Corporate Tax Cut Won’t Rescue Manufacturing Industry
President Obama“extend[ed] a new proposal to Republicans that he hopes will break the political gridlock on budget negotiations, offering to cut corporate tax rates in exchange for job investments” last week, as the Associated Press put it. Obama gave a broad outline of the proposal in a speech at a Chattanooga, Tennessee Amazon distribution center.
The plan involves cutting the corporate tax rate, which Obama has proposed in the past. This is a no-brainer. At 35 percent, our corporate tax rate is currently the second-highest in the world. Evidence suggests the rate is killing economic growth. When you compare the pernicious effects of corporate taxes to income and consumption taxes, as the Organisation for Economic Co-operation and Development (OECD) did, “corporate taxes are found to be most harmful for growth.” A study by the Tax Foundation found that lowering the corporate tax rate would actually be revenue positive. And the New York Times reports that lowering the rate might even stabilize banks.
The problem is that Obama also wants to increase spending on jobs programs, specifically to promote manufacturing. The president has also proposed cutting corporate taxes for manufacturing companies to 25 percent while sticking the rest of American businesses with a 28 percent rate. Therein lies the symbolism of giving the speech at the Amazon warehouse. The company is busy building up its U.S. capacity, saying that it intends to add 7,000 new jobs.
While this is a good thing, the fact remains that blue-collar jobs like those in Amazon’s warehouses are absolutely not the key to economic recovery and long-term prosperity. The jobs pay up to $13 an hour, which is around $27,000 a year, putting a family of four only slightly above the official federal poverty line. In addition, 7,000 jobs, while great, aren’t a drop in the bucket of the millions of manufacturing jobs we’re losing every day to nations in the global south.
The fact of the matter is that no matter what favors Obama gives to manufacturers, manufacturing will never be cost-effective in America again. The double-whammy of cheaper-than-ever shipping and the fact that Americans cannot tolerate the wages and working conditions that are de rigeur in the global south have ensured this reality.
It’s a kind gesture to the millions of low-skill people out of work to promote U.S. manufacturing. We look at a past where people had lifetime careers. These factory jobs offered entry into the middle class and the reasonable expectation of staying there, even past retirement.
It’s unfortunate that that era has ended. We’re still trying to figure out what to do with a generation of poorly-educated people without the safety net of manufacturing jobs to catch them. But it’s kind of cruel to act as if you’re doing something for those people by giving tax breaks to manufacturers which the profitable portions of our economy can’t enjoy. The difference between 25 percent and 28 percent won’t employ thousands of high school dropouts.
To help the people our information and service-based economy has left behind, we need to rethink education. Compulsory, standardized education suited a manufacturing economy. But today, a high school degree is virtually worthless on its own. And the average high school graduate isn’t adequately prepared for college. We need help building an education system which prepares kids for the economy we have, not futile attempts to rebuild an economy whose time has passed.