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Majority says manufacturing should have lower tax rate

A nearly two-thirds majority of respondents to this week’s RBJ Daily Report Snap Poll says manufacturing should be singled out for a lower tax rate. And nearly all respondents say manufacturing job growth is important to the health of the U.S. economy.

When President Barack Obama unveiled his corporate tax reform plan a few weeks ago, he included a provision to cut the effective tax rate on manufacturing to no more than 25 percent. That compares with his proposal for a top corporate rate of 28 percent, down from 35 percent currently.

At the other end of the political spectrum, Republican presidential hopeful Rick Santorum has called for a zero tax rate for manufacturing activity (and a 17 percent business income tax rate).
U.S. manufacturing employment peaked in 1979 at nearly 19.5 million. Since then, it has fallen roughly 40 percent, though industrial jobs rebounded slightly in 2011, according to preliminary data. In the Rochester area, the employment decline has been even steeper—more than 50 percent since 1990.

More than three-quarters of respondents said manufacturing job growth is “very important” to the health of the U.S. economy; 22 percent answered “somewhat important.”
Roughly 525 readers participated in this week’s poll, which was conducted March 5 and 6.

Should manufacturing be singled out for a lower tax rate?
Yes: 65%
No: 35%

In your view, how important is manufacturing job growth to the health of the U.S. economy?
Very important: 76%
Somewhat important: 22%
Not very important: 2%
Not at all important: 0%

Here are some comments from readers:

As the owner of a small technology-driven company for 20 years, I am starting to see a shift in U.S. companies bringing business back to the U.S. from offshore suppliers. The reasons range from quality, culture/language barriers to true landed costs. It is still cost-effective to use offshore suppliers for products that require a large amount of manual labor; however, we are competitive with products that use a large percentage of automated assembly processes. This competitive edge will erode if U.S.-based manufacturers do not receive some financial support. With increases in taxes, health care (ours increased 85 percent last year) and operating cost, there is little left to invest in capital equipment. If we are unable to invest in newer technology, we will quickly lose our competitive edge. It is already an uphill struggle due to the subsidies that offshore companies receive from their governments. I do not like government intervention into the markets, but something needs to happen to regain the “Made in USA” product share.
—Jerry Valentine, president, Surmotech Inc.

I think that manufacturers should be given an incentive, but with stipulations. A reduced rate for a limited period of time and additional employees to be hired for at least as long as the reduced tax break is active in that company.
—Christine Acheson

Special “incentives” distort investment. As a CPA, I know that very often businesses do not know about the special deductions and credits available to them until their CPAs prepare their tax returns. They would have undertaken the activity without the special benefit granted by the tax law, which acts as a subsidy, not an incentive. Tax laws should be neutral so every business endeavor has the same tax cost structure. Business will find the most worthwhile investments without government guidance, which often results in bad choices and unintended consequences.
—Arnold Gray, CPA

Any decrease in taxes paid by corporations and manufacturing would only mean more money in the pockets of management and owners. It would not mean that the majority of companies would hire more people, create more jobs or increase wages to what they were 10 years ago. It would only increase the difference between the haves (management and owners) and the have-nots (the workers)!
—Sandy Johnson, Delaney Educational

Job creation springs from wealth creation. If you don’t make anything (tangible or intangible), you are not creating real wealth. Losing our manufacturing expertise puts us at a great disadvantage economically, socially, militarily and politically. We all lose. The wealth does not need to be concentrated in the hands of few.
—Bill Lanigan

We should not single out anything or anybody when it comes to taxes. If taxes are too high, then reduce them, but reduce them for everyone. Our current tax system is already so convoluted with different tax rates for just about anything you can think of. Tax everyone equally—period. You know if we give one group a tax break, it will just end up overly burdening another group to pay for it.
—David Wagner

What is this, “Atlas Shrugged”?
—Will Phillips

Because of the trickle-down effect that manufacturing has in our economy, it is very important that we do all what we can to increase manufacturing and bring back jobs from overseas. Credits and other incentives are just part of the way to do this (less restrictive regulations are another). That being said, we shouldn’t give away the store or allow loopholes to be used with no real jobs created. Any legislation should have a sunset provision and any credits phased out as certain revenue and employment figures are met.
—Richard J. Doe, Nacca & Capizzi CPA

This is another of Obama’s “sleight of hand” tricks to raise the rates on the supposed rich. It will not solve the problem. Manufacturers’ biggest problem is finding enough skilled labor to do the jobs available today. The unions have benefited greatly under Obama. Where are they in providing the apprentice programs needed to provide the skilled workforce needed for today’s industrial jobs? The public schools have also let us down with a concentration on primarily training our young folks to go to college. A qualified trade person can earn more than a college-educated technician. We need to refocus our youth (so they) understand the factory jobs of today are much different than the ones we had 30 years ago—and probably refocus our adults to the same fact.
—Jim Nielsen, LeRoy

Hey, why just manufacturing? Why not adopt the Santorum plan and make it a cap of 17 percent across the board for all business and people in general. No deductions, no loopholes, just a flat tax. That would bring all those offshore dollars back into the American economy and jump-start this dead economy. Had we adopted this plan back when Steve Forbes suggested it, this country would be rolling in cash.
—Jim Duke, Victor

Everyone should receive a tax break. Why are we picking winners and losers?
—Devon Michaels, Chili

Until we get back to making more things in this country, we are not going to turn around this recession, and future generations will continue to pay.
—Vince Bryant, Site-Seeker Inc.

The government has to stop picking winners and losers in the private sector. We need every sector of the private economy to be a winner. Since it seems that this administration has finally figured out that lower tax rates stimulate business, they should lower tax rates on all business. This should be extended to small businesses that file as Chapter S. Historically, reductions in tax rates have lead to higher tax revenues, as the economy grew. Economic growth means more jobs and lower unemployment. This in turn reduces government spending. In a dream world the politicians use the surplus to reduce debt. Now if we can only elect people who understand this simple concept.
—Dennis Ditch

As long as about 50 percent of our population is sucking on the taxpayers, we must grant relief to those who are productive!
—John Sackett, Byron

Only the country that produces the goods, benefits from its full potential. Manufacturing these products is the only way that we can be the head in the global economy, not the tail.
—Michael J. Hennessy

A tax break is good if the savings go to the consumer, not the stakeholders.
—Ron Borden

The argument that the tax rate shouldn’t be lowered and that markets should be let to work is false. The tax rate already skews the global market. The closer the U.S. tax rate (is) to that of other developed countries, the better for our manufacturing base. High taxes are negating our skilled workforce and strong infrastructure.
—Matthew Convery

Manufacturing is the most important segment of our economy. It takes raw materials and labor and turns them into a product that has greater value than the individual components. Often that product is used in another manufacturing process to produce even greater value. But taxes should apply to all segments of the economy. The political proposals demonstrate once again the foolhardy belief that the government can substantially affect the economy. The best thing that politicians can do is get out of the way of people and businesses that make America run. This question also demonstrates the myth that taxes alone slow economic growth. There are many other restrictions that government imposes on business to burden the economic engine. Reading, understanding and complying with government regulations; some of contradict each other. Filling out yet another form. I fill out three different forms when I hire an employee. One is four pages long but only about half of one page is actually filled out. The rest is instructions. Talking or (even worse) meeting with government regulators. The list goes on and on.
—Jeff Luellen
 
While the stock market rises and falls, people will always need something from toothpaste to toilet paper, cell phones to cars. But the trend to move manufacturing away from Rochester has taken its residents with the jobs. If Rochester intends to keep its chin up in spite of Kodak, Xerox, Delco, Rochester Products and Bausch & Lomb, all who either gave up manufacturing here or have cut back dramatically, maybe if we lowered the highest taxed state to the normal or even a lower tax to attract the manufacturing sector back to Rochester maybe then we will be the starring force like we were in the early days where Upstate New York was home of the camera and copier and was a technology leader. Before we lose all the talent, maybe we should try something.
—David J. DeMallie

To jump start the economy, we need lower tax rates on everyone. To do that, the federal government needs to drastically reduce its spending. There is no reason governments should reward certain companies or individuals with special incentives or tax breaks—such as CollegeTown ($40 million from HUD and the city) or Wilmorite for Greece Town Mall. Level playing fields and lower taxes for everyone.
—Bruce Anderson, Alpha & Omega Parable Christian Stores

There should be a sunset date on any legislation of this type triggered by met goals.
—Terry McArdle

Americans have disrespected our manufacturing base for far too long while we allow countries like Germany, Japan, China and others take jobs away. The United States cannot solve the problems of poverty and social injustice without the possibility of people having an opportunity for a job.
—Neal Elli, president, Empire Precision Plastics

We need to be a nation of producers again; just being a nation of consumers hasn’t worked out so well.
—Mike Gooding, Good Vibrations Inc.

As a small business CEO, I am fully aware of the distress that paying taxes takes on a business. It is very difficult to build the momentum needed for growth with the taxes as high as they are now. Tax money is investment money taken from the company as well as pay raises for employees. With the lower taxes, we would be able to make the necessary investments in the company we need for growth. We would also be able to hire more people as the new growth would require people to handle it. It is a fairly basic concept that works. Let’s see if our government has the smarts to do the right thing.
—Marion Oyer, Bags Unlimited

Manufacturing is extremely important to the sustained growth and well being of our nation. We need to find creative, balanced and honest ways to attract and retain manufacturing here. Tax reduction is only one way to do this. We also need great infrastructure, power and professional talent to make this happen. Now while it is a good thing to reduce taxes to lure manufacturing here, it must be done in a sustainable and measured way. We should provide tax breaks with the conditions that job growth will be guaranteed and if not the money will be paid back. The jobs must also be quality jobs with sustainability and workers must receive reasonable salaries. If necessary, the state may have to receive a vested interest in the company to ensure the company is being managed in a viable manner. I’m all for attracting manufacturing jobs. I also want the workers to receive a fair shake and not just line the pockets of the managers.
—Bob Stein

Also do away with NAFTA if we want to put our own people to work. What can we do to bring back the manufacturing already sent to China?
—Paul Conaway, Lockheed Martin, Syracuse

Anytime the government does something to distort the market, the results will be less than the ideal. It should encourage economic growth, not decide where the growth comes from.
—Jim Haefner, Pittsford 

Manufacturing is the highest value-added process that creates the most jobs. It is also a process that is most sensitive to costs, government regulations and taxations. Over the years, the intangible costs of government regulation burdens, labor relation burdens, reporting and compliance burdens, environmental burdens and health and wellness burdens drove manufacturers to find better alternatives. Thus the destruction of our manufacturing base and job opportunities. When about 70 percent of our country’s GDP is from consumer spending, this is extremely unhealthy. Only the revival of domestic manufacturing could save our economy over the long term.
—Patrick Ho, Rochester Optical 

Dear U.S. Government: Please stop picking winners and losers. Lower the corporate tax rate of all businesses to be more globally competitive and let the markets work. If you think it makes sense to lower one tax rate (I agree), why would it not make sense to lower all tax rates?
—Todd VanHouten

Can we please employ some professional economists to handle our nation’s financial issues, instead of trusting our future to political zealots?
—Vinny Dallo, Chili

Manufacturing and government—where else do you find the union votes?
—Jay Birnbaum

A robust manufacturing sector is what made this country great and is necessary to keep us great in the future. We need to make things here and make them competitively. However, it is government intervention that stifles manufacturing in this country. The free market must be allowed to work and the government cannot pick winners or losers. So offering tax breaks to one sector is not the answer, but also government regulations be they environmental or health care or workplace rules that add unnecessary costs to one sector and make companies look for overseas answers to lower costs need to be eliminated as well.
—Peter Short, J.J. Short Associates, Inc.

Manufacturing is the base of growth in the U.S. Most every area was developed around an industry, be it farming or glass or photography.
—Ted Marks

We should strive for a “flat rate” corporate tax system where industries do not need specific incentives to create growth. Wouldn’t we all prefer a system where the IDAs were not needed? We see other examples regularly reported in the media of “special consideration or tax breaks” to the oil companies, to the farm industry, etc., and now, many years after these well-intentioned systems were created, it is very hard to take those tax breaks away to allow for the money to be sent to other areas of need.
—Jim Baker, Mendon

But…but, but…only if tax breaks for manufacturers are offset by reasonable increases in capital gains and income of the upscale affluent.
—Bruno Sniders, Webster

Manufacturing is the key to growth and strength of any economy. Economics 101, folks! A service economy cannot stand because it produces nothing that creates value. When we wind up servicing each other there is no multiplier effect, simply an exchange of funds with no growth. And in the U.S. we have exported most of our manufacturing to Asia, which now owns most of U.S. debt.
—Jim Weisbeck, Bloomfield

The most significant thing Washington can do is to even up the playing field with foreign manufacturing and impose the same monetary challenges U.S. manufacturers face—that is an uneven, unfair dollar and cost of labor advantage that lures (or drives) U.S. manufacturers to foreign vendors. Henry Ford(ism) says that someday the entire world will have a middle class, but can we afford to wait for that?
—John Malvaso, president, FSI Systems

Such a tax break should be part of the overall corporate tax reform effort. As part of the simplification of the corporate tax system, manufacturers could receive a lower rate. Expense and tax offset deductions incentives must be significantly reduced as part of the tax reform.
— Mike Bleeg, Strategic Results

This needs to be done. It will truly help boost the economy.
—Shaunta Collier-Santos, LandNPR Productions

It’s been said that even if the Buffett Tax were to be enacted, it would have a negligible effect on reducing the deficit. But why not fund a manufacturing tax break with proceeds from a newly enacted Buffett Tax? A substantial portion of those who would be subject to the Buffett Tax is that group of corporate executives who decided, beginning in about 1980 and continuing today, to outsource manufacturing abroad. This benefited them directly—made many of them multi-millionaires—because their comp plans included stock options and yearly performance bonuses sensitive to short-term profit increases. Very few if any of the folks in the machine shops, tool rooms, assembly lines, and even engineering departments shared in this transfer of wealth. So, now’s an opportunity to re-balance the equation. Can sound tax policy square with poetic justice? Let’s give it a try.
—Kevin Moriarty

Any lowering of taxes is a good thing!
—Arnold Boldt, Arnold-Smith Associates

Everybody in every industry should get a tax break. If you get New York State off our backs, we will all prosper. Until that change we will be stuck in this socialist malaise in perpetuity. Sixty-nine percent Andy approval, ineffective Senate and incompetent Legislature equals dumbest electorate in the nation. Special tax breaks, no. Tax breaks and reduction in government intrusion for all, yes.
—Karl Schuler

No "more" tax breaks. We already have too many special tax breaks as it is. We need fewer loopholes and a more equitable tax system.
—Pete Bonenfant

Manufacturing drives many different sectors. It needs to have good transportation to bring in material and to deliver finished products. It needs raw material, some processed like steel and other metals and some in raw form like trees for lumber. It needs a good utility system to power the machinery. Skilled workers are needed to run many machines and machinists are needed to keep them running efficiently. Factories that employ many workers will need to be near population centers and will need good housing. These population centers will need food, education, health care, etc. Like a domino, one thing leads to another and to another and to another.
—Tom Walpole, CPA

Over the last 150 years, the U.S. government has stifled the healthy existence of business in this nation. Now some in government want to enact preferential tax breaks for manufacturing businesses that many people believe may encourage businesses to create or bring back manufacturing jobs. It certainly sounds good, but it is not how to bring back those kinds of jobs. The actual solution is much simpler and will spur growth throughout all businesses of all types. Simply, government must cease interfering in business entirely; laissez-faire capitalism as described by Ayn Rand in her book, “Capitalism: The Unknown Ideal,” is the direction we must take to solve the many of the problems business is experiencing in our nation today. Government interference in the operation of businesses really began in the 1870s when special interest groups and progressives worked to regulate railroads. It has continued through today when special interests like environmentalists castrate the ability of business to be competitive in the world marketplace. Whether through the Gordian knot of excessive regulations and through punitive tax policies our nation’s businesses are faced with the ever increasing cost of doing business. The combination of regulations and taxes has made it necessary for businesses to find ways to maintain profitability. This would include reducing their job force or worse yet send jobs overseas to places where the creation of wealth is encouraged. Often that encouragement is through low to no taxes on profits and fewer regulations regarding outlandish environmental standards. A good example is the footwear industry. American shoe manufacturers have had to move production offshore because of regulations that make it virtually impossible to make a shoe in the states. As it was explained to me, the shoe manufacturers cannot use the adhesives required to make a shoe in this country because the glues have been virtually banned for use here. Thus the shoes are made in Mexico or Asian nations where these adhesive may be used. If this nation wants to stimulate job growth and prosperity then we must reduce regulations and taxation upon business. Simply targeting one small part of businesses’ problems will be artificial and not create lasting employment whether in manufacturing or elsewhere. We must encourage the creation of wealth and capital through both reduced regulation and taxation. Only by doing this will businesses flourish and create the wealth that actually creates lasting, well-paying jobs in this country.
—Michael F. Kloppel, chairman, the Ontario County Conservative Party, Canandaigua

I would tie the tax rate to the jobs the manufacturer created in the tax year!
—Hutch Hutchison, In T’Hutch Ltd.

3/9/12 (c) 2012 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email rbj@rbj.net.

One comment

  1. Eugene Patrick Devany

    We need bold reform that would increase economic mobility and jump-start the economy. For the first time in history, computers and internet databases have enabled the possibility of implementing a net wealth tax that would apply equally to rich and poor (in stark contrast to near-socialistic proposals to tax only the “1%”). The odd thing about a net wealth tax is that it could help the wealthy quite a bit.

    In the extreme we could replace the income tax base with a 5% tax on the $53 trillion in individual wealth to realize $2.1 trillion – (about the same as federal revenue in FY 2010).

    A less progressive but more balanced approach might tax individual net wealth of at 2% (over a $15,000 exemption) and the $12.5 trillion income at 8% (bringing in about the same $2.1 trillion). By eliminating payroll taxes (and paying social security and Medicare from general funds) earners would keep 92% of their income. Let me repeat: everyone keeps 92% of their income. Because the rates are the same for rich and poor it would also be the fairest tax system on the planet.

    The increase in consumer power from individual tax reform would boost the economy but business tax reform is also needed to shift the economy into high gear and to raise some much needed additional revenue. Every developed country except the United States has a sales tax, in the form of a Value Added Tax (VAT). A 4% tax on $10 trillion in sales would yield another $0.4 trillion in revenue. The taxable income from C corporations is about $1.1 trillion (FY 2010) and produces only $191 billion in government revenue. Loopholes and overseas tax deferrals have resulted in some very profitable international companies paying no taxes. A reduction of the corporate rate to 8% would be a fair (and politically cognizable) tradeoff for an elimination of distorting tax features.

    The political icing on the 2-4-8 Tax Blend cake is that taxes on capital gains, estates and gifts would not be necessary – restoring economic freedom to the lifetime planning decisions of the investment class.

    Low rates, economic mobility, higher profits, international competition, investment freedom of choice: everyone wins.

    Eugene Patrick Devany, JD, MPA
    http://www.TaxNetWealth.com

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