Yesterday the New York Times printed an perceptive, insightful article explaining that, while the fiscal cliff is a distant problem in Washington, manufacturers are struggling with the impact today. Unfortunately, the editorial board missed the fundamental point of what manufacturers need to compete and succeed in today’s global economy. In an editorial titled “Business Fears the Fiscal Cliff,” the Times gets it half right. The editorial argues that the best way to stave off the fiscal cliff is to delay defense spending cuts and temporarily extend the current tax rates while allowing rates to increase on business owners with income over $250,000 per year.
They are correct – the defense cuts are going to cost over 1 million jobs across the country by 2014 and will deal a devastating blow to innovation up and down the supply chain. It is essential that policymakers in Washington halt the defense cuts and do it as soon as possible.
But what the editorial fails to recognize is that allowing a tax increase on those making over $250,000 per year is a tax increase on manufacturers. Nearly two-thirds of manufacturers pay taxes at the individual rate and they need those resources to invest in their companies and hire workers. In fact, according to a recent NAM/IndustryWeek survey, 56 percent of these manufacturers indicated that higher taxes will negatively impact business investment or job creation and retention. President Obama has said himself that it’s a terrible idea to raise taxes in a struggling economy and he was right when he said that.
S-corporations and other flow through entities employ 54 percent of the private sector workforce. Increasing the tax burden on these job creators is a fundamentally bad move and will hurt our fledgling economic recovery. Washington remains bogged down in its usual quagmire of partisanship, but despite what was stated in the editorial, at least the House has attempted action to prevent the United States from falling off the fiscal cliff with legislation to halt the defense cuts and to prevent billions of dollars in tax increases.
This is the kind of action we need and the National Association of Manufacturers respectfully disagrees with the New York Times’ assertion that a tax increase on small business is the recipe for getting our debt under control. These tax hikes – amounting to enough revenue for approximately 3 days of federal spending – are a drop in the bucket compared to the $15 trillion debt and the defense cuts don’t begin to address the problem either. Until we account for the entire budget, particularly the mandatory spending on entitlements that makes up the lion’s share of the federal budget, all the tax hikes in the world won’t put us in the black. They’re only going to hurt the 12 million men and women who make things in America.