NTMA/PMA One Voice
Domestic Small and Medium Sized Manufacturing (SMM)
Policy Recommendations
Guiding Principle for a Domestic Small and Medium Manufacturing Strategy
The U.S. needs a vibrant, competitive small and medium manufacturing capability in order
to:
• create family sustaining jobs;
• promote innovation;
• drive economic growth, and;
• provide for our national security.
We are pleased that President Obama is placing a high public profile on manufacturing and
are encouraged that the Administration recognizes the need to develop federal policy and
programs to help US manufacturers, both small and large. It is more important than ever that
the federal government and industry work together to develop an industrial strategy
designed to build and grow a sustainable domestic manufacturing sector that can protect our
national security and strengthen our economy now and into the future. In order to succeed,
these policies must encourage domestic manufacturing, incentivize the return of offshore
jobs, and level the domestic and international playing field that has seen so many American
jobs and businesses disappear or go offshore.
The U.S. metalworking industry is fundamental to our country’s economy and central to
strengthening our domestic defense industrial base. Our industry produces components
found in over 90 percent of U.S. manufactured goods and equipment, including a wide
variety of energy-saving and renewable energy products. In fact, it supports the viability of
nearly every key domestic industry sector ranging from agricultural and mining, energy, and
transportation, to aerospace, medical devices, electronics, national defense, and homeland
security. Oftentimes, our products are not readily identified since our contribution, though
essential, is often internal, part of an assembly or good and frequently under the cover of a
machine.
A modern globally competitive economy cannot exist without metalworking. Without the
diverse metalworking sectors, we could not defend this nation, would not have solar panels,
wind turbines, lightweight vehicle parts, water efficient plumbing products or energy-
efficient appliances, among many others. The majority of our industry is comprised of
small and medium-sized firms; many of which are still family-owned.
U.S. manufacturers pay between 17 and 31 percent more in nonproduction costs than the
nation’s nine largest trading partners, according to published reports.1 Rather than support
our manufacturing sector, historically, the government can often serve as the largest
impediment to our competitiveness in the global marketplace, particularly for the 98% of
1
The Manufacturing Institute and the Manufacturers Alliance/MAP, "An Update on Structural Cost Pressures
Facing U.S. Manufacturers," 2008.
Domestic SMM Policy
manufacturers classified as small businesses. While some positive programs exist, much of
this global disadvantage is due to government-imposed costs and policies.
Foundation of a Domestic Small and Medium Manufacturing Strategy
Access to Credit
Manufacturers, especially in the metalworking industries, rely on credit for working capital.
They use this to buy supplies and meet payroll in advance of payment by their customers —
typically a lag time of up to 120 days. In the current economic environment, traditional
lenders are not lending to manufacturers. Automotive suppliers, in particular, find it near
impossible to obtain adequate and timely credit. An October survey by the Precision
Metalforming Association and National Tooling and Machining Association found that 66%
of SMMs in the metalworking industries report problems accessing credit to finance capital
and 68% anticipate difficulty accessing credit when the economy begins to grow. Opening
access to credit for SMMs will prevent further disruption in the manufacturing supply chain
and is critical to investing in new manufacturing technologies and exploring new energy
markets, but new banking regulations are restricting banks from lending even to some of the
most credit-worthy SMMs.
We recommend that the federal government:
• establish a public-private program to facilitate loans to SMMs. Private Sector banks
would provide loans to temporarily impaired SMMs who meet reasonable criteria
for credit worthiness and the federal government will guarantee the loans.
o If an SMM can satisfy such criteria, a requirement for a personal guarantee
shall be waived. A loan could still be provided to a SMM that cannot satisfy
all criteria so long as it can demonstrate sufficient collateral (including work
in process, inventory, and plant and equipment).
• should temporarily change loan criteria for existing federal loan programs, such as
the Small Business Administration’s 7(a) loan program, away from cash flow toward
other reliable criteria more in tune these economic times. Despite an increase in
government guarantees and loan limits, the emphasis on cash flow excludes many
small manufacturers from participating during this economic crisis. In addition, a
personal guarantee is required for a Subchapter S family-owned small business, a
mandate not placed on traditional C Corporations and their shareholders.
Taxes
In order to strengthen the competitiveness of SMMs, we need tax policies that encourage
investment and eliminate tax disadvantages. For example, the corporate tax rate in the U.S.
is 8% higher than our nine largest trading partners (tax rate in China is 15% lower). Sole
proprietorships and other “pass-through” entities, such as S Corps and LLCs account for
72% of all small businesses in the U.S.2 Due to their corporate structure, taxes are paid by
the owners at individual rates.
Furthermore, manufacturing drives innovation by conducting nearly half of all research and
development and creating the bulk of technology in the nation.
2
IRS Statistics of Income - 2004.
Domestic SMM Policy
We need a federal policy that:
• Reduces the federal taxes paid by businesses to make U.S. manufacturers more
competitive globally. The federal government should recognize that a tax increase on
those who report higher incomes in the top two brackets is a direct tax increase on
SMMs and reduces their ability to reinvest in their employees and facility.
• Supports tax incentives that encourage investment in U.S. manufacturing facilities,
in new manufacturing technologies, and foster a healthy manufacturing sector, such
as a:
o Domestic Manufacturing Credit,
o Permanent the Research and Development Tax Credit;
o Extended 50% Bonus Depreciation;
o Enhanced Section 179 Expensing;
o Extended 5-year Net Operating Loss (NOL) Carryback; and.
o Continuation of Last-In-First-Out (LIFO) accounting.
Energy
The industrial sector uses more than 30 percent of U.S. energy and is responsible for nearly
30 percent of U.S. carbon emissions. Increased energy costs combined with fewer domestic
sources of raw materials reduce the global competitiveness of domestic SMMs. The
Administration should not support energy legislation that will substantially increase those
costs and further limit resources.
Federal energy programs intended to foster new energy efficient technologies, such as the
Department of Energy (DOE) Advanced Technology Vehicles Manufacturing (ATVM)
Loan Program (the small business set aside grant has yet to receive a federal appropriation)
and the DOE/Treasury Manufacturing Tax Credit (MTC), are unavailable to most SMMs,
particularly those in the lower tiers of the production chain.
Funding for federal manufacturing programs has fallen dramatically over the past 15 years.
While we applaud the Administration's commitment to the Technology Innovation Program
and other programs at NIST and U.S. Department of Energy (DOE) more must be done to
improve the public private partnership.
The federal government can improve the energy efficiency of SMMs by:
• encouraging development and implementation of new technologies without taxing
energy intense industries;
• ensuring that energy programs are available to all SMMs, including those in the
lower tiers of the production chain, and streamline their application process;
• providing more resources and funding for the Manufacturing Energy Consumption
Survey issued by the Energy Information Administration (due to budget cuts, the
sample size is shrinking and the report is only released every four years making it
difficult to obtain timely energy data);
Domestic SMM Policy
• increasing funding for new and existing research programs, such as DOE’s Industrial
Technologies Program (ITP), that encourage rapid development of new energy
manufacturing technologies and energy efficiency processes if the U.S. is to compete
with countries like China3 and Germany.4
• the federal government should promote the clean development of domestic energy
sources, thereby significantly reducing the portion of the U.S. trade deficit that is
caused by our dependency on imported carbon units.
Trade
Trade can be a significant engine of growth for SMMs with proper enforcement and open
access to foreign markets. We applaud the Administration’s efforts to promote trade and
enhance global competitiveness, and we support the priorities for improving trade set forth
by Commerce Secretary Locke this summer. However, we must keep in mind that leveling
the global playing field for American manufacturers starts at home.
The Administration should:
• enforce trade agreements and correct currency imbalances and manipulation by our
trading partners in order to ensure that U.S. manufactured products are competitive
domestically and worldwide;
• encourage the production and consumption of domestic sources for our nation's
defense;
• provide additional resources to the Census Bureau, in order to obtain more in-depth
information from the primary source of economic information - the Census of
Manufacturing and the Annual Survey of Manufacturing (budget cuts have impacted
the depth and timing in which the data is released);
• set aside funds to ensure that NAICS and Harmonized Tariff Schedule (HTS) codes
correspond so that both policymakers and SMMs have the data they need [Many
products made by industries within manufacturing NAICS 31-33 do not either
correspond to a HTS number or NAICS code, without which the federal government
cannot determine the level of imports and exports of those products.]
• Provide a monthly sector-by-sector analysis of domestic manufacturing that reports
how domestic and international policy is effecting manufacturing sectors to better
identify policies that reduce U.S. competitiveness.
Workforce Recruitment, Training, Retention
A well-trained and skilled workforce is essential to the future success of manufacturing in
America. It is the driver of innovation. SMMs in particular maintain excellent relationships
with their workers, often employing multiple generations of the same family, and paying
excellent wages. However, SMMs often lack an organized recruitment base enjoyed by
larger corporations in various industries.
3
China produces 40% of the world's solar panels (Wall Street Journal, "Applied Materials Looks to China for
Solar's Future," Sept. 25, 2009.)
4
With more than 50,000 new jobs, the renewable energy industry in Germany is now second only to its auto
industry (New York Times, Thomas Friedman Op-Ed "Have a Nice Day," Sept. 15, 2009.)
Domestic SMM Policy
In regards to ensuring a skilled manufacturing workforce, we recommend that the:
• Federal, State, and Local Governments should establish public-private partnerships
that coordinate an industrial strategy with K-12 schools, community and technical
colleges, and SMMs and trade groups.
• The federal government should provide funding for apprenticeship programs aimed
at jobs in the metalworking industry, as part of its effort to strengthen community
colleges and vocational institutions.
• The federal government should establish federal grants directly to non-profit
foundations and educational institutions for workforce recruitment, training, and
retention including youth outreach.
We must focus on our strengths. Potato chips or microchips, green jobs or blue jobs, we
need them all, but there will be no lasting growth in America until there is trade reform that
unleashes the genuine strength of industries like ours to compete for our fair share of the
global economy, including here at home.
The U.S. must focus on a significant re-investment in the manufacturing industry in order to
drive critical innovation, develop the skills of the next generation of workers, and effect
policies that sustain a favorable business climate so that manufacturing jobs remain in this
country.