U.S. manufacturers face a tax disadvantage
In DallasBlog, Tom Pauken, Chairman of the Texas Workforce Commission, has posted an excellent op-ed on the challenges facing American manufacturing. He cites an Electrolux plant in Iowa that is moving to Juarez, Mexico, and says that one of the obstacles facing U.S. manufacturers is an "onerous business tax system...with its 35% income tax rate and its 6.2% employer portion of the payroll tax":
Our business tax system rewards private equity moguls for loading up American-based companies with lots of debt (debt is deductible under our current system of business taxation) while punitively taxing employment, capital investment, and savings – the engines of job creation and economic growth. Our existing tax system effectively exports prosperity, and American jobs overseas.
Pauken says the U.S. is "running massive trade deficits...with 90 nations. In fact our manufacturing trade deficit from 2000 to 2008 was 5.4 trillion dollars."
Pauken is skeptical of President Obama's proposal to revitalize U.S. manufacturing by "'out-innovating' our trading competitors." He agrees with Intel founder Andy Grove, who said that it’s "hard to innovate if you don’t make."
Pauken suggests that a more effective way to revitalize U.S. industry would be to address the roughly 18% tax disadvantage that U.S. manufacturers face with their competitors:
the onerous corporate tax system would be replaced by a revenue-neutral, 8% business-consumption tax that would be border adjusted. This new approach to taxing business would raise just as much in revenues as, if not more than, the current system of taxation. All goods and services coming into the U.S. would pay the 8% tax while all exports would receive a comparable tax credit or tax abatement as an offset to its company’s business consumption tax. Suddenly, the U.S. would become competitive again with our trading partners. And we would start bringing jobs back home to America.
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