How a Tax Change Will Strangle a Small Manufacturer’s R&D
Marlin Steel Wire Products spent its first 30 years making bagel baskets. When Drew Greenblatt bought the custom wire and metal fabrication company in 1998, he thought it would be making bagel baskets for the next 30 years as well—but soon, international competition changed the math.
“Suddenly, China started manufacturing bagel baskets and shipping them to New York City for cheaper than I could get the steel,” said Greenblatt, Marlin’s president and owner. “But then, we got a phone call from an engineer at Boeing who needed an innovative, customizable basket. And that was the eureka moment.”
The shift: Greenblatt recognized that innovation would help him outcompete foreign companies that could manufacture products more cheaply.
- “We realized we couldn’t thrive in a commodities market,” said Greenblatt. “We had to come up with novel ways to make a basket so that it would make no financial sense to buy from China or Mexico.”
- “We wanted to be able to say to buyers, you must buy from the American innovative company, because we’re coming up with such slick ideas that our product blows the competition away.”
The growth: Today, Marlin Steel is nearly 30 times larger than it was when Greenblatt bought it and heavily invested in research and development.
- “Today, Marlin is 15% degreed mechanical engineers,” said Greenblatt. “We have chemical engineers. We’re coming up with the most innovative racks and systems out there.”
- “People are showing us their operations and asking us to reverse-engineer solutions that will work for them. And we’re doing it.”
However . . . A recent tax change threatens to throttle the company’s progress. Until about a year ago, businesses could deduct 100% of their R&D costs in the same year they incurred those expenses.
- But since last year, a tax policy change now requires businesses to spread their R&D deductions out over a period of five years, making it much more expensive to invest in innovation.
The impact: “Our taxes will be $600,000 higher than they should have been this year—we’ll pay four and a half times more on taxes,” said Greenblatt.
- “What that means is that it makes sense for us not to hire six more engineers. Not to buy three more press brakes [machines for bending metal parts] or hire people to work them. It’s incredibly shortsighted, a horrible policy screwup, and the ripple effects are massive.”
The scope: Greenblatt also emphasizes that the tax change will harm many small businesses.
- “People tend to focus on the bigger companies and how it will hurt them—and it will hurt them—but it will also hurt the little guy,” said Greenblatt. “And the little guy is the job creator in America.”
The last word: “American innovation—that’s our secret sauce,” said Greenblatt. “That’s how we’re going to grow jobs and pay people well and give good benefits and steady employment without layoffs. That’s how we’re going to beat a recession. We need to have the coolest, most innovative products in the world. For us, innovation is key.”
NAM Launches 2023 Competing to Win Tour
President and CEO Jay Timmons to Deliver the NAM State of Manufacturing Address
Washington, D.C. – The National Association of Manufacturers will kick off its 2023 Competing to Win Tour on Tuesday, Feb. 21, 2023, traveling to three states and visiting four manufacturing facilities along the way.
The tour will begin in Wisconsin, where NAM President and CEO Jay Timmons will deliver the 2023 NAM State of Manufacturing Address at Husco.
Throughout the week, Timmons will join local manufacturers, employees, media, community leaders and elected officials to discuss the challenging environment facing manufacturers and the urgent need for solutions on issues including immigration reform, permitting reform, workforce development, tax policy and more.
The tour comes as nearly two-thirds of manufacturers are concerned about the challenging economic environment characterized by inflation, supply chain disruption and the workforce crisis, according to the NAM’s latest Manufacturers’ Outlook Survey. More than three-quarters of respondents said pushing back against regulatory overreach should be the top priority of the 118th Congress.
“Our focus on this tour is telling the story of resilient, modern manufacturing—and the tools we need from policymakers to continue leading our economy forward and making the world a better place,” said Timmons. “To unleash our full potential, we need to reinstate critical tax provisions, a smarter, balanced approach to regulations, immigration reform and significant permitting reform, and reject top-down air regulations that cost jobs and snarl supply chains.”
For more than a decade, the annual NAM State of Manufacturing Address has focused the nation’s attention on the industry that is the backbone of the American economy, highlighting the 13 million men and women who are building our future.
The NAM has frequently traveled the country, bringing policy discussions and conversations about the future of work to shop floors, schools, economic clubs, televisions studios, the White House and more.
At a time when the future of work is top of mind for workers and thought leaders alike, the tour will also spotlight the industry’s rapid transformation, while also focusing on manufacturing’s well-paying careers, the industry’s diverse workforce and the real-world solutions for manufacturing’s continued growth.
Tour events will take place in Wisconsin, Indiana and Louisiana. Details are as follows:
Tuesday, Feb. 21 // Wisconsin
8:30 a.m. – 10:30 a.m. CST
Husco
2239 Pewaukee Road
Waukesha, Wisconsin 53188
11:00 a.m. – 12:00 p.m. CST
Waukesha County Technical College
800 Main Street
Pewaukee, Wisconsin 53072
Wednesday, Feb. 22 // Indiana
9:00 a.m. – 11:00 a.m. EST
INCOG BioPharma Services
12050 Exit 5 Parkway
Fishers, Indiana 46037
Timmons will be joined by Sen. Todd Young (R-IN)
Thursday, Feb. 23 // Louisiana
8:30 a.m. – 10:00 a.m. CST
Laitram
200 Laitram Lane
Harahan, Louisiana 70123
2:00 p.m. – 3:30 p.m. CST
McIlhenny Company
Highway 329
Avery Island, Louisiana 70513
MEDIA RSVP: Members of the media interested in covering the tour or attending an event should contact [email protected].
-NAM-
The National Association of Manufacturers is the largest manufacturing association in the United States, representing small and large manufacturers in every industrial sector and in all 50 states. Manufacturing employs nearly 13 million men and women, contributes $2.81 trillion to the U.S. economy annually and accounts for 55% of private-sector research and development. The NAM is the powerful voice of the manufacturing community and the leading advocate for a policy agenda that helps manufacturers compete in the global economy and create jobs across the United States. For more information about the NAM or to follow us on Twitter and Facebook, please visit www.nam.org.
Why Female Mentorship Matters in Manufacturing
A great mentor can make all the difference to your career—especially if you’re in an industry where you may find yourself in the minority. To help women in manufacturing reach their full potential in a male-dominated industry, the Manufacturing Institute’s Women MAKE America program has created a mentorship program, generously supported by its 35×30 Campaign supporters, Dow, General Motors, Arconic Foundation, Alcoa Foundation and Ketchie.
- The program has an ambitious goal: to train more than 1,000 female mentors by 2030 and connect them with younger women in the industry as well as students in colleges, high schools and middle schools.
One year into the program, the participants are already seeing an impact. In a recent Women MAKE webinar, attendees got to hear from one successful and happy mentee, while also receiving guidance on building their own slate of mentors.
Making a difference: “I was especially thankful for the Women MAKE Mentorship Program because it filled a gap in my support system and allowed me to have a mentor who was really dedicated to my professional development,” said Zen Saunders, a 2022 Women MAKE mentee and diversity, equity, inclusion and employee experience leader at Dow.
- Saunders explained that her mentor shared examples of how she built her career, which inspired Saunders to map out her own next steps more creatively. Through regular meetings with her mentor, Saunders learned to find common interests with colleagues and earn their buy-in on new projects.
- “[My mentor has] been an active listener and committed to my success, creating a safe space for me to learn from the challenges that I’ve faced while offering a refreshing perspective that’s uplifting and encouraging,” said Saunders.
Support from Women MAKE: After hearing from Saunders, participants in the webinar were asked to design a personal “board of directors” to mentor them in their own careers. Women MAKE hosts many such activities, which are designed to forge connections between participants and encourage them to think ambitiously about their career paths.
- The board members could be people from participants’ personal or professional lives, instructed MI Director of Women’s Engagement Sarah Shields. An ideal board of directors should include a sponsor, an innovator, an expert, a truth teller and a safe space.
- After they brainstormed a list of people who could fit these roles, Shields encouraged participants to ask these people to act as mentors and to schedule regular times to discuss their career plans.
The last word: “I’m thankful to the Manufacturing Institute for this opportunity and the amazing Women MAKE Mentorship Program. It’s really been a life-changing and transformative experience for me. I highly recommend this program for women and girls currently in or interested in the industry,” Saunders said.
Get involved: In addition to young and senior manufacturing professionals, this year Women MAKE is inviting young women and girls ages 13+ who are interested in STEM, as well as refugees seeking opportunities in the U.S., to join the Women MAKE Mentorship Program.
- If you are interested in joining the Women MAKE Mentorship Program as a mentor, or know of someone who would benefit from becoming a mentee, check out the application. The deadline for applying is Tuesday, Feb. 28.
- You can also tune in to the next Women Connect webinar on “Building Your Personal Brand” on Thursday, Feb. 16.
- And last, if you have questions, please contact the Women MAKE team at [email protected].
Timmons: America’s Success and Leadership Depend on a Strong, Competitive Manufacturing Industry
Washington, D.C. – National Association of Manufacturers President and CEO Jay Timmons released the following statement in response to President Biden’s 2023 State of the Union address:
“President Biden rightly celebrated the significant growth and job creation that manufacturers have achieved in these past two years. Indeed, more manufacturing jobs have been created in the first two years of the Biden administration than at any point since the Reagan administration. Like his recent predecessors, he recognizes manufacturing’s vital role in our economy and our country. America’s success and leadership depend on a strong, competitive manufacturing industry.
“The President should be commended for the historic, bipartisan accomplishments of the past two years—including the infrastructure law and the CHIPS and Science Act. These measures are already making life better and spurring new manufacturing jobs. We agree with President Biden that there is now an urgent need to build on that progress by tackling immigration reform in a smart, bipartisan way. There are millions of people ready to work in the U.S., and manufacturers have hundreds of thousands of unfilled jobs. Not only is the broken immigration system creating a border crisis, but it is also standing in the way of a stronger economy for every American.
“However, the President misses the mark in not recognizing that the historic tax reforms of 2017 and the previous administration’s efforts to promote regulatory certainty helped lay the foundation for the recent success in creating jobs, increasing investment and raising wages. Instead of the Biden administration’s misguided suggestions for restrictions on pharmaceutical innovation and for destructive tax increases, Congress should immediately reinstate critical tax deductions for the costs of research, machinery purchases and key business investments. Restoring these tools is essential to keep up the pace of manufacturing job creation and to out-innovate and outcompete China. And to truly unleash manufacturing investment, fully realize the potential of the infrastructure law and achieve energy security in America, we need a smarter, balanced approach to regulations and significant permitting reform so that projects don’t languish for years in a bureaucratic mess just waiting for government approvals. After all, manufacturers are already making great strides in reducing emissions. Now is not the time to add top-down air regulations that will cost us jobs and snarl supply chains.
“The State of the Union address is one of the sacred traditions of our democracy. And as we approach the one-year mark of Russia’s war on Ukraine, we are reminded just how precious those traditions and our institutions are. Democracy is the foundation of the values that keep our industry strong and have made America exceptional—free enterprise, competitiveness, individual liberty and equal opportunity. And that is why manufacturers stand firm in our belief that democracy must be respected, protected and defended at home and abroad.”
Background: The NAM’s “Competing to Win” policy agenda for manufacturing competitiveness can be found here. Its in-depth proposal for immigration reform, “A Way Forward,” is available here. In the NAM’s most recent Manufacturers’ Outlook Survey, two-thirds of manufacturers said that immigration reform should be a priority for the 118th Congress.
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The National Association of Manufacturers is the largest manufacturing association in the United States, representing small and large manufacturers in every industrial sector and in all 50 states. Manufacturing employs nearly 13 million men and women, contributes $2.81 trillion to the U.S. economy annually and accounts for 55% of private-sector research and development. The NAM is the powerful voice of the manufacturing community and the leading advocate for a policy agenda that helps manufacturers compete in the global economy and create jobs across the United States. For more information about the NAM or to follow us on Twitter and Facebook, please visit www.nam.org.
Why R&D Matters to International Paper
Innovation is getting more expensive—and that should worry all of us.
Until recently, businesses could deduct 100% of their R&D expenses in the same year they incurred those costs. But a tax law that took effect at the beginning of 2022 requires businesses to spread their deductions out over five years instead, driving up the cost of the innovations that keep our economy strong.
At International Paper—an American supplier of renewable fiber-based recyclable packaging and pulp products—that change is causing serious challenges. We spoke to Vice President of Finance and Corporate Controller Holly Goughnour and Senior Director for Government Affairs Kaitlin Sighinolfi to learn more.
Why it matters: “Our company invests in R&D for two main reasons: making better products for our customers and creating safer, more efficient and sustainable manufacturing processes,” said Goughnour.
- “We spend a lot of time and money working to make a better performing, more sustainable and more durable product, but innovation is about more than the product—it’s also about improving the safety and efficiency, and reducing the environmental impact, of our operations.”
The scale: International Paper devotes a significant portion of its resources to innovation, and as a result, the change in tax law has an outsized impact.
- “Much of our free cash flow goes to R&D activities,” said Goughnour. “The change in tax law has resulted in a significant amount of additional cash taxes in this first year, reducing the amount of capital available to invest back into our business, including additional R&D.”
The competition: Goughnour and Sighinolfi also emphasized the need for a tax system that helps manufacturers in the U.S. to compete with companies abroad. According to Goughnour, the new tax change does the opposite.
- “The new tax law enables European and Chinese competitors to accelerate their R&D faster than us,” said Goughnour. “We’re in a global marketplace, and the new tax law puts U.S. manufacturers at a competitive disadvantage.”
- “Almost nobody else in the world has this policy,” said Goughnour. “R&D is an absolute growth engine for the U.S. economy. Why would we have a tax policy that discourages investment in R&D? It makes no sense.”
The last word: “Ours is a supply chain story,” said Sighinolfi. “Innovation should be part of the overall manufacturing value chain, but the new law reduces the value of innovation, slowing investment in innovation and ultimately hurts American businesses, employees and consumers.”
NAM to FTC: Noncompete Rule Would Harm Manufacturers
The NAM is urging the Federal Trade Commission to extend the comment period on its recently proposed rule to ban noncompete agreements in the workplace, citing the rule’s broad economic impact and significant legal implications.
The background: On Jan. 5, the FTC proposed a rule that would prohibit employers from imposing noncompete agreements on workers, calling such clauses “an unfair method of competition” and saying they prevent the forming of new businesses and result in lower wages for all workers.
What the NAM is doing: The NAM opposes the proposed change, and the association joined a coalition of other business groups this week requesting that the public comment period, which runs through March 20, be extended by 60 days. The reason: the proposal would have far-reaching legal consequences for manufacturers, including risks to intellectual property.
- “A sufficient comment period is needed to ensure the regulated community can fully assess [the rule’s] effects,” the coalition told FTC Secretary April Tabor. “Moreover, there are significant legal questions that must be addressed by commenters.”
- “Among the issues raised by the FTC action is whether the Commission has the legal authority to issue such a rulemaking, the rule’s potential preemption of the numerous state laws and regulations on this issue, and how such preemption will alter the regulated community’s legal obligations.”
Working for manufacturers: The NAM is exploring all possible avenues, including congressional oversight and litigation, to mitigate the impacts of the proposed rule. Litigation is contingent on financial support from NAM members, as all of the NAM’s activities in the courts are funded outside of member dues.
NAM to Congress: Reverse Course on Harmful Tax Changes
Recent tax law changes that increase the costs of research, machinery purchases and key business investments will harm manufacturers “at a time when 62% of manufacturing leaders already expect a recession in 2023,” the NAM told congressional leaders Monday.
What’s going on: Beginning in 2022, businesses that had for decades been allowed to immediately deduct research and development expenses had to begin amortizing these costs over years, making innovation more expensive.
Why it’s important: The change creates a competitive disadvantage for manufacturers in the U.S., as “China, which has made no secret of its ambition to become the world leader in advanced manufacturing, currently provides a 200% deduction for R&D expenses for manufacturers,” NAM Senior Vice President of Policy and Government Relations Aric Newhouse told the Senate Finance Committee and the House Ways and Means Committee.
What can be done: Congress should reverse course to avoid harming manufacturers, Newhouse said. Here’s what lawmakers should do:
- Reverse the R&D amortization provision: Policymakers should allow manufacturers to go back to being able to deduct 100% of their R&D expenses in the same year in which they are incurred.
- Protect interest deductibility: Congress must reverse the new, stricter limit on interest deductibility (the earnings before interest and tax, or EBIT, standard) and return to the “standard in place prior to 2022, which was based on earnings before interest, tax, depreciation and amortization.”
- Return to full expensing: Lawmakers should go back to allowing businesses to take 100% deductions for equipment and machinery purchases in the tax year of purchase.
The last word: By making these changes, Newhouse said, “Congress can help ensure that manufacturers, especially small manufacturers, can continue to invest in their operations, their workers and America’s future.”
How Manufacturers Should Pursue Second Chance Hiring
With one-in-four Americans possessing a prior conviction, manufacturers can access a diverse and motivated talent pool by pursuing second chance hiring.
At the Manufacturing Institute’s inaugural Workforce Summit held back in October, panelists from the MI, Saint-Gobain, JBM Packaging and Envoy shared tips on how to create such hiring programs and the benefits they’ve seen so far.
Key Insights
- Data shows that second chance individuals are retained longer, have higher productivity and engage in more training than the average individual.
- Start with a pilot program, then scale it up. It’s important to select a site that has the right culture, plant manager and HR support.
- Build a framework that allows the company to fairly evaluate an individual’s background.
- Offer support systems and partner with community organizations to meet the unique needs of this population.
Read the full article here.
What Manufacturers Should Know about Hiring Military Talent
With 200,000 people transitioning out of the military annually, in addition to veterans, reservists and military spouses, the military population represents a highly skilled talent pool that manufacturers are eager to tap. But how should they go about doing so?
At a recent roundtable, the Manufacturing Institute—the NAM’s 501(c)3 workforce development and education partner—brought together veterans who have transitioned successfully out of the military into manufacturing careers, as well as manufacturers who have prioritized attracting and retaining military talent. The panelists discussed how companies can leverage this talent, and here’s some of what they had to say.
A great fit: “If you look at manufacturing, a large part of the job is doing things well, day after day after day—and that’s essentially what happens in the military. It’s that military discipline. It’s one of the most compelling reasons why we should be aggressively hiring military veterans,” said Dow Global Business Director Greg Bunker.
- “We’ve got three principles in our organization that we call ROI: responsibility, operational excellence and innovation. We know that veterans bring each of these to the table,” said UnitedHealth Group Director of People Analytics Troy Vandenberg (formerly director of people analytics at Smithfield Foods).
Networking matters: Transitioning from the military to the civilian workforce can be difficult, but veterans who make direct connections with manufacturers often land excellent job offers. The MI’s Heroes MAKE America program facilitates those connections, offering veterans opportunities to meet manufacturers as well as support in the job search process.
- Nicole Rena, an Army veteran and now a shift operations manager at Smithfield Foods, applied to five jobs at Smithfield and didn’t hear back on any of them. But then the program manager at HMA contacted Smithfield’s talent acquisition department to ask if they could speak with Rena about why she wasn’t chosen, so she could be more successful moving forward.
- As Rena put it, “The first 15 minutes of the call was about what I could do better on my resume, but after talking about my background and what I was looking for, the talent acquisition lead said he was going to count this as my first interview.”
- She landed the job! In her 18 months at Smithfield, Rena has been promoted twice.
Language can be a barrier: Rena’s experience speaks to one of the disconnects identified by veterans and manufacturers alike—the language used in job descriptions and resumes. Veterans often do not know how to best describe their skills and experiences in a way that civilian employers can understand.
- To avoid missing out on great talent, the panelists advised, manufacturers should ensure that a leader with a military background is involved in the hiring process, to translate military lingo and skills into more familiar manufacturing terms.
- Manufacturers should also specify in their job descriptions whether they will accept military experience as equivalent to an associate’s or bachelor’s degree, Bunker advised.
Support is crucial: Once veterans have been hired, the company must ensure they are set up for success. “Transitioning is a really scary process for veterans. It’s very stressful. The support that a company can provide is huge,” said Meg Zehringer, a Coast Guard veteran and a corporate environmental engineer at National Gypsum.
- Employee resource groups are a great way to provide support to veterans while also serving as a platform to advocate for population-specific needs, the panelists agreed.
- To be most effective, ERGs should be run by employees, not human resources departments, noted Vandenberg. Bunker added that establishing connections between the ERG and company leaders is also key.
The last word: “Equally as important as the wording of your job descriptions and preferred skills is creating a culture that invites a diverse group of people. That’s going to play a huge factor in attracting veterans,” said Zehringer.
Get involved: If you are interested in learning more about HMA, its next Heroes Connect event will be a networking opportunity with Johnson & Johnson on Wednesday, Jan. 25.
- You can also tune in to (or share with interested veterans) this Veterans Learning Series workshop on how to use LinkedIn effectively, coming up on Thursday, Jan. 26.
- And last, HMA will be hosting a virtual hiring fair in late February. Keep an eye on the MI website for updates!
Timmons: Debt Ceiling Uncertainty Will Derail Manufacturing Growth
Manufacturers Call on Administration and Congress to Act Swiftly
Washington, D.C. – National Association of Manufacturers President and CEO Jay Timmons released the following statement regarding negotiations to raise the debt ceiling:
“It is imperative that Congress and the administration reach a resolution to the debt limit issue as swiftly as possible. Waiting to act until extraordinary measures are exhausted constitutes dangerous brinkmanship that would inject uncertainty into the global economy and increase the risk of a default that would derail manufacturing growth in America, tank markets and put jobs at risk.
“We did not become the greatest nation in the world by shirking our responsibilities. Manufacturers have been working overtime to rebuild our economy, strengthening supply chains, creating jobs at record rates and helping defend against threats from around the world. All of those achievements will be erased if the United States does not find a path forward on the debt limit and fiscal responsibility. Let’s rise above this challenge so that manufacturers can do what we do best: improve lives and livelihoods here and around the world.”
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The National Association of Manufacturers is the largest manufacturing association in the United States, representing small and large manufacturers in every industrial sector and in all 50 states. Manufacturing employs more than 12.9 million men and women, contributes $2.81 trillion to the U.S. economy annually and accounts for 55% of private-sector research and development. The NAM is the powerful voice of the manufacturing community and the leading advocate for a policy agenda that helps manufacturers compete in the global economy and create jobs across the United States. For more information about the NAM or to follow us on Twitter and Facebook, please visit www.nam.org.