The budget crisis, tax reform and spending cuts will garner most of the attention on Capitol Hill in 2013, with a hope -- but no guarantee -- that anything more than a temporary fix will emerge.

For manufacturers, however, an aggressive regulatory program, particularly at the Environmental Protection Agency, may be the most troublesome item on the agenda in Washington, the nation's financial problems notwithstanding.

"Other than the nation's debt and deficit issues and comprehensive tax reform, manufacturers are most concerned about the regulatory burden," says Larry Sloan, president and CEO of the Society of Chemical Manufacturers and Affiliates. "That is a major issue we are addressing on a regular basis. The biggest threats to our businesses are the crush of regulatory initiatives, regulatory uncertainty and concerns that our taxes are going to go up because of the fiscal cliff."

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How the White House and Congress deal with the federal debt, which currently stands at $16.4 trillion, and the annual federal deficit -- which has topped $1 trillion in every year of the Barack Obama presidency -- "will determine what happens the rest of the year," says AnnMarie Treglia, regional manager of government affairs and the environment for Dart Corp., a privately held $3 billion foodservice packaging manufacturer headquartered in Mason, Mich.

Brad Close, VP Public Policy"Taxes and the budget deficit are going to be the dominant issues this year in Congress," she says. "What else gets done depends on how fast they address tax issues," including both the corporate and individual tax rates.

Brad Close, vice president of public policy for the National Federation of Independent Business, agrees.

"Congress is going to spend a lot of time on the debt challenge, spending and tax reform," he says. "It will be the same fights, the same issues and I'm not sure we are going to get an atmosphere where the White House reaches out and looks for a middle ground."

Focus Will Be on Agencies, Not Congress

How the federal government eventually resolves the nation's fiscal issues will have a huge impact on manufacturers. And changes to the individual tax rates, not just the corporate tax rates changes, are equally as critical to the nearly 4 million S corporations and more than 3 million limited partnerships in the U.S. that together account for 80% of all U.S. businesses.

The reason: most of those companies file taxes as pass-through corporations, so their taxes are based on individual tax rates. As a result of the fiscal cliff deal, small business owners with individual incomes above $400,000 or family incomes above $450,000 will pay higher taxes.

Other issues on the federal legislative front in 2013 that could greatly affect manufacturers include:

  • Initiatives to make changes to the health care law before additional provisions go into effect.
  • A push for greater Congressional review of regulatory activity.
  • Legislation that would boost energy-efficiency standards for buildings and appliances.
  • Reform of the Toxic Substances Control Act, which is the chemical management system used by the EPA.
  • In addition, more free trade agreements could reach Capitol Hill as the White House plans to continue discussions with nine other countries on a Trans-Pacific Partnership, and is currently in discussions with the European Union on whether to set in motion negotiations for a free trade agreement between the U.S. and Europe.

Yet, clearly, regulatory issues are uppermost in the minds of most manufacturers and manufacturing trade associations.

"Our focus is not going to be Congress, it is going to be the agencies," says Mike Lynch, vice president of government affairs at Illinois Tool Works Inc. (IW 500/65), an $18 billion diversified global manufacturer based in Glenview, Ill., that makes industrial packaging, commercial food equipment and a variety of other products.

"I expect the White House to use the agencies to move forward policies that they are not able to push through Congress," says Lynch. "President Obama will use his agencies to achieve his environmental objectives and get his agenda adopted."