additionally, increasing the government guaranteed percentage for the 7(a) loans and making changes to the program would provide more liquidity for these loans on the secondary market.
PENSION PLAN RECOMMENDATIONS
The drop in the value of pension plan assets coupled with the current credit crunch has placed defined benefit plan sponsors in an untenable position. At a time when companies desperately need cash to keep their businesses afloat, the new funding rules require huge, countercyclical contributions to their pension plans. Consequently, many companies will divert cash needed for current job retention, job creation, and needed business investments and instead contribute the cash to their pension plans to fund long-term obligations.
Accordingly, the Chamber urges Congress to make technical corrections to the 2006 Pension Protection Act (PPA) that will help companies deal with the financial crisis. Such provisions should include permitting full smoothing of unexpected losses, removing restrictions on asset smoothing, allowing sufficient time to transition to the PPA's 100% funded target, providing automatic IRS approval for certain funding elections to keep plans viable, clarifying end-of-year valuations, and permitting fixed interest rates to be used for Code Section 415 limit purposes so as to avoid benefit reductions.
INDUSTRY AND SECTOR SPECIFIC RECOMMENDATIONS
In addition to the above recommendations, the Chamber urges including certain industry and sector specific assistance. Stimulus provisions encouraging transportation infrastructure spending and repeal of the 3% withholding requirement and provisions bringing aid to automakers, the housing industry, and the travel industry will stimulate job creation and economic growth.
Transportation Infrastructure Spending
Infrastructure investment directly supports jobs. The current investment levels fail to keep pace with the demands of pressing economic, safety, energy and environmental needs. To ensure that infrastructure investment meets the ultimate objective of stimulating job creation and economic growth, it is of the utmost importance to ensure that funding is provided in such a way that it is targeted for near-term projects and can be spent quickly. Accordingly, the Chamber urges Congress to include transportation infrastructure investment for near-term projects in stimulus legislation.
Repeal of the 3% Withholding Tax
Section 511 of P.L. 109-222 requires a 3% tax withholding on all government payments, which affects all government contracts as well as other payments, such as Medicare, grants, and farm payments. While this requirement is not set to go into effect until January 1, 2011, companies, as well as federal, state, and local governments are expending funds starting to prepare for implementation now. These are needless preparation expenses, particularly during rough economic times, for a requirement that most believe should never have been enacted and should be repealed. DoD estimated that the costs to comply with the 3% withholding requirement will be in excess of $17 billion over the first five years, which is far more than any estimated revenue gains. While $17 billion is substantial, it is only a portion of the additional costs with which governments and the private sector will be burdened. Accordingly, the Chamber supports including a repeal of the 3% tax withholding law in any upcoming stimulus package.
Assistance to Automakers
The financial crisis is having a dramatic, negative effect on automobile manufacturers, suppliers, and especially dealers and automobile finance companies that provide financing to dealers, consumers, and commercial purchasers of vehicles. As a result of the credit crisis, the market is experiencing a precipitous sales decline of millions of lost sales. These sales declines put at risk not only auto manufacturers, but their network of suppliers, vendors, and other businesses that provide goods and services to them.
The current economic environment requires immediate government action to restore liquidity so that the U.S. auto industry is able to function, meet consumer demand, and develop new energy saving technologies. The Chamber urges Congress to include provisions in stimulus legislation to restore liquidity to the crucial financing sectors of the U.S. automobile industry so that the industry can continue to operate and satisfy consumer demand.
Assistance to the Housing Industry
In response to the housing crisis in 1975, Congress implemented a tax credit for the purchase of vacant homes. More than 500,000 people used the tax credit and within the one-year window of opportunity for that credit, two-thirds of the standing inventory was absorbed, and home values stabilized and began to rise. The Chamber urges Congress to include a similar housing tax credit in any stimulus legislation. A well crafted but broader credit would encourage home sales. Such a program would be even more effective when coupled with a mortgage rate buy-down provision. Together, this approach would not only help dislodge the current logjam in the housing market but would also provide direct support to America's homeowners.
Assistance to the Travel Industry
Overseas travel to the United States has declined since the attacks on September 11, 2001, and this decline in travel has cost the U.S. economy billions of dollars. In an effort to support the travel industry, the Chamber urges Congress to include H.R. 3232, the "Travel Promotion Act of 2007," which passed the House in September, as part of stimulus legislation. The Travel Promotion Act would encourage an increase in travel from visitors overseas, who tend to spend an average of $4,000 per person per visit at our nation's retailers, hotels, restaurants, attractions and many other businesses, stimulating these vital industries that are currently struggling in this economy.
The Chamber believes short term stimulus provisions combined with corrections to pension legislation and assistance to specific industry sectors would, in the short run, act as an insurance policy by encouraging immediate investment, and further the prospects for long-term economic growth. The Chamber looks forward to working with Congress to ensure that these changes are enacted into law.
R. Bruce Josten