Proposed taxes may hurt manufacturers
A new report suggests that tax increases in President Obama's 2011 budget proposals will have unintended adverse consequences on American businesses, and on manufacturers in particular.
In the report by the Manufacturers Alliance/MAPI, report author Jeremy Leonard shows that under the Administration's plan, while the corporate rate remains unchanged, measures to broaden the base would increase the aggregate business tax bill by more than $350 billion over the next 10 years, amounting to a 6 percent tax increase relative to the pre-budget baseline. Conversely, the report shows that the competing proposal of Senator Ron Wyden (D-OR) and Senator Judd Gregg (R-NH) has a more favorable impact on economic growth.
"We found that the Administration's proposal results in an increase in the federal deficit of $100 billion relative to the baseline," Leonard said, "while the Wyden-Gregg bill adds to GDP growth and employment, and reduces the deficit by $300 billion relative to the baseline."
The paper also examines the effects of the 2011 federal budget's tax provisions on pass-through businesses, which include almost four million S corporations and more than three million partnerships, which together account for 80 percent of U.S. businesses and one-third of total U.S. business activity. According to the report, pass-through businesses in the manufacturing sector will see their tax bills increase by an average of 14 percent.
Thomas J. Duesterberg, Manufacturers Alliance/MAPI president and CEO, 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 well paying jobs.
"It is important to understand that tax increases intended to help contain deficits will exact a high price in terms of the competitive posture of U.S. manufacturing and the growth of the economy as a whole," he cautioned.
The report finds that a more effective option to reduce the deficit can be found in the Bipartisan Tax Fairness and Simplification Act of 2010 (S. 3018) co-sponsored by Senators Wyden and Gregg, which would simplify the personal income tax system and reduce the corporate rate from 35 percent to 24 percent. It also holds personal income tax rates near current levels instead of raising them, which will aid S corporations. Simulations in the report indicate that it would create nearly two million jobs on a net basis and add an extra $500 billion to the GDP by 2015.
"The resulting dramatic increase in business profits would reduce the deficit relative to both the 2011 budget and the pre-budget baseline," Leonard said. "Smart tax policy can advance the twin goals of sustaining the competitive edge of American businesses and help keep the government's fiscal house in some state of order."
Ronald D. Bullock, Chairman of Bison Gear and Engineering Corporation in St. Charles, Ill., and report sponsor, concurred.
"S corporations and partnerships have become a central pillar of U.S. economic strength," he said, "and it would be ill-advised to inadvertently shoulder them with a disproportionate share of the tax burden."
INDUSTRIAL SUPPLY MAGAZINE
The May/June issue of Industrial Supply magazine features an in-depth cover story about GHX Industrial. Plus, we're featuring articles by contributing writers Dr. Bharani Nagarathnam and Frank Hurtte, as well as interviews with numerous product and distribution industry experts.
