By Standing Still, US Falling Behind On Tax, Manufacturers Claim

by Mike Godfrey, Tax-News.com, Washington

28 September 2006

Soaring non-wage costs, particularly taxation, are putting US-based manufacturers at a competitive disadvantage to other major industrialised nations and risking the nation's long-term economic health, the National Association of Manufacturers (NAM) has claimed.

According to a new study by the NAM, structural costs for US manufacturers have increased from 22.4% to 31.7% since 2003.

“This is an astonishing increase from just three years ago,” said economist Jeremy Leonard of the Manufacturers Alliance/MAPI, author of the report.

“Because of these escalating costs, fewer new manufacturing jobs have been created and less is available to invest in research and development and worker training," he argued.

Using the same methodology as three years ago the study analyzed five structural, non-production costs: corporate tax rates, employee benefits, legal costs, natural gas prices, and pollution abatement.

The corporate tax rate was both the highest burden in absolute terms and the largest contributor to the increase in structural costs, responsible for more than one third of the increase in the cost burden, the study found.

While America's corporate tax rate has remained the same since the last study, the gap has widened because some trading partners have lowered their statutory tax rates, the report concluded.

“By standing still, the United States is falling behind,” said John Engler, the NAM’s president.

“To turn this tide, the NAM and its members are pursuing an aggressive agenda to enhance their ability to compete in the global marketplace,” Engler added. “The stakes are enormous and every legislator should be concerned with this study."

The report also finds that US manufacturers have also lost a considerable competitive advantage in other costs, particularly natural gas prices, which were 30% lower than America's nine major trading partners in the mid-1990s but just 0.7% lower in 2005.

Meanwhile, pollution abatement costs have increased by 11.5% since 2000, to an estimated $77 billion in 2004, according to the study, increasing the U.S. excess cost burden by 1.7 percentage points relative to its major trading partners.

“The Senate’s inaction on these issues, due to a small number of obstructionists, has hampered manufacturers’ tremendous economic contributions and played a large role in creating this cost disadvantage,” Engler said.

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