#MetalMatters: Tax And Regulatory Policy

“A politician thinks of the next election.
A statesman, of the next generation.”

– James Freeman Clarke

Kathy’s family has owned a cabin near Luddington, Mich., on the eastern shore of Lake Michigan, since 1913. We traveled there again this summer, with our grandchildren in tow. They are the sixth generation to enjoy the community and beauty that surrounds the cabin.

Our respite came before the recent stock market volatility, but even so, residents were consumed with economic anxiety. We heard a lot about high gas and grocery prices and interest rates. Obviously, Federal Reserve decisions have something to do with these pressures, but so does tax and regulatory policy. Higher levies and burdensome rules impose costs on businesses that, ultimately, are passed on to consumers.

In my first column of 2024, I promised to take the election year to drive respectful debate about the policies that affect the industrial metals industry. Why? Because, as the quotation above from American theologian and author James Freeman Clarke explains, these decisions will shape the next generation. I have examined trade policy and this quarter I want to discuss taxes and regulations.

Before I begin, however, I want to invite you to this September’s MSCI 2024 Economic Summit. We will welcome former Obama administration economist Jason Furman and Republican economist Douglas Holtz-Eakin who will provide an even deeper look at these issues. Register here. Throughout the year, MSCI members can stay on top of market twists by accessing our two free industry intelligence products: the Economic Pulse and Momentum Monitors. Members also can join our quarterly webinar with Keybridge Research economists. The next one is set for Aug. 29. Register here.

MSCI’s Take On Tax And Regulatory Policy

It is difficult to have a conversation about taxes without considering what the U.S. government spends each year. Our country is burdened with a large national debt that will affect interest rates, spending priorities, and the overall economy. For years, though, MSCI has argued raising taxes will not reduce the debt and will only make it more difficult for U.S. companies to create jobs, invest, provide quality employee benefits, and compete against global counterparts. Alternatively, a stable, fair tax system that encourages risk and investment will spur greater growth, producing higher federal revenues.

When it comes to tax matters, policymakers must:

• Ensure a globally competitive North American manufacturing industry by reducing the tax burden on the U.S. metals industry;
• Ensure businesses that pay federal taxes through the individual income tax code are treated equitably;
• Ensure the tax code does not benefit certain individuals, businesses, or industries at the expense of others;
• Allow U.S. companies with a global footprint to bring back overseas profits without double taxation; and
• Put in place permanent policies that foster certainty and avoid temporary fixes that breed business and individual taxpayer anxiety.

Regulations can be as costly as high taxes.

Indeed, according to the National Association of Manufacturers, in 2022 federal regulations cost an estimated $3.079 trillion. That number was equal to 12 percent of the U.S. economy and larger than the manufacturing sector’s entire economic output.

When it comes to regulatory matters, policymakers must:

• Make regulatory frameworks more conducive to job and economic growth;
• Ensure regulations solve problems, rather than benefit special interest groups;
• Require a nonpartisan, in-depth cost-benefit analysis for every proposed regulation;
• Secure congressional approval for rules with costs totaling more than $100 million; and
• Enact safeguards that prevent legislating by the regulatory agencies.

How The Two Parties Differ On Tax And Regulatory Policy

Tax policy will be one of the first matters that the new U.S. president and the members of the 119th Congress will have to tackle. As Connecting the Dots has explained, certain tax policies that were enacted in 2017 will expire starting in 2025. These provisions include the Section 199A pass-through deduction that helped thousands of small and medium-sized manufacturers and industrial metals firms invest in their businesses.

The Northern Trust Institute (NTI) has a full list of expiring tax policies at this link. NTI also has summarized how the two major parties will deal with these issues. Neither party has made clear where they stand on the Section 199A deduction.

One of the biggest differences between the two parties comes on the corporate tax rate, which currently is 21 percent. Republicans want to reduce that rate to 15 percent; Democrats, including presidential nominee Kamala Harris, want to raise it to 28 percent. Democrats also want to raise the corporate minimum tax.

Regarding individual incomes tax rates, Democrats would raise the top bracket to 39.6 percent from 37 percent on single taxpayers who earn more than $400,000 a year and married couples who earn more than $450,000. For taxpayers earning less than $400,000, Democrats would keep income tax rates the same.

While Republicans would not raise personal income tax rates, Donald Trump has said he would Impose tariffs on imports, including a 60 percent tariff on imports from China.

Specific regulatory policies are more difficult to nail down.

The Republican Party Platform for 2024, available here, did promise to “slash regulations that stifle jobs, freedom, innovation, and make everything more expensive” and to “implement transparency and common sense in rulemaking.”

Democrats revealed their party platform in August. It called for making investments in infrastructure and manufacturing and, but on the regulatory front was largely silent on regulatory matters.  As CNBC reported, supporters of Kamala Harris have said her regulatory focus will be to foster business growth and competition. Specifically, speaking for the Harris campaign, Gov. Wes Moore (D-Md.) said, “Making sure that we are both supporting our small businesses and making it easier for small business to be able to grow, and also making it easier for our large industries to be able to compete within our states and within this country is something that is going to be important.”

Over the next month, candidates from both parties will add more detail to their economic platforms, including during a Sept. 10 debate between Harris and Trump that will air on ABC News. Certainly, there will be plenty to discuss at our 2024 Economic Summit. Again, I invite you to register at this link. As former President Barack Obama said in January 2009, “elections have consequences.” Join us to learn more about the policies that will affect your business in 2025, and over the coming future generations.