State of the Union 2012: The Manufacturing Perspective

January 26, 2012



State of the Union 2012: The Manufacturing Perspective


By David R. Butcher


In his State of the Union address this week, President Obama proposed a blueprint for an economy that's built to last — one that begins with American manufacturing.

In his State of the Union address on Tuesday, President Obama proposed dramatically shifting the United States economy back to a manufacturing base after decades of ceding industry jobs to countries such as China, saying manufacturers must be rewarded for bringing jobs back to the U.S. from overseas and expanding at home to set a foundation for job creation and growth.

"Think about the America within our reach: A country that leads the world in educating its people. An America that attracts a new generation of high-tech manufacturing and high-paying jobs. A future where we're in control of our own energy, and our security and prosperity aren't so tied to unstable parts of the world. An economy built to last, where hard work pays off and responsibility is rewarded," the president said.

To that end, Obama has laid out a blueprint for an economy that's built to last — an economy built on American manufacturing, energy and job skills.

The president's plan relies largely on changing the tax code to discourage American companies from offshoring in search of cheaper costs and to encourage reshoring.

"Companies get all kinds of tax breaks when they move jobs and profits overseas," Obama said yesterday, speaking to employees of Conveyor Engineering & Manufacturing in Iowa. "A company that chooses to stay in America gets hit with one of the highest tax rates in the world."

Obama proposed doing away with deductions available to companies that close plants in the U.S., and he called for a minimum tax for companies' profits earned overseas, "a step that may offset the lure of low tax rates offered by some foreign countries," Bloomberg News says.

"Companies would be banned from taking a deduction on taxes and would be offered a 20 percent tax credit, an amount subtracted directly from taxes owed, if they brought jobs home," according to Bloomberg. "Obama also is proposing $6 billion in new credits over three years for companies that invest in facilities or production in communities that have had major job losses. He also again is calling for reauthorizing a measure that lets businesses expense the full cost of investments in equipment and making permanent a research and experimentation tax credit."

The policy proposals also include getting tougher on trade enforcement, expanding domestic energy production, supporting education and research that fosters the manufacturing sector, bolstering job training, aiding homeowners with mortgages and streamlining government operations.

While the administration is keeping many details of the plan close to the chest until February, when Obama sends the fiscal 2013 budget to Congress, this week's proposals were met with resistance from industry representatives, who said that such restrictions would make American companies less competitive globally.

"The point of companies locating overseas is to get close to their customers," Dorothy Coleman, VP of tax and domestic economic policy at the National Association of Manufacturers (NAM), said in a Washington Post report (subscription required). "Now you're putting these artificial handcuffs on companies."

"We agree with the President on one point. Manufacturers are poised for a renaissance," NAM President and CEO Jay Timmons said in a statement. "However, it is 20 percent more expensive to manufacture in the U.S. compared to our largest trading partners. This cost gap is a barrier that must be eliminated."

Manufacturing was an early bright spot in the ongoing economic recovery, acting as one of the main drivers of growth for the U.S. economy since the official end of the 2007-2009 recession. Factories helped lift overall growth in 2009 and 2010, and output last month made its biggest gain since December 2010. Nevertheless, the sector continues to face many challenges that have been rising over a long period.

"Obama becomes the latest president to promise to breathe new life into a sector of the U.S. economy that has been declining for decades," the Los Angeles Times states. "Thirty years ago, nearly one-fifth of U.S. jobs were in manufacturing. Today, less than 10 percent are, according to the Bureau of Labor Statistics. Like his predecessors, Obama will find that challenge formidable and complex, with little consensus on how to reverse the trend."
 
Source: http://news.thomasnet.com/IMT/archives/2012/01/state-of-the-union-2012-the-manufacturing-perspective.html