Posted By Jeff Moad, June 07, 2012 at 10:04 AM, in Category: Industrial Policy
As the election season in the U.S. groans into high gear, not a week goes by that you don’t see news photos of a prominent candidate sporting unfortunate protective clothing and touring a manufacturing plant. The message is clear: I’m concerned about creating jobs (or, more accurately, about enacting policies that will allow others to create jobs). Unlike in many earlier election cycles, the message is also that manufacturing is a vitally important part of the job-creation story.
This is certainly a positive development for manufacturing. Having politicians competing to be perceived as true champions of manufacturing can only raise the profile of the industry, and may even result in policy changes that will help manufacturers become more globally competitive.
Whenever I hear politicians go on about cutting corporate tax rates and making R&D tax credits permanent, however, I can’t help thinking that they are failing to address the issues that mean the most to what is by far the largest and most important group of manufacturers: small businesses.
According to the most recent U.S. Census figures, the vast majority of manufacturers are small and midsize companies. In fact, 99% of manufacturers have fewer than 500 employees. And I can tell you from speaking with them often and that small manufacturers are the source of incredible innovation, not to mention much of the industry’s job creation.
Yet, at least on the national level, much of the political policy discussion really focuses on helping large manufacturing enterprises, not the small guys.
For example, the bedrock of both presidential candidates’ pitch for improving the lot of manufacturers is corporate tax rate reduction. Both major candidates have proposed reducing the corporate tax rate.
The problem is that many if not most small manufacturers don’t pay corporate taxes. They are “S corporations,” meaning that their taxes are passed through to their owners’ individual returns. And, since individual rates are currently much higher than effective corporate rates, small manufactures end up paying more in taxes and having less to reinvest in the business or hire new workers. While both major candidates have also proposed changes that would effectively cut individual taxes paid by small-business owners, their rates would remain higher than those paid by large manufacturers using the corporate tax schedule.
And the election-season debates between the major candidates regularly ignore other policy issues of primary importance to small manufacturers. Most small manufacturers I speak with, for example, have no problem making investments in new, sustainable processes and products. In many cases, their customers are pushing for it. But small manufacturers do have a problem with complex, confusing, and overlapping regulations that require many unproductive hours and dollars to negotiate. The simplification of regulations—and simplification of the tax code, for that matter—would go a long way toward helping small manufacturers pay more attention to things that really matter, like developing and producing world-class products. Yet this doesn’t seem to register high on the to-do lists of the major presidential candidates.
Similarly, small manufacturers tell me they need more help—in the form of clear information and consistent rules—from federal trade officials if they are to get on with the important business of increasing their exports to customers in developing countries. Last month, at a hearing of the House of Representatives’ Committee on Small Business, Thomas Crafton, president of Thermcraft Inc., a small Winston-Salem, NC-based maker of industrial heaters, told the legislators, “We have export issues that arise on a daily basis and continue to be an ongoing struggle. For example, it can be difficult to get consistent and reliable information and help from the local representatives stationed abroad. Commercial Officers seem to see only the big picture and often fail to address the details and help small businesses through the ongoing process of exporting.”
Crafton added, “Regulatory changes are constant, and the burden lies on us to keep up with those changes and decide on classifications for specific products. There is a lack of a single source for info regarding export embargoes. They are listed across multiple Websites that take countless hours to research, and it is difficult to know if all requirements have been addressed.”
It may not be surprising that the national politicians and policymakers aren’t talking much about these issues. As campaign issues, regulatory simplification and export assistance aren’t nearly as sexy as corporate tax cuts and getting tough on China.
It also can’t be overlooked that, individually, small manufacturers are less able than large ones to make the kinds of campaign contributions that increasingly make a difference at election time.
But candidates who really want to boost manufacturing competitiveness and employment should be talking about and doing more to help small manufacturers.
Written by Jeff Moad
Jeff Moad is Research Director and Executive Editor with the Manufacturing Leadership Community. He also directs the Manufacturing Leadership Awards Program. Follow our LinkedIn Groups: Manufacturing Leadership Council and Manufacturing Leadership Summit