Business
11:01 pm
Sun March 4, 2012

Are Tax Breaks The Right Move For Manufacturing?

Originally published on Fri March 9, 2012 9:51 am

The White House says restoring the U.S. manufacturing sector is an essential part of getting the economy back on track.

GOP candidate Rick Santorum wants to see tax breaks for manufacturing companies, and the Obama administration proposed something similar last week. But economists say tax breaks may not be the best way to help manufacturers right now.

Over the years, the steady loss of good factory jobs is a big reason why wages have stagnated for people who never went to college, says Dean Baker, co-director of the Center for Economic and Policy Research.

"The reality is that historically, and at the present still, [manufacturing] is a source of relatively good-paying jobs for people without college degrees," Baker says.

That's about 70 percent of the workforce.

The plan put forward by the Obama administration last month would cut the corporate tax rate from 35 percent to 28 percent for all companies, and reduce it even further for manufacturers. It would also close a lot of the loopholes and deductions they now enjoy.

The aim is to help companies such as GSE Dynamics on Long Island, N.Y., a maker of parts for the Navy and the Air Force. The company is small, with just 48 employees. Owner and President Anne Shybunko says a big concern is maintaining an adequate flow of capital to keep the company going.

"Access to money is always an issue with me, so I have to be very clear on what jobs I take," Shybunko says.

Shybunko says taxes aren't her biggest challenge; there are others, like health care costs, finding skilled workers and just the general expense of doing business in New York. But she says a tax cut would definitely help her bottom line.

"You put more money into the hands of the small-business owner, we can hopefully use that money to buy more capital equipment, increase our capabilities, get more work in the door ... [and] obviously hire more people," she says.

Tax breaks for manufacturers might seem to be an idea that politicians on both sides of the aisle can agree on, but almost everyone thinks the administration's plan has little hope of passage this year. The problem is the elimination of the loopholes and deductions that manufacturers now get.

Dorothy Coleman of the National Association of Manufacturers says such a move would hurt as many companies as it would help.

"These are things that have been in the tax code for a long time, and all of a sudden to change the rules midstream is going ... [to] translate into a tax increase for these companies," Coleman says.

Coleman also dislikes another idea put forward by the administration: a minimum tax on a company's overseas earnings. She says it would put U.S. companies at a disadvantage against foreign rivals.

Beyond that, some economists say there are practical problems with implementing a tax break for manufacturers, like deciding who qualifies. There are many companies, like food processors and movie makers, that produce products. Suddenly, they'd have a new incentive to call themselves manufacturers.

Baker says this is the wrong way to help the sector.

"To try to do it through the tax code — basically ... the people you end up helping are people who are good at gaming the tax code," he says.

Baker says the best way to help manufacturers would be to have a weaker dollar that would make U.S. goods more competitive abroad, but that's controversial and candidates shy away from even talking about it.

For manufacturers, the good news is that there's a steadily growing appreciation for what the loss of manufacturing jobs has meant for the economy. There is also a new desire in Washington to find ways to restore some of the sector's luster — even if there is no consensus yet about how to do that.

Copyright 2013 NPR. To see more, visit http://www.npr.org/.

Transcript

STEVE INSKEEP, HOST:

Some business news now. In this election year, manufacturing is a hot topic. Republican Rick Santorum has called for tax breaks for manufacturing companies. Last week, President Obama's administration proposed something similar. So proposals like this have bipartisan support, just not so much support from economists. NPR's Jim Zarroli reports.

JIM ZARROLI, BYLINE: The White House says that restoring the U.S. manufacturing sector is an essential part of getting the economy back on track. Over the years, the steady loss of good factory jobs is a big reason why wages have stagnated for people who never went to college.

Dean Baker is co-director of the Center for Economic and Policy Research.

DEAN BAKER: The reality is that historically, and at the present still, it's a source of relatively good-paying jobs for people without college degrees, which is still roughly 70 percent of the workforce.

ZARROLI: The plan put forward by the Obama administration last month would cut the corporate tax rate from 35 to 28 percent for all companies, and reduce it even further for manufacturers. It would also close a lot of the loopholes in deductions they now enjoy.

The aim is to help companies like GSE Dynamics on Long Island.

(SOUNDBITE OF FACTORY MACHINE)

ZARROLI: The company makes parts for the Navy and the Air Force. Today a worker is fashioning rivets that will bind pieces of metal together for a B1 Bomber. GSE Dynamics is small, just 48 employees, and owner and president Anne Shybunko says a big concern is maintaining an adequate flow of capital to keep the company going.

ANNE SHYBUNKO: Access to money is always an issue with me, so I have to be very, you know, very clear on what jobs I take.

ZARROLI: Shybunko says taxes aren't her biggest challenge; there are others, like health care costs, and finding skilled workers, and just the general expense of doing business in New York. But Shybunko says a tax cut would definitely help her bottom line.

SHYBUNKO: So you put more money into the hands of the small-business owner. We can hopefully use that money to buy more capital equipment, increase our capabilities, get more work in the door; get more work in the door, obviously, hire more people.

ZARROLI: Tax breaks for manufacturers might seem to be an idea that politicians on both sides of the aisle can agree on, and yet almost everyone thinks the administration's plan has little hope of passage this year. The problem is the elimination of those loopholes and deductions that manufacturers now get.

Dorothy Coleman of the National Association of Manufacturers says that would hurt as many companies as it would help.

DOROTHY COLEMAN: These are things that have been in the tax code for a long time, and you know, all of a sudden to change the rules midstream is going to end up translating into a tax increase for these companies.

ZARROLI: Coleman also dislikes another idea put forward by the administration: a minimum tax on companies' overseas earnings. She says it would put U.S. companies at a disadvantage against foreign rivals.

Beyond that, some economists say there are practical problems with implementing a tax break for manufacturers, like deciding who would qualify. There are a lot of companies like food processors and movie makers that produce products. Suddenly they'd have a new incentive to call themselves manufacturers.

Dean Baker says this is the wrong way to help the sector.

BAKER: To try to do it through the tax code, basically I think the story there is the people you end up helping are people that are good at gaming the tax code.

ZARROLI: Baker says the best way to help manufacturers would be to have a weaker dollar that would make U.S. goods more competitive abroad, but that's controversial and candidates shy away from even talking about it.

For manufacturers, the good news is there's a steadily growing appreciation for what the loss of manufacturing jobs has meant for the economy. There is also a new desire in Washington to find ways to restore some of the sector's luster - even if there is no consensus yet about how to do that.

Jim Zarroli, NPR News, New York. Transcript provided by NPR, Copyright NPR.