Archive for January, 2012

Why We Don’t Need a New Program to Train America’s Manufacturing Workers

Tuesday, January 31st, 2012

In his State of Union address, President Obama placed American manufacturing at the center of a “blueprint” for bringing back jobs and strengthening our economy.  After years of being one of the “voices in the wilderness” urging our elected leaders to “save American manufacturing,” it was gratifying to hear manufacturing being given such prominence.

I am concerned, though, that his idea of “one program, one website, and one place to go for all the information and help” American workers need for training or retraining for jobs would result in more government control and more deficit funding, adding to the burden of debt for American taxpayers.  We don’t need to wait for government to come up with a new program and spend taxpayer dollars developing new curricula for training for manufacturing jobs.   We don’t need to wash years of work and collaborations between industry, trade and professional organizations, colleges, and universities down the drain.  A great deal has already been done and is being done to train and retrain today’s workers and prepare the next generation of manufacturing workers.

When considering training, we need to understand the difference between certification versus a certificate.  Certificate programs are training based on proprietary criteria/curriculum and sometimes include an exam without any recertification requirements. Numerous training companies, educational institutions, and individual training consultants compete to sell training courses that purportedly include “certification.”  In many cases, these are not based on a standard body of knowledge as developed by objective third-party entities, but rather paper certificates awarded for specific training.  Certificate programs are useful to prepare workers for entry-level positions in many industries.

Certifications are based upon profession and competency.  Certifications are independent, third-party assessments of knowledge, skills, and experience based upon a known publicly available standard overseen by industry.  The exam includes legally defensible content and can be referenced back to widely available industry accepted references.  Recertification is a key component and ensures individuals show evidence of continued learning.  Professional certification is a designation earned by a person to assure they meet the minimum knowledge requirements of the profession and is transferable from state to state and company to company.

For example, the National Institute for Metalworking Skills (NIMS) was formed in 1995 by the metalworking trade associations to develop and maintain a globally competitive American workforce.  NIMS sets skills standards for the industry, certifies individual skills against the standards, and accredits training programs that meet NIMS quality requirements.   NIMS operates under rigorous and highly disciplined processes as the only developer of American National Standards for the nation’s metalworking industry accredited by the American National Standards Institute (ANSI).

NIMS has a stakeholder base of over 6,000 metalworking companies. The major trade associations in the industry- the Association for Manufacturing Technology, the American Machine Tool Distributors’ Association, the National Tooling & Machining Association, the Precision Machine Products Association, the Precision Metalforming Association, and the Tooling and Manufacturing Association have invested over $7.5 million in private funds for the development of the NIMS standards and its credentials.  The associations also contribute annually to sustain NIMS operations and are committed to the upgrading and maintenance of the standards.

NIMS has developed skills standards in 24 operational areas covering the breadth of metalworking operations including metalforming (Stamping, Press Brake, Roll Forming, Laser Cutting) and machining ( Machining, Tool and Die Making, Mold Making, Screw Machining, Machine Building and Machine Maintenance, Service and Repair). The Standards range from entry (Level I) to a master level (Level III).  All NIMS standards are industry-written and industry-validated, and are subject to regular, periodic reviews under the procedures accredited and audited by ANSI.

NIMS certifies individual skills against the national standards.  The NIMS credentialing program requires that the candidate meet both performance and theory requirements.  Both the performance and knowledge examinations are industry-designed and industry-piloted. There are 52 distinct NIMS skill certifications.  Industry uses the credentials to recruit, hire, place and promote individual workers.  Training programs use the credentials as performance measures of attainment, often incorporating the credentials as completion requirements and as the basis for articulation among training programs.

NIMS accredits training programs that meet its quality requirements.  The NIMS accreditation requirements include an on-site audit and evaluation by a NIMS industry team that reviews and conducts on-site inspections of all aspects of the training programs, including administrative support, curriculum, plant, equipment and tooling, student and trainee progress, industry involvement, instructor qualifications and safety.   Officials governing NIMS accredited programs report annually on progress and are subject to re-accreditation on a five year cycle.
NIMS has launched a new Competency-based Apprenticeship System for the nation’s metalworking industry.  The NIMS system represents a dramatic departure from the time based system and integrates the NIMS national standards and skill certifications in defining and measuring required competencies.

Developed in partnership with the United States Department of Labor, the new system is the result of two years of work.  Over 300 companies participated in the deliberations and design.   The new National Guideline Standards for NIMS Competency-based Apprenticeship have been approved by the Department of Labor.  NIMS has trained Department of Labor apprenticeship staff at the national and state level in the new system.

Another professional organization that provides certification is the Society of Manufacturing Engineers (SME), the world’s leading professional society advancing manufacturing knowledge and influencing more than half a million manufacturing practitioners annually.  Through its local chapters, technical communities, publications, expositions, and professional development resources, SME promotes an increased awareness of manufacturing engineering and keeps manufacturing professionals up to date on leading trends and technologies.  SME provides the following professional certifications:  Manufacturing Technologist, Manufacturing Engineering, Engineering Manager, Lean Certification (Bronze, Silver, and Gold), and Six Sigma.

SME’s Certified Manufacturing Technologist program is utilized as an outcome assessment by numerous colleges and universities with Manufacturing, Manufacturing Engineering or Engineering Technology programs.  Students who successfully earn the certification demonstrate broad knowledge and its application as related to the fundamentals of manufacturing, which sets them apart from other potential job candidates.In addition, the SME Education Foundation has the mission to prepare the next generation of manufacturing engineers and technologists through outreach programs to encourage students to study Science, Technology, Engineering, and Mathematics (STEM) as well as Computer Integrated Manufacturing (CIM) education.  Over its 30-year history, SME has invested $17.3 million in grants to 35 colleges and universities to develop industry-driven curricula.

In 2010, the Society of Manufacturing acquired Tooling University LLC (Tooling U) based in Cleveland, Ohio to provide online, onsite, and webinar training for manufacturing companies and educational institutions. With more than 400 unique titles, Tooling U offers a full range of content to train machine operators, welders, assemblers, inspectors, and maintenance professionals.  These classes are delivered through a custom learning management system (LMS), which provides extensive tracking and reporting capabilities. The competencies tie the online curriculum to matching hands-on tasks that put the theory to practice.

The Fabricators and Manufacturers Association, International (FMA) champions the success of the metal processing, forming, and fabricating industry.  FMA educates the industry through the following programs:

FabCast – FMA’s webinar platform utilizes Internet connection and telephone to deliver live, interactive technical education programs directly to manufacturers on such topics as laser cutting, roll forming, metal stamping, etc.  Companies can train their whole team at once, even from multiple locations.  Companies can break up full days of instruction into modules and spread out over a period of time (i.e. two hours four days a week, four hours once a week for a month, etc.).

Precision Sheet Metal Operator (PSMO) Certification – FMA’s PSMO Certification is the metal fabricating industry’s only comprehensive exam designed to assess a candidate’s knowledge of fundamental precision sheet metal operations.  Fabrication processes covered in the exam include shearing, sawing, press brake, turret punch press, laser cutting, and mechanical finishing.

FMA offers on-site, live training conducted at companies on their equipment as well as on-line training (e-Fab) that allows a company to get the training that they need, when they need it.  E-Fab courses combine a full day’s worth of instruction by FMA’s leading subject matter experts with the flexibility of online delivery, available 24/7, 365 days a year.

Finally, there is ASQ, which is a global community of people passionate about quality who use the tools, the ideas, and their expertise to make the world work better.  ASQ certification is a formal recognition that an individual has demonstrated a proficiency within, and comprehension of, a specific body of knowledge.  ASQ certification crosses industry lines, ranging from Biomedical Auditor, Quality Technician, Inspector, and Engineer, Reliability Engineer, Six Sigma Black Belt to Software Quality Engineer.  Nearly 150,000 certifications have been issued to dedicated professionals worldwide.

Training and retraining workers who are unemployed or underemployed are critical for the health and growth of the manufacturing industry, which will create good-paying jobs.  The focus of a one-stop website for employment should be to distribute the training and certifications provided by the above-listed organizations at the national level down to the local level.

 

 

 

 

 

Tags:, , ,
Posted in General, Training | 4 Comments »

Why is it Important to Lower Corporate Tax Rates?

Tuesday, January 24th, 2012

Last fall the Manufacturers Alliance/MAPI and the National Associations of Manufacturers Manufacturing Institute released a report on their analysis of production costs in the United States relative to its top nine trading partners ? Canada, Mexico, Japan, China, Germany, United Kingdom, Korea, Taiwan, and France.  The report revealed that on a trade-weighted basis, the U. S. tax rate is 8.6 percentage points higher than its trading partners in the 2011 cost study, considerably higher than the 5.6 percentage points of the first cost study in 2003.

While the U. S. federal and state combined tax rate has remained the same, every other country in the study has lowered corporate tax rates at least once since 1997, and most countries have done so several times.  The result is that the U.S. rate is now second-highest to Japan in the Organization for Economic Co-operation and Development (OECD).  The increase in the foreign advantage since the 2008 tax study is due to rate reductions in Canada (36 percent to 31 percent), Germany (38.4 percent to 29.4 percent) and Taiwan (25 percent to 17 percent).

If you think that a reduction in corporate tax rates would only benefit the large, multinational corporations doing business globally, think again.  According to last MAPI/MI report, “Facts About Modern Manufacturing,” produced in 2009, 95 percent of the 286,039 manufacturers were companies of under 100 employees.

It isn’t just manufacturing corporations and their trade associations that recommend a reduction in corporate taxes.  On July 26, 2007, the Treasury Department hosted a conference on Global Competitiveness and Business Tax Reform that brought together distinguished leaders and experts to discuss how the U.S. business tax system could be improved to make U.S. businesses more competitive. As a follow-up to this conference, on December 20, 2007, the U.S. Department of the Treasury released a 121-page report titled “Approaches to Improve the Competitiveness of the U.S. Business Tax System for the 21st Century.”

The report acknowledges that, “Globalization … has resulted in increased cross-border trade and the establishment of production facilities and distribution networks around the globe. Businesses now operate more freely across borders and business location and investment decisions are more sensitive to tax considerations than in the past.” Further, as globalization has increased, “nations’ tax systems have become a greater factor in the success of global companies.” The report notes, “Many of our major trading partners have lowered their corporate tax rates, some dramatically.”

In the 1980s, the United States had a low corporate tax rate compared to other countries, but now has the second highest. Japan has the highest corporate tax rate at 39.54 percent. According to the OECD, Ireland’s tax is lowest at 12.5 percent, while most of the other major industrial nations have corporate tax rates ranging from 19 to 30 percent.

The Treasury Department says, “As other nations modernize their business tax systems to recognize the realities of the global economy, U.S. companies increasingly suffer a competitive disadvantage. The U.S. business tax system imposes a burden on U.S. companies and U.S. workers by raising the cost of investment in the United States and burdening U.S. firms as they compete with other firms in foreign markets.”

The report states that the U. S., tax system “discourages investment in the United States” and “may also slow the pace of technological innovation.  The pace of innovation is a key determinant of economic growth, and innovation tends to take place where the investment climate is best…Given this interplay between innovation and capital accumulation, allowing     U. S. corporate taxes to become more burdensome relative to the rest of the world could result in a cumulative effect in which U. S. firms fall increasingly behind those in other nations.”

The study concludes that the current system of business taxation in the United States is making the country uncompetitive globally and needs to be overhauled. A new tax system aimed at improving the global competitiveness of U.S. companies could raise GDP by 2 to 2.5 percent.  Rather than present particular recommendations, the report examines the strengths and weaknesses of the three major approaches presented:

Replacing the business income tax system with a Business Activity Tax (BAT)

  • The BAT tax base would be gross receipts from sales of goods and services minus purchases of goods and services (including purchases of capital items) from other businesses.
  • Wages and other forms of employee compensation (such as fringe benefits) would not be deductible.
  • Interest would be removed from the tax base – it would neither be included as income nor deductible.
  • Individual taxes on dividends and capital gains would be retained.  Interest income received by individuals would be taxed at the current 15 percent dividends and capital gains rates.

Broadening the business tax base and lowering the statutory tax rate/providing expensing

  • The top federal business tax rate would be lowered to 28 percent.
  • If accelerated depreciation were retained, the rate would drop only to 31 percent.
  • Acquisitions of new investment could be partially expensed (35% could be written off immediately)

Specific areas of our current business tax system that could be addressed

  • Multiple taxation of corporations (corporate capital gains and dividends receive deduction)
  • Tax bias favoring debt finance
  • Taxation of international income
  • Treatment of losses
  • Book-tax conformity

If the business tax rate were lowered to 31 percent, it would mean that the United States would have the third highest tax rate, while a 28 percent corporate tax rate, would mean the United States would have the fifth-highest tax rate.  The report acknowledges that these lower rates might not be enough as other countries are continually changing their tax systems to gain competitive advantage.  The Treasury Department study says, “Thus, it remains unclear whether a revenue neutral reform would provide a reduction in business taxes sufficient to enhance the competitiveness of U.S. businesses.”

The Executive Summary also comments on the importance of individual income tax rates. Roughly 30 percent of all business taxes are paid through the individual income tax on business income earned by owners of flow-through entities (sole proprietorships, partnerships, and S corporations). These businesses and their owners benefited from the 2001 and 2003 income tax rate reductions. This sector has more than doubled its share of all business receipts since the early 1980s and plays a more important role in the U.S. economy, accounting for one-third of salaries and wages. Moreover, flow-through income is concentrated in the top two tax brackets, with this group receiving more than 70 percent of flow-through income and paying more than 80 percent of the taxes on this income.

The Executive Summary concludes that “now is the time for the United States to re-evaluate its business tax system to ensure that U.S. businesses and U.S. workers are as competitive as possible and Americans continue to enjoy rising living standards.”

Unfortunately, the recommendations of the Treasury Department haven’t been addressed by Congress in legislation in the more than four years since the report was released.

At the same time that we address the corporate tax rate, we need to close a huge tax loophole that multinational corporations are enjoying at the expense of American workers and which is a big incentive for U. S. firms to invest abroad in countries with low tax rates.

In June 2006, James Kvaal, who had been a policy adviser in the Clinton White House and was then a third-year student at Harvard Law School, published a paper “Shipping Jobs Overseas: How the Tax Code Subsidized Foreign Investment and How to Fix It.”  In this well-researched paper, Kvaal points out that “American multinationals can defer U.S. taxes indefinitely as long as profits are held in a foreign subsidiary.  Taxes are only due when the money is returned to the U.S. parent corporation.  The result is like an IRA for multinationals’ foreign investments: foreign profits accumulate tax-free.  U.S. taxes are effectively voluntary on foreign investments.”

There’s no rule saying American companies ever have to bring that money home.  As long as they reinvest earnings overseas, they pay only the host country’s (usually lower) tax rate.  Many companies just put the money they make overseas back into their foreign operations, which means more economic growth for other countries, and less here at home.  Kvaal wrote that “when multinationals choose to return profits to the U.S. they can offset any foreign taxes against their U.S. tax. … As a result, the effective tax rate on foreign non-financial income is below 5 percent, well below the statutory rate of 35 percent.”

He recommends changing the tax code to a “partial exemption system” that “would tax foreign income only if a foreign government failed to tax it under a comparable tax system. As a result, all corporate income would be taxed at a reasonable rate once and only once.” He opines that this system would reduce incentives to invest in low-tax countries, simplify the taxation of corporate profits, and reduce tax competition by removing the benefit of tax havens. He urged immediate action “to ensure that our tax code no longer exacerbates incentives to move offshore.”

The importance of low tax rates to the success of start-up companies is emphasized by Henry Northhaft, CEO of Tessera Corporation, in his book Great Again, co-authored by David Kline. They wrote, “… lower tax rates on the last dollar earned encourage individuals and businesses to work harder, take more entrepreneurial risks, and expand their operations because they can keep more of the fruits of that added labor or activity … a reduction in the marginal tax rate of 1 percentage point increases the rate of start-up formation by 1.5 percent and reduces the change of start-up failure by more than 8 percent. … Tax rates don’t just influence how much investment and growth a firm will choose to undertake.  In an increasingly globalized economy, they also profoundly affect where a business will chose to invest or expand … the relative tax and regulatory burdens on U.S. start-ups have grown exponentially, whereas those on European and other foreign ventures have declined sharply.”

Nothhaft “As a result, America now has the highest corporate rate in the world (with the lone exception of Japan). At 39.2 percent, it’s more than 50 percent higher than the OECD average of 25.5 percent. … A number of empirical studies by OECD economists and others have discovered that the best “revenue-maximizing” tax rate – the rate that brings in more total revenues than either a lower or a higher tax rate – is around 25 percent.”

Comprehensive tax reform is needed because under the current system multinational corporations are favored over domestic companies.  Taxes can foster economic growth or hinder it.  Our domestic economic growth is being hindered by the current tax system and must be addressed by Congress in the near future if we want to help American compete successfully in the global economy and create more jobs.

Tags:, ,
Posted in Economy, Outsourcing, Taxes/Regulations | No Comments »

What Could We Do Right Now to Create Jobs?

Tuesday, January 17th, 2012

There are numerous ideas and recommendations on how we could create jobs that range from the cautious to the extreme.  Most job creation programs proposed by commentators, politicians, and economists involve either increased government spending or reductions in income or employment taxes at a time of soaring budget deficits and decreased government revenue.  Other recommendations would require legislation to change policies on taxation, regulation, or trade that would be difficult to accomplish. Many of these solutions involve borrowing money or taking money from one group of citizens or a future generation to give to another.  Let’s start with what we as individuals can do from the viewpoint of entrepreneurs, business owners, employees, and consumers.

If you are an entrepreneur starting a company, find a niche product for which customers will be willing to pay more for a “Made in USA” product.   Plan to sell your product on the basis of its “distinct competitive advantage” rather than on the basis of lowest price.  Select your suppliers from American companies as this will create jobs for other Americans.

If you are the owner of an existing manufacturing company, then you could do a Total Cost of Ownership analysis for component parts that you are having made offshore to see if you could “reshore” some of all of them to be made in the United States.  Check out www.reshorenow.org for a TCO worksheet estimator to conduct your analysis.  Also, you could choose to keep R&D in the United States or bring it back to the United States if you have “offshored” it.    Every manufacturing job you keep or bring back to the United States will create an average of three to four support jobs for other Americans.  If you are a service company, you could choose to keep your customer service department in the United States or bring it back if it is “offshored.”  If enough manufacturing is “reshored” from China, we would drastically reduce our trade  $600 billion trade deficit .  We could create as many as three million manufacturing jobs, which would, in turn, create 9 – 12 million total jobs, bringing our unemployment down to 4 percent.

If you are an inventor ready to get a patent or license agreement for your product, select American companies to make parts and assemblies for your product as much as possible.  There are some electronic components that are no longer made in the U. S., so it may not be possible to source all of the component parts with American companies.  As I’ve written previously, there are many hidden costs to doing business offshore so that in the long run you may not save as much money as you expect by sourcing your product offshore.  Don’t forget about the danger of having your Intellectual Property stolen by a foreign company that will use it to make a copy-cat or counterfeit product sold at a lower price than your product.

If you are fortunate enough to have a regular, stable job, do everything in your power to contribute to the success of your company.  Do your job to the best of your ability.  Be willing to learn new job skills to increase your value to your employer.  No matter what your job, adopt the marketing mindset where you realize that everyone in a company is part of the marketing team regardless of their job function.  Every interaction that a customer or potential customer has with anyone in a company influences his or her opinion about doing business with that company.  Even though you are being paid by your employer, it’s actually your company’s customers that provide you with a job.

You may not realize it, but you have tremendous power as a consumer.  Even large corporations pay attention to trends in consumer buying, and there is beginning to be a trend to buy ‘Made in USA” products.  Pay attention to the country of origin labels when you shop and buy “Made in USA” products whenever possible.  Be willing to step out of your comfort zone and ask the store owner or manager to carry more “Made in USA” products.   If you buy products online, there are now a plethora of online sources dedicated to selling only “Made in USA” products.   Each time you choose to buy an American-made product, you help save or create an American job.  There is a ripple effect in that every manufacturing job creates three to ten other manufacturing jobs, depending on the industry.  If 200 million Americans bought $20 worth of American products instead of Chinese, it would reduce our trade imbalance with China by four billion dollars.  During the ABC World News series called “Made in America,” Diane Sawyer has repeatedly said, “If every American spent an extra $3.33 on U. S.-made goods, it would create almost 10,000 new jobs in this country.”

Now, let’s consider what Congress could do to create jobs.  First, Congress must enact legislation that addresses China’s currency manipulation.  Most economists believe that China’s currency is undervalued by 30-40% so their products may be cheaper than American products on that basis alone.  To address China’s currency manipulation and provide a means for American companies to petition for countervailing duties, the Senate passed S. 1619 last fall.  Even though the corresponding bill in the House, H. R. 639, had bi-partisan support with 231 co-sponsors, GOP leadership bottled up the bill in committee and prevented it from being brought up for a vote, so the session ended without action to address this serious issue.  The 112th Congress lasts two years, starting in Jan 2011 and ending December 2012, so there is the opportunity for the bill to be voted on this year.

We  voters need to pressure our elected representatives in the House to pass this bill this year so that American products can compete against Chinese imports.  It’s an obvious fact that if American companies can increase sales of their products, then they will be able to hire more workers.

Second, Congress should pass legislation allowing American corporations to “repatriate” income earned by plants in foreign countries at a reduced tax rate of 5-5.5% if the income is permanently reinvested in the United States.  This would bring nearly 1.2 billion dollars of monies back to the U. S. to be invested in R&D, plants, equipment, and hiring workers.

Third, Congress should strengthen and tighten procurement regulations to enforce “buying American” for all government agencies and not just the Department of Defense.   All federal spending should have “buy America provisions giving American workers and businesses the first opportunity at procurement contracts.  New federal loan guarantees for energy projects should require the utilization of domestic supply chains for construction.  No federal, state, or local government dollars should be spent buying materials, equipment, supplies, and workers from China.

My other recommendations for creating jobs are based on improving the competitiveness of American companies by improving the business climate of the United States so that there is less incentive for American manufacturing companies to outsource manufacturing offshore or build plants in foreign countries.  The proposed legislation would also close tax loopholes and prevent corporations from avoiding paying corporate income taxes.  They are:

  • Reduce corporate taxes to 25 percent
  • No negotiation or ratification by Congress of any new Free Trade Agreements
  • Make capital gains tax of 15 percent permanent
  • Increase and make permanent the R&D tax credit
  • Eliminate the estate tax (also called the Death Tax)
  • Improve intellectual property rights protection and increase criminal prosecution
  • Prevent sale of strategic U.S.-owned companies to foreign-owned companies
  • Enact legislation to prevent corporations from avoiding the U.S. income tax by reincorporating in a foreign country
  • Change the tax code to a “partial exemption system” to eliminate incentives for companies to move offshore by taxing all corporate income at a reasonable rate once

In this election year, it is unlikely that legislation proposing any of these recommendations would have a chance of being passed by Congress.  The problem is that no Democrat would want to allow any credit to go to a Republican, which might help them win re-election, and no Republican would want to allow any credit to go to a Democrat, which might help them win re-election.   We will need to wait until after the 2012 election before we have any hope of such legislation being considered.

Finally, the Obama administration is considering a high-level task force to manage China trade enforcement issues. Such a task force is desperately needed and long overdue.  The challenge will be to ensure that the task force has the authority to take bold steps to lower our trade deficit with China.  Holding China accountable for their compliance with terms of their membership in the World Trade Organization would be a major step in helping American manufacturers compete in the global marketplace to be able to succeed, grow and create jobs in America instead of China.

Tags:, , , , ,
Posted in Economy, Reshoring, Taxes/Regulations | No Comments »

What are the Republican Candidates’ Economic Plans to Create Jobs?

Monday, January 9th, 2012

Every Republican candidate has an economic plan they say will create jobs.  The truth is that the ability of any president to directly create private sector jobs is very limited, but he can set the focus and present a plan that his/her administration can follow and solicit the support of Congress and the American people to approve and implement his plan through legislation and funding.  The legislation that Congress passes and the President signs can either help or hinder the private sector to create jobs.  The funding that Congress allocates provides the fuel to accomplish the plan.

Most of us are familiar with the old adage that small businesses create up to 80 percent of all jobs; however, the new Census Bureau database called Business Dynamics Statics shows that it’s not so much small businesses that create jobs as it is new businesses.  In his book, Great Again, CEO Henry Nothhaft wrote, “all the major innovations that powered the American economy to unrivaled prosperity over the last fifty years – from semiconductors and personal computers to software, biotech, and the Internet – were all created by small start-ups.  So were all of the 40 million new jobs created in this country since 1977…”

However, not every new business has the potential to grow and produce a significant number of jobs.  As Rodney Stark wrote in The Victory of Reason, the basis economic fact is “all wealth derives from production.  It must be grown, dug up, cut down, hunted, herded, fabricated or otherwise created.”   Because of the jobs multiplier effect, businesses that manufacture a product, whether it’s a hardware or software product, have the highest potential for creating jobs as they grow and succeed.  However, these companies will only create American jobs if they manufacture their products or perform their services in the United States.

Most of the plans of the Republican candidates’ plans involve cutting taxes, cutting government spending, reducing the size of government, eliminating burdensome regulations, and repealing what they consider onerous legislation.  Do their specific plans provide a platform to create jobs from production?  Do their plans provide incentives to manufacture products in America?  If they don’t, what should their plans include?

Since all of the Republican candidates recommend reducing corporate taxes, let’s examine why this would be beneficial for creating jobs.  Right now, American corporations are at a disadvantage compared to other countries:  our tax rates are the second highest in the world next to Japan’s, averaging 35 percent at the federal level.

The Organization for Economic Co-operation and Development (OECD) has conducted a number of empirical studies by OECD economists and others that discovered the best tax rate that maximizes revenue and compliance is 25 percent.  The studies found that high corporate income tax rates have the most harmful impact on long-term growth and lowering tax rates can lead to significant productivity gains in the very companies that have the most potential to contribute to economic growth.

Governor Mitt Romney and Ron Paul propose reducing corporate tax rates to 25 percent; Governor Perry proposes a reduction to 20 percent; Rick Santorum to 17.5 percent; while Newt Gingrich proposes a reduction to12.5 percent.  There were no specific recommendations on former Utah Governor Jon Huntsman’s campaign website on reducing corporate taxes.  He seems to base his American Jobs Plan predominantly on increasing free trade through additional free trade agreements.

Three candidates, Governor Romney, Governor Perry, and Rick Santorum propose to create immediate jobs by allowing corporations to “repatriate” profits being held offshore by foreign subsidiaries or divisions at a reduced rate of 5 to 5.5 percent.  Over 1.2 trillion dollars could be brought back to America in a matter of days that would provide capital for investment in plants and equipment in the U. S. and hiring more workers to run the equipment.

Currently, the U. S. operates under what is known as a “worldwide” tax system, meaning that business income is taxed at the U. S. rate regardless of whether the income is earned within American borders or overseas.  American companies pay the corporate tax in the host country, and when profits are repatriated back to the U. S., they pay the difference between what was paid to the host country and what would have been owed under the U. S. rate. Our higher corporate tax rate provides an incentive for companies to keep their profits offshore and not repatriate them.   The U. S. is now the only country in the OECD that adheres to the “worldwide” tax system while imposing a corporate tax rate above 30 percent.  A reduced rate for “repatriation” of corporate profits was provided by the Bush administration in 2004, and corporations have been hoping for the opportunity to do so again.  To prevent this problem in the future, Governor Romney and Governor Perry propose switching to a “territorial” tax system in which income is taxed only in the country where it is earned.

In order to succeed and grow, businesses, and especially manufacturers, need to make long-range plans on allocating funds for R&D and capital investment.  Thus, businesses would benefit by making the R&D tax credit permanent and either reducing or eliminating the capital gains tax.  Governor Romney, Governor Perry, and Newt Gingrich support eliminating the capital gains tax altogether; Ron Paul proposes cutting and simplifying the corporate capital gains tax and Rick Santorum proposes to reduce it to 12 percent.  They all support increasing and making permanent the R&D tax credit.  In addition,  all the Republican candidates support eliminating the  Estate Tax, aka the Death Tax, which especially hurts small, family owned businesses where the heirs frequently have to sell the business to pay the Estate taxes instead of maintaining the business for the next generation of their family.

All of the above proposals for changing tax policies are included in the ten immediate recommendations for saving American manufacturing in chapter 10 of my book, Can American Manufacturing be Saved?  Why we should and how we can.  Only one candidate, Governor Romney, has included my top recommendation in his campaign economic plan:  enact legislation to address China’s foreign currency manipulation.  He also proposes to “direct the Department of Commerce to assess countervailing duties on Chinese imports if China does not quickly move to float its currency.”  Some criticize this proposal by saying it would start a trade war.  What they don’t understand is that we are already in a trade war, and China is winning.

We need a president who recognizes that currency manipulation is just one of the tactics China is using in their economic warfare with the United States.  Other tactics they use have been described in my previous blogs and are well documented in the writings of Ian Fletcher, Senior Economist for the Coalition for a Prosperous America in his book, Free Trade Doesn’t Work, What should replace it and Why, and CPA’s blog www.tradereform.org.

In his book Great Again, CEO Henry Nothhaft provides additional recommendations of what tax policies should be changed to dramatically help start-up companies:

  • Forgive or defer use taxes levied against start-ups for the purchase of new equipment
  • Reduce or defer the statutory and marginal income taxes paid by start-ups in their first three years of existence
  • Create special tax breaks, capital grants, and incentives for capital-intensive start-ups, especially manufacturing start-ups
  • Provide an innovation tax credit that would give small start-ups half of the money back that they spend on getting a patent

I heartily concur with these recommendations based on my own experience working with start-up companies in business and as a member of the steering committee of the San Diego Inventors Forum (SDIF),

Additional economic proposals of the Republican candidates that would help create jobs would be to repeal the Dodd-Frank act and Sarbanes-Oxley act.  At the very least, we need to exempt firms under $500 million in market value from the costly audit and report requirements of Sarbanes-Oxley.  These onerous requirements have hindered technology-based companies from securing growth funding through the IPO market according to Henry Nothhaft.

Of course, all of the Republican candidates have pledged to play a role as president in the goal of repealing Obama’ Health Care Act, which would add at least $500 billion in taxes to the burden already borne by American individual and corporate tax payers.

I urge every American voter to not just pay attention to the candidates’ sound bites from their ads, debates, and interviews.  Check out their websites and read for yourself what they propose to do as president.  Don’t just vote along party lines.  Make your own personal decision based on facts and gut feelings.  Support the candidate you choose by donating and volunteering.  Join your voice with others who want to create jobs and save American manufacturing.  Besides the Coalition for a Prosperous America already mentioned, check out the American Jobs Alliance, a new independent, non-profit, non-partisan organization.

Posted in Economy, Taxes/Regulations | No Comments »