Just the Facts: Tax Reform Will Boost Manufacturing

A recent study from the Institute for Policy Studies seems to assert that businesses with lower tax rates were not job creators. Specifically, they analyzed “92 publicly held U.S. corporations that reported a U.S. profit every year from 2008 through 2015 and paid less than 20 percent of these earnings in federal corporate income tax.” They then assert that those 92 firms lost 1 percent of their workforce in that time frame versus a 6 percent gain for the U.S. private sector as a whole.

The authors use this analysis to suggest that pro-growth tax reform will not produce the positive employment benefits that its advocates, including the NAM, assert. But, this misses the point. You cannot extrapolate the tax burdens of 92 firms to the larger economy, mostly because there are a variety of reasons why those individual firms might have paid lower tax rates in those years, including deductions for losses in prior years.

The important point—missed in this paper—is that American businesses are at a competitive disadvantage globally, with marginal tax rates in the United States higher than any other major economy. We need pro-growth tax reform—an idea that has bipartisan support.

Indeed, such reform could yield tremendous returns to the larger economy. In a study commissioned by the NAM a couple years ago, we estimated that pro-growth tax policy changes would add nearly 1.5 percentage points to investment growth on an annualized basis, with real GDP up almost by 1 percent annually. It would also add roughly 500,000 jobs per year (not just in manufacturing).

On the topic on job creation, it is true that manufacturers operate more leanly today than they did a decade ago, but improvements in productivity and quality have made the sector more competitive, allowing it to flourish. Since 2009, manufacturers have added 950,000 net new workers. Moreover, manufacturing leaders continue to tell us that they have difficulties in attracting and retaining quality workers. In the latest NAM Manufacturers’’ Outlook Survey, 64.4 percent of respondents labeled workforce challenges as a top challenge for their business. In addition, with the job market nearing “full employment” at 4.3 percent and with more Baby Boomers retiring in the coming years, competition will only increase for talent.

What’s more, those jobs are high-paying, averaging $81,289 annually, including pay and benefits, and they have far-reaching impacts into the larger economy. For every $1.00 spent in manufacturing, another $1.81 is added to the economy. That is the highest multiplier effect of any economic sector. In addition, for every one worker in manufacturing, there are another four employees hired elsewhere.

These facts continue to point towards why we need pro-growth tax reform sooner, rather than later.

Chad Moutray

Chad Moutray

Chad Moutray is chief economist for the National Association of Manufacturers (NAM), where he serves as the NAM’s economic forecaster and spokesperson on economic issues. He frequently comments on current economic conditions for manufacturers through professional presentations and media interviews. He has appeared on Bloomberg, CNBC, C-SPAN, Fox Business and Fox News, among other news outlets.
Chad Moutray

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