The weather may not be heating up, but issues in Washington sure are.

    Comprehensive tax reform has returned to the headlines, the EPA is attempting to regulate greenhouse gases (GHG) using the Clean Air Act (for which it was never intended) and the reconstituted National Labor Relations Board (NLRB) has filed new proposals allowing for “ambush elections” by unions seeking to organize workers. Forgers are potentially impacted by all of these.

    After a few months in which tax reform seemed to fade from view, House Ways and Means Chairman Dave Camp (R-MI) jumpstarted the debate again in late February by introducing his long-rumored draft legislation. True to his word, the proposal is comprehensive and bold, and it is sure to draw fire from entrenched interests. Highlights of the proposal are:

Individual tax brackets are compressed into three – 10%, 25% and 35% for income above $400,000 for individuals or $450,000 for joint filers.

The corporate rate is 25%, and income from domestic manufacturing is taxed at 25% regardless of business structure (S corps, LLCs, other pass-throughs).

The Alternative Minimum Tax (AMT) is repealed for all taxpayers.

The R&D tax credit is made permanent at 15% but in a simplified form.

Last-In, First-Out (LIFO) accounting for inventory is repealed beginning in 2015, but businesses would be allowed to phase in reporting of LIFO reserves as income as follows:

* Businesses can begin in 2015 but can delay reporting until 2019.

* The phase-in period is four years.

* Businesses would report 10% of LIFO reserves in year one; 15% in year two; 25% in year three; and 50% in year four.

* LIFO reserves would be taxed at 25% rate in the year reported, except that “closely held entities” (those with fewer than 100 owners) would be taxed at 7%.

The current mortgage interest deduction cap of $1 million would remain in place for all existing loans and refinanced loans prior to 2018, but new loans after that would have a mortgage interest deduction cap of $500,000.

    Few observers expect this draft to become law this year, and any tax-reform proposal will certainly undergo substantial changes before it reaches the President’s desk. However, it is clear that Rep. Camp has set the floor for debate on tax reform for the foreseeable future

    The Forging Industry Association (FIA) has been communicating with members of Congress for the past several years to make sure that the concerns of the forging industry were understood. Now that the draft proposal has been released, FIA will be analyzing it thoroughly in anticipation of its Annual Lobby Day in Washington on April 2-3 to make sure members of Congress understand what works and what doesn’t.

    Meanwhile, the EPA’s proposals to regulate GHGs under the Clean Air Act are moving forward. The first proposal would regulate GHGs from new power plants and would likely prohibit construction of new coal-fired plants. That will surely drive up energy costs across the board, particularly for energy-intensive industries such as steel manufacturing and forging. And as if that weren’t enough, the EPA has already announced that its next proposal would regulate GHGs from existing power plants and that it is “looking at” extending such regulations to other industries.

    Forgers would be particularly hard hit if these proposals are implemented because of both the higher cost of energy to run forge shops and the increased cost of raw materials such as steel and aluminum. FIA is part of a coalition opposing these heavy-handed regulatory schemes by the EPA, and this issue will also be on our list to discuss with Congress in April.

    Finally, to the surprise of no one, the new NLRB has moved rapidly to reintroduce the over-reaching proposals that had previously been rejected either by Congress or by the courts. Notably, the NLRB reissued the so-called “ambush election” rule on Feb. 5. This rule, if adopted, would allow union elections to be held in as few as 10 days after the employer is notified of a unionization effort. Business interests have described this as “card check” via the back door, since Congress has refused to enact the union-backed Employee Free Choice Act (EFCA). FIA has been active in opposing EFCA in Congress, as well as other regulatory over-reach by the NLRB.

Laurin M. Baker, Founder & President • The Laurin Baker Group, LLC. Washington, D.C. • FIA Washington Representatives
202-393-8525 •