Trump and Manufacturing
The interior of the Boeing assembly plant in Everett, Washington. Stephen Brashear, Getty Images

Manufacturers React to Congressional Passage of the Tax Bill

Manufacturers will save about $261 billion over the next decade thanks to the new Tax Cuts and Jobs Act. On paper, that should lead to new investments — in equipment, in workforce and beyond.

Steve Staub was headed west on Interstate 70 on Wednesday afternoon, back to his factory in Dayton after a meeting in Columbus with the Ohio Manufacturers’ Association, when he turned on the radio and heard the news that Congress had passed the Tax Cuts and Jobs Act. Around that same time, over in Washington, D.C., President Donald Trump walked from the Oval Office to the White House lawn to share his comments on his first major legislation.

“I campaigned on the fact that we’re not going to lose our companies anymore,” Trump said. “We are going to see at least $4 trillion come back into this country.”

The broad reaction to the bill has been mixed, at best — a national tracking poll published earlier this week by Politico reported that 43% of about 2,000 registered voters supported the legislation, while 39% opposed it — but corporations in general and manufacturers in particular are bullish. The National Association of Manufacturers reported Monday that more than 94% of manufacturing CEOs surveyed were positive about their company’s outlook, and almost 63% said comprehensive business tax reform would encourage their own capital spending increases.

Count Staub among them.

Staub is the president of Staub Manufacturing Solutions, a contract metal fabrication shop in Dayton whose customer list dives into heavy truck, locomotive, construction, military and aerospace, among other industries. The company is not large, but its head count has jumped from 23 to 33 just this year during a banner 2017, and Staub said he expects the passage of the tax bill to only help the company notch another strong year of growth.

“We’re excited about it,” Staub said. “I’m not an expert by any means on political stuff, but … as a pass-through small business, it makes such a big difference on the amount of taxes, the money you can reinvest in the company. We can increase capital spending, hire more workers, increase wages, grow the business. When you have more money to spend, you’re going to put it back in the company and grow the company.”

Because of his position as a contract manufacturer, Staub talks regularly with customers and suppliers. “One of our steel suppliers was in here last week,” Staub said, “and he was telling me that he had never seen anything like this, just everybody being excited and positive and making investments.”

Manufacturers already benefit from a relatively low effective tax rate, but it will likely drop more under the plan — about six or seven points in 2018 — according to a new financial report from the Penn Wharton Budget Model. That report projects that manufacturers will save about $261 billion over the next decade. On paper, that should lead to new investments — in equipment, in workforce and beyond.

“We’re looking at another building to purchase,” Staub said. “We’re looking at additional equipment. We’ve got more product lines that we’re looking at for customers. Just continued, steady growth.”

Vicki Holt, the CEO and president of Proto Labs, a rapid manufacturing prototype company headquartered about 20 miles west of Minneapolis, had a similar reaction after hearing about the bill’s passage.

“Much of our earnings are in the U.S. and taxed at a 35% corporate tax rate,” she said. ”A reduction to 21% is a 14% reduction in the tax rate on the majority of our earnings. This change will provide additional cash for Proto Labs to continue to invest in R&D and capital equipment to fuel our double-digit revenue growth.”

The Boeing Co. was among the first manufacturers to publicly embrace the tax bill, issuing comments Wednesday afternoon and announcing $300 million in investments that will focus on corporate giving, workforce development, and workplace and infrastructure development.

“The reforms enable us to better compete on the world stage and give us a stronger foundation for the investment in innovation, facilities and skills that will support our long-term growth,” Boeing CEO Dennis Muilenburg said.

Boeing and Muilenburg point out that the simpler tax code and lower tax rate is closer to those enjoyed by Boeing’s global competition and will have a clear and direct benefit to Boeing, its employees, and other stakeholders.

In a statement Thursday, General Electric echoed comments made in March by former chairman and CEO Jeff Immelt, who said “I don’t think there’s anything wrong for those of us who are manufacturers to say, ‘Level the playing field.’ There’s nothing wrong with that.” GE supports the bill, a spokesperson said, “because it would upgrade the U.S. to a territorial tax system for the first time in history, bring rates in line with other countries, and allow U.S. businesses and workers to compete fairly around the world — so it's the quality of our products that determine whether we win global deals, not tax differences.” 

The natural gas and oil industry has expressed its support for the new law as well, with American Petroleum Institute CEO Jack Gerard saying that “an updated tax code will allow our industry to accelerate investments and help unleash economic activity. Pro-growth reforms like strong cost-recovery provisions and a lower corporate rate can also drive innovations in new technologies to protect the environment and help provide affordable energy for consumers.

The aerospace sector is pleased with the changes, too.  Aerospace Industries Association CEO David F. Melcher said the “legislation will unleash our industry’s global competitiveness and potential to create jobs for the American people.”

The equipment manufacturing industry applauded the Senate for delivering on its promise to overhaul our outdated, uncompetitive tax code: “Tax reform is a huge win for equipment manufacturers of virtually every type and their employees,” Association of Equipment Manufacturers President Dennis Slater said. “When equipment manufacturers succeed, they can play a bigger role in growing the economy and helping Americans thrive. The bill will encourage equipment manufacturers large and small to hire new workers, expand facilities, and purchase new equipment … and will also put U.S. equipment manufacturers on a level playing field with the rest of the world.”

And it’s no surprise that companies represented by the National Association of Manufacturers — whose 94% optimism report was the highest in the 20 years the organization has surveyed its members — were pleased.

“America witnessed history today as the House of Representatives passed the biggest, boldest tax reform in more than 30 years, and every member of Congress who voted for reform showed their constituents they are unequivocally standing up for American manufacturing workers,” CEO Jay Timmons said.

“This bill moves us closer to achieving the goals manufacturers have sought for decades, and for manufacturers across this country, there is no question that when tax reform becomes law, we’ll be empowered to create more jobs, invest more in America and help lift up working families and improve their lives.”

The work is far from finished, though, Timmons said: “Manufacturers know the work doesn’t end today. Now, we’ll be urging senators to stand with manufacturers, so we can get a strong, bold bill to President Trump’s desk. … We are on the verge of supercharging the manufacturing economy in the United States, and it is America’s working families that will reap the rewards. Our leaders have an obligation to get this done. We are counting on them to lift up hardworking men and women and not let them down.”

There are potential drawbacks, of course, even for industry. According to the Penn Wharton Budget Model report, the ability to immediately deduct the full cost of some capital equipment expires after five years, at the end of 2022. The bill also effectively reduces the annual value of a tax credit for R&D investments.

Still, the effective tax rate for manufacturers is expected to drop from 17.5% this year to 10.9% in 2018. Take advantage of that while you can, though: By 2027, it will likely rebound back to 15.8%.

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