Tax Increases a Set Back for Manufacturers

By October 17, 2012General, Taxation

Anyone paying attention to political discourse over the past several years knows that manufacturing is the poster child for the economic recovery that all of Washington – and all of America – is hoping for. Hardly a Congressional debate – or campaign ad – fails to mention the need for additional American manufacturing to help boost our nation’s economic fortunes and return us to the days of strong economic growth. Yet in the same breath, all too often, comes the observation, from far too many, that part of what needs to happen to bring a resurgence in American manufacturing is the implementation of a plan to get our nation’s debt and deficits under control and somehow a key piece of that mantra has become the need to raise taxes on “high income earners” who pay taxes at the top two marginal tax rates.

This position belies the fact that study after study has shown that nearly 1 million small businesses fall into this category, and these are the very businesses that have been successful, surviving the economic storm of the past several years. These are the businesses, including nearly two-thirds of manufacturers organized as a flow-through entity and pay taxes on their business income at individual marginal rates, who are the source of growth, hiring, and investing. Additionally, and central to this whole debate, is the reality that allowing the top two rate cuts enacted in the 2001 and 2003 tax bills to expire would only raise enough money to operate the federal government for about a week – certainly in no way enough additional revenue to put a serious dent in the nation’s deficits.

What manufacturers have been saying for some time now is that in order to bring about Manufacturing Renaissance, we need to make America the best place in the world to manufacture goods. Among other things, this includes a tax code that is simple, fair and most critically – permanent. We applaud elected officials from both sides who have taken up the mantle of the need for comprehensive tax reform. One of these, Pennsylvania Senator Pat Toomey addressed some of these issues in an op-ed today urging Congress to not raise income taxes. In order for manufacturers to succeed they need to have capital on hand to invest and compete and grow. For the nearly two-thirds of manufacturers organized as a flow-through, increasing marginal rates has a direct impact in their ability to have the capital to make these investments.

Once this election season comes to a close we are hopeful that both parties will come together and recognize that what is most needed now is an injection of stability for a shaky economy and extend today’s tax rates for at least a year and during that time undertake a serious comprehensive effort to reform entitlements, revamp our antiquated tax code and change the debt trajectory of our nation. This effort is what is needed to fix the systemic problems facing our nation, not raising taxes on small and medium sized businesses.

Carolyn Lee

Carolyn Lee

Senior Director of Tax Policy at National Association of Manufacturers
Carolyn Lee is Senior Director of Tax Policy at the National Association of Manufacturers (NAM), the nation's largest industrial trade association. In this role Carolyn is responsible for portions of the NAM's tax portfolio including issues individual marginal tax rates - which are a top priority for small and medium sized manufacturers - as well tax issues relating to investment income, energy efficiency and capital cost recovery.
Carolyn Lee

Leave a Reply