MAPI Says Tax Bill Would Harm, Not Help, U.S. Manufacturers

Sept. 22, 2008
H.R. 3970 would increase tax burden and result in millions of lost jobs, says industry group.

H.R. 3970 (Tax Reduction and Reform Act) sponsored by Rep. Charles Rangel, would be harmful to U.S. business and result in huge job losses, according to a Manufacturers Alliance/MAPI report.

Economic Consultant Jeremy Leonard concludes that the tax increases on non-corporate firms associated with repeal of the Alternative Minimum Tax (AMT) and corporate base broadening would more than offset reductions in the statutory federal corporate tax rate from 35% to 30.5%. The new system would be counter-productive and, in fact, impose upon manufacturers a significant tax increase, as much as $100 billion over the next 10 years, explains MAPI. Conversely, a simple reduction in the statutory corporate rate would have large positive effects he said.

MAPI points out that on the corporate side, manufacturers are disproportionate users of the provisions that would be phased out, which more than offsets the relief offered by the rate reduction. On the non-corporate side, especially small businesses, manufacturers would face what the report describes as a "double whammy." First, because they do not pay the corporate tax, they do not benefit from the statutory rate reduction. Second, many of the tax preferences that H.R. 3970 proposes to eliminate, such as the last-in, first-out (LIFO) accounting and the domestic production credit, can be, and are, claimed by non-corporate business.

Using macroeconomic simulations to measure the potential effect of the Rangel bill, the MAPI report projects the loss of 4.9 million jobs and over $300 billion in output over 10 years should the base-broadening and other changes be passed into law. Manufacturers also would lose $130 billion in output and 446,000 jobs.

"In order to address the tax competitiveness problems of manufacturers, their effective tax rate needs to decline, not increase," Leonard said. "The best way to accomplish this is to focus less on base broadening and more on reducing statutory rates further than anticipated in current legislative proposals."

The report offers an alternative scenario which could both assist manufacturers and improve the economy. Simply lowering the corporate tax rate by 4.5 percentage points, without eliminating major deductions, while still leaving the U.S as the second highest taxed country in the developed world, would increase gross domestic product (GDP) by nearly $460 billion and add 4.9 million jobs over the next decade, including 500,000 good-paying manufacturing jobs.

Thomas J. Duesterberg, Manufacturers Alliance/MAPI President and Chief Executive Officer, argues that policy makers should reform the tax code to assist -- not punish -- the manufacturing sector which is a key to U.S. innovation, productivity and good-paying jobs.

"In an era of ever-intensifying global competition, raising the effective tax burden on manufacturers will only hasten the relative and real decline of U.S. manufacturing," he said.

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