September 24,2004

Grassley, Baucus Assert Value of Manufacturing Benefits Under the JOBS Act

WASHINGTON – Sen. Chuck Grassley, chairman of the Committee on Finance, and Sen. Max Baucus, ranking member, today sent the following “Dear Colleague” letter asserting the valueof the manufacturing benefit under the Jumpstart Our Business Strength (JOBS) Act.

The text of the senators’ letter follows. Attachments are included.

September 24, 2004

Manufacturing Benefits Under the JOBS Act

Dear Colleague:

We are writing to correct a misleading assertion that few corporations would benefit fromthe manufacturing deduction in the Senate-passed Jumpstart Our Business Strength (JOBS) Act.Early last month, it was asserted that 99 percent of the 2.2 million corporations that will filecorporate tax returns next year will receive either no benefit, or less than $50,000 of benefit, underthe manufacturing deduction in the Senate JOBS bill. This assertion is misleading, and it is importantfor us to correct the record as a conference on the JOBS Act is imminent.

As its name would suggest, the manufacturing deduction benefits only manufacturers. The2.2 million corporate returns represent all corporate filings, regardless of whether the corporationis a manufacturer, a bank, a service company, or a dormant shell entity. Only 126,000 of these 2.2million corporations identify themselves as active manufacturers. Forty-three percent of thesecompanies will have manufacturing profits eligible for the deduction, and a significant percentage --over 35 percent -- of all C corporation manufacturers will benefit from the manufacturing deduction.Some corporations may not benefit because of operating losses. For those companies, the JOBS billprovides a modified 5-year carryback of net operating losses and AMT relief for loss companies thathave continued to invest in their U.S. operations.

Moreover, whereas the August assertion focused on C corporations alone, the JOBS billmakes no distinction between large manufacturers set up as C corporations and smallermanufacturers organized as partnerships, S corporations, or sole proprietorships. We have alwaysfelt that it was necessary to include all manufacturers in this provision, because it is themanufacturing sector as a whole that needs our help.

In this regard, a full quarter of the benefit of the manufacturing deduction will be shared byapproximately 85,000 S corporations, 15,000 partnerships, and 50,000 sole proprietorships. This justcannot be dismissed as insignificant.

Last month's statement also implied that a manufacturing benefit of less than $50,000 isinsubstantial. A corporation would need around $3 million of income from domestic manufacturingto receive a $50,000 benefit in 2005. Less than 5,000 of the largest manufacturers will receive abenefit in excess of $50,000 next year. However, for the thousands of small manufacturers acrossour nation, a benefit of less than $50,000 would be a welcome relief. And, once the manufacturingdeduction is fully phased-in, it will take only $1.6 million in income from domestic manufacturingto receive a $50,000 benefit. Attached is a letter from the Joint Committee on Taxation that supportsour positions in this letter. We have also included two charts that illustrate the distribution of themanufacturing benefit.

It is time for Congress to step up and pass this bill. Doing so will end the European sanctionsthat we should have dealt with long ago and give America’s manufacturers -- both large and small --a much-needed boost.


Charles E. Grassley 

Max Baucus
Ranking Member