United States

Manufacturing Summit Address Taxes Now Energy and Workforce Policy Soon

MANUFACTURING INSIGHTS  | 

In any given year, U.S. manufacturers face a host of challenges to keep their businesses healthy and competitive. But in 2012, over 400 industry executives attending a recent summit hosted by the National Association of Manufacturers (NAM) boiled down their most pressing issues into three simmering pots: lower taxes, stronger development of domestic energy sources and better workforce preparation.

"This is a pivotal time, which is why I think these issues rose to the top," said Karen Kurek, a summit attendee and the National Manufacturing and Distribution Practice Leader at McGladrey. "While it's likely there won't be much in the way of tax legislation until after this year's election, summit attendees clearly think Congress and the White House need to take action before the end of the year to prevent automatic tax increases. And, manufacturing leaders said it's urgent that government provide policy certainty or support on the other two issues as soon as possible."

Here's a quick overview of these key themes:

Taxes. Under former President George W. Bush, marginal rates on all individual federal income tax brackets were reduced in 2001, with the top rate cut from 39.6 percent to 35 percent. Two years later, the maximum rate on capital gains was slashed from 20 to 15 percent. Under current law, those cuts are scheduled to expire at the end of 2012. Manufacturing leaders say that's a significant concern, especially since about 70 percent of domestic goods producers operate as "S" corporations or partnerships, where business income is "passed-through" and taxed at the individual income rate. If taxes rise on either personal or investment income, those owners will have lower profits that can be plowed back into the business for hiring or big-ticket capital improvements.

Larger manufacturers (typically "C" corporations) can face a top U.S. corporate tax bite of up to 35 percent, the highest corporate income tax rate in the world. However, the "effective tax rate" can vary widely, based on deductions or credits embedded in the current federal tax code. In this area, manufacturers want the top rate cut to no more than 25 percent, which they believe will make U.S. industry more competitive in global markets. In addition, manufacturers of all sizes want a permanent R&D tax credit, which would provide a stable financial incentive for investments in innovation.

Energy. While the manufacturing sector accounted for about one-third of all U.S. energy consumption in 2011, a closer look shows a heavy reliance on traditional fuels. In fact, the Energy Department reports that natural gas and petroleum make up about 82 percent of all primary and secondary fuel use by domestic manufacturers. That simple fact helps explain why summit attendees and NAM are strongly pushing policies that would increase domestic energy production.

In its Manufacturing Renaissance: Four Goals for Economic Growth position paper, NAM outlines several recommendations in this area, such as streamlining the regulatory and permitting processes for energy development. Additionally, NAM wants lawmakers to expedite the permitting process for oil and gas exploration on the Outer Continental Shelf. Many offshore locations, especially along the U.S. Atlantic and Pacific coastlines, were closed in the wake of the 2010 BP Deepwater Horizon pipeline rupture in the Gulf of Mexico.

Workforce. Even if manufacturers' tax and energy issues were resolved tomorrow, company executives would still struggle with a shallow pool of qualified workers. In fact, according to a recent skills gap study conducted by The Manufacturing Institute, nearly three in four executives said a shortage of production workers with strong technical skills has hurt plans to expand operations or improve productivity. In that same poll, 42 percent of leaders said potential business growth has been stunted by a shortage of qualified engineers.

To develop a workforce that can handle modern, high-tech manufacturing, NAM's Manufacturing Renaissance paper suggests several solutions. These include addressing government regulations or mandates that undermine flexibility in employer-labor relations, and utilizing the Manufacturing Skill Standards Council (MSSC) certification program. MSSC is a nationwide, industry-based skill standards, assessment and certification system for all sectors of manufacturing. The goal of the MSSC is to train and credential the U.S. workforce with high-performance knowledge and skills necessary to boost the productivity, innovation and competitiveness of domestic manufacturers.

"The manufacturing skill standards have been developed and refined over the past 15 years by U.S. manufacturers as the foundation skills required for further personal development, said Ron Bullock, Chairman of Bison Gear and Engineering in St. Charles, Ill. "Having a team that is certified to these standards is a key element in our global competitiveness."

The NAM paper also renewed a long-standing call for greater investment in STEM (Science, Technology, Engineering and Mathematics) education, where the U.S. lags global peers. For example, a recent briefing paper by the Business-Higher Education Forum found that only 15.6 percent of U.S. college students earned a university diploma in a STEM field during 2007. On the other hand, nearly half of China's university students earned their first degree in a STEM discipline, followed by South Korea at nearly 38 percent. In Germany, 28 percent of first-level university graduates received their primary degree in a STEM program.

View NAM's blueprint for a domestic manufacturing renaissance.