Wednesday, April 25, 2012

Manufacturing Doesn't Need Special Tax Treatment

Nobel economist Gary Becker on why special treatment for manufacturing is misguided:

"U.S. President Barack Obama, in his State of the Union address, advocated special tax breaks and support for the manufacturing sector. I do not see any more convincing case for subsidies to manufacturing than there was for the special treatment of agriculture during the long decline in farm employment. 

Most of the arguments made in support of privileges for manufacturing could be made for services and other sectors of the economy. For example, although certain manufacturing industries have had high rates of productivity advance, so too has mining, such as through the development of fracking techniques. The most important technological advance of the past several decades has been the computer and the Internet, for these gave birth to email, word processing, apps, online sales and social networks like Facebook and Twitter. 

Instead of singling out manufacturing for special privileges, the U.S. government should get behind certain general policies. High on the list would be raising the rate of growth of the American economy, for this will tend to create jobs in most sectors of the economy. More government support may be justified for basic research in science and other areas that would also benefit all sectors, not just manufacturing. Local and state governments, along perhaps with the federal government, could try to reduce the dismally high dropout rates from American high schools. Dropouts have trouble finding good jobs even in the best of times, and they suffer the most during recessions. 

Many other steps can be taken to help the American economy, especially by limiting the growth of entitlements and the federal budget. None of the steps to improve the economy involve favoring manufacturing employment and the manufacturing sector. The call by many for special treatment of manufacturing jobs is basically misguided." 

MP: Another reason that special treatment (e.g., tax breaks) for the manufacturing sector is misguided is that the industry earned record profits last year, see chart above.  When some industries like major integrated oil and gas earn record profits, there are calls in Washington for "windfall profits taxes," so the typical political logic would now be calling for higher taxes on manufacturers, not special tax breaks.  But then the term "political logic" is probably an oxymoron. 

HT: Dan Greller

26 Comments:

At 4/25/2012 9:51 AM, Blogger Jon Murphy said...

I was at an manufacturing trade show yesterday and was talking with a foundry manager. He said he is having major labor shortages because he cannot find people with the required skills and the young people he can find are job-hoppers (they work at the place for a few months or a year and then leave).

There is also, he said, this stigma surrounding manufacturing that it is dirty and no way to make a living.

There seems to be a notion in the public eye that manufacturing is a sweatshop. American manufacturing is not that, but folks don't seem to believe it.

 
At 4/25/2012 10:48 AM, Blogger Moe said...

Concur.

Not many pale-faces working on lawn crews or out in the fields picking fruit or vegetables either.

If this is due to immigrants willing to accepting lower pay, now that the tide is turning on immigrant flow, maybe we'll see a change in attitude.

 
At 4/25/2012 10:54 AM, Blogger Jon Murphy said...

If this is due to immigrants willing to accepting lower pay, now that the tide is turning on immigrant flow, maybe we'll see a change in attitude.

Well, I was more going for the fact that folks are opting to study other things then engineering and think manufacturing is dead, but we can blame foreigners, too. That seems to be a favorite pastime of people on both sides of the aisle. It's pretty much the one thing they agree on: it's someone else's fault.

 
At 4/25/2012 10:55 AM, Blogger juandos said...

Tax breaks for industry?

How about some mitigation in the fees and regulations industries face and customers have to pay for instead?

 
At 4/25/2012 10:58 AM, Blogger Larry G said...

doesn't any tax on business get incorporated into the price charged for their goods and services?

It seems to me that all that does is make the business a tax collector for the government.

Payroll taxes that function essentially as individual mandates for entitlements are perhaps debatable but the rest of the taxes, can someone explain the logic and rationale behind corporate taxes if they just increase the cost of goods and services anyhow?

How can we approach this discussion without it degenerating into an anti-evil-govt rant?

:-)

 
At 4/25/2012 11:02 AM, Blogger Benjamin said...

I am for tax breaks for manufacturing---just not subsidies ala agriculture and the whole subsidized, dependent class of effeminate weaklings we have created in our rural economy.

Other nations strengthen their manufacturing bases, to excellent effect---see Korea, Germany and China.

 
At 4/25/2012 11:06 AM, Blogger Moe said...

This comment has been removed by the author.

 
At 4/25/2012 11:12 AM, Blogger Moe said...

Jon:

I re-read my post and still can't find exactly where I blamed foreigners. I guess my reference to the argument threw you off.

 
At 4/25/2012 11:59 AM, Blogger Methinks said...

Moe,

Lawn work and fruit picking is a pretty dirty way to make a living. It's back-breaking work.

I doubt you'll see a shift in who is doing those jobs. The pale faces you refer to just prefer to use government to force you to pay for their dinner.

 
At 4/25/2012 12:00 PM, Blogger Che is dead said...

In recent years, government officials have depicted white-collar jobs for college graduates as the way to go. President Obama has advocated sending every high-school graduate to college or some form of higher education, while denigrating training for blue-collar industrial jobs. He has sought to increase spending on colleges, while slashing spending on more useful vocational education that could lead to work in manufacturing. [See this July 10 New York Times story]. . . As The Washington Post notes, as senior skilled factory workers are retiring, no one is taking their place, since “many of the younger workers who might have taken their place have avoided the manufacturing sector because of the . . . stigma of factory work.” . . .

Meanwhile, 12.8 million people are unemployed, many of them people with economically-useless college degrees . . . Growing government subsidies have encouraged colleges to raise tuition at a rapid rate, and to dumb down their courses to attract marginal students . . . Federal financial aid programs have helped cause skyrocketing tuition increases. Meanwhile, college students learn less and less with each passing year. “Thirty-six percent” of college students learned little in four years of college, and students now spend “50% less time studying compared with students a few decades ago, the research shows.” -- “Severe Shortage of Skilled Factory Workers As Government Encourages Students to Pursue White Collar Jobs", OpenMarkets.Org

 
At 4/25/2012 12:02 PM, Blogger Moe said...

This comment has been removed by the author.

 
At 4/25/2012 12:03 PM, Blogger Moe said...

MeThinks:

You are speaking about my neighbor across the street - no job for two years now and every evening when I get home from work - he and his buddies are sitting around killing six-packs til 2 in the morning.

 
At 4/25/2012 12:06 PM, Blogger Che is dead said...

"I am for tax breaks for manufacturing---just not subsidies ala agriculture and the whole subsidized, dependent class of effeminate weaklings we have created in our rural economy." -- "Benji"

You need to seek professional help, your inability to assimilate facts that repeatedly put to you may be a symptom of mental disease, or perhaps a brain tumor.

 
At 4/25/2012 12:12 PM, Blogger juandos said...

"...can someone explain the logic and rationale behi, nd corporate taxes if they just increase the cost of goods and services anyhow?"...

Yeah larry g, said collected money is used to pander to the parasites and buy their votes with your money...

Consider the following from YouTube: "If I wanted America to fail"

 
At 4/25/2012 12:30 PM, Blogger Jon Murphy said...

Jon:

I re-read my post and still can't find exactly where I blamed foreigners. I guess my reference to the argument threw you off.


I know. Sorry, I was just being snarky. Sorry about that.

 
At 4/25/2012 12:46 PM, Blogger Moe said...

Jon - no worries - I'm usually good at detecting snarky - my bad.

 
At 4/25/2012 12:55 PM, Blogger Benjamin said...

Oh sure. Corn farmers are proud and independent. They stand on their own two feet.

The socialist federal government mandate that corn ethanol be used in nearly every gallon of gasoline sold in the USA--and the tripling of corn prices--in no ways means corn farmers are pink-o economic sissy-boys in short pants.

Just because they have a pink-mandated market--they are still butch.

They wear the toughest bras on the market.

 
At 4/25/2012 1:10 PM, Blogger Its GSATT said...

"How can we approach this discussion without it degenerating into an anti-evil-govt rant?"

heh, errr, ummmm...ahhhhh ummmm, well you see, ahhhh, yup, I understand. You have to realize our Gov. isnt Evil, It's merely trying to do EVERYTHING for EVERYBODY, but wont come to terms that its just not possible to afford to do it all. But it cant help itself and tries to anyhow, sometimes by simply taking it from the people who seem to be making "too much" at that particular time.

There is nothing we can truly do about it. Not until our society can toughen up and draw the line between what should be done for ones self and what our government was limited to be used for. Social security is a cool idea, but it became a BAD idea when the option to say "no thanks" was eliminated.

The ability to screw yourself or succeed is true freedom :0

 
At 4/25/2012 1:26 PM, Blogger Its GSATT said...

Oh but I don't leave out the fact that there is some BULL *(*** going on as always. When someone wants something passed, money talks. People will always find a way to try and massage a situation their way, it's the rest of us that are responsible to try and stay sharp enough to catch them in the act and keep our elected officials in check. (and hopefully NOT elect a dickhead in the first place)

As for this article; why the allmighty generous government thinks it is in the position to "grant" the manufacturers permission to make or break and act like they are responsible for every success (emphasis on only success, never failures) a business accomplishes is like hearing Madden explain why the pass completion was a pass completion..... DURRRRR!!!!! SHUT UP AND DO SOMETHING USEFUL, OR TAKE A HIKE.

 
At 4/25/2012 3:45 PM, Blogger Methinks said...

How delightful, Moe. I can't tell you how energized I am by the knowledge that I write enormous checks to Uncle Sam every year in part to support that useless serpent.

 
At 4/25/2012 4:45 PM, Blogger Ed R said...

So corporate profits have set a new record for the second year in a row. Who should get credit for this??

 
At 4/25/2012 4:59 PM, Blogger Larry G said...

Obama?

 
At 4/25/2012 7:36 PM, Blogger Abir Mandal said...

Dear Dr. Becker: President Obama can go ---- himself.

 
At 4/25/2012 10:39 PM, Blogger juandos said...

"So corporate profits have set a new record for the second year in a row"...

Really?!?!

According to whom ed r?

Were those profits measured in real money or Bernanke Bucks?

 
At 4/25/2012 10:41 PM, Blogger Larry G said...

Hey Juandos...

check this out:

http://economix.blogs.nytimes.com/2012/04/25/bernanke-on-what-the-fed-can-do/

what do you think?

 
At 4/26/2012 4:44 PM, Blogger Ron H. said...

"You are speaking about my neighbor across the street - no job for two years now and every evening when I get home from work - he and his buddies are sitting around killing six-packs til 2 in the morning."

That makes sense. Why would anybody work if they don't have to?

 

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