Manufacturers Look to Bring Work Back to U.S.; Will Tax Policy Help?

Posted by Brian Gilmore on Aug 30, 2012 9:41:00 AM

Can manufacturing employment in Massachusetts, declining for decades, actually grow again?

A new study out of the Massachusetts Institute of Technology suggests that the answer may be “yes.”

ManufacturingResearch undertaken this summer by the MIT Forum for Supply Chain Innovation in its 2012 U.S. Re-shoring Survey, finds that manufacturers are reconsidering their supply chain strategies due to higher labor costs in developing countries, energy costs and political stability issues.

The MIT survey found that re-shoring – bringing manufacturing back to the U.S. – is under consideration by a significant number of firms, but that most of these have not taken action to move operations back to the U.S. While the above-mentioned factors, as well as time- to-market concerns, favor re-shoring, the study noted that some industries (auto parts and electrical equipment manufacturers) are more active in moving operations to North America than others; and that federal and state policies, including corporate tax rates, have a major impact on decisions to move or stay. 

The possibility of re-shoring adds an important dimension to manufacturing competitiveness in the next decade, because the U.S., and Massachusetts, can realistically vie to attract manufacturing facilities and jobs as well as to promote international sales. We will be able to play offense as well as defense.

Against this backdrop, it is all the more important that Congress act on our nation’s uncompetitive tax policies, including a host of expired and expiring tax provisions.

Absent congressional action, about $500 billion in tax increases will hit the U.S. economy on January 1. The top tax rate on dividends will almost triple from 15 percent to more than 43 percent, and the top tax rate on capital gains will increase from 15 percent to nearly 24 percent. Many small and mid-size manufacturers will see their top marginal tax rate climb to more than 40 percent, because nearly 70 percent of manufacturers file taxes at individual rates.                

The Research and Development tax credit expired for the fifteenth time at the end of 2011.  And the U.S. corporate tax rate is the highest in the developed world, stuck at 35 percent for the past 20 years.

America’s manufacturing sector, historically the backbone of our economy and of upward mobility in our society, is entering a period of renewed opportunity. We need congressional action, now, to ensure that future expansion takes place here rather that abroad.   

Topics: Business Center, Issues, Manufacturing, Taxes

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