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