Manufacturing and the Next Four Years

October 1, 2008
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These are worrisome times for the U.S. economy. In September the U.S. Department of Labor’s Bureau of Labor Statistics stated that the unemployment rate had risen to 6.1%. Among the ever-increasing ranks of the unemployed, many belong to the manufacturing sector: millions of manufacturing jobs have been lost during the past eight years.

So, as President, what do John McCain and Barack Obama propose to help boost manufacturing employment in the United States? And, going hand in hand, where does each nominee stand on the issue of trade?

Manufacturing in the United States

To help manufacturers-and all corporations-McCain favors broad tax cuts.

“Serious reform is needed to help American companies compete in international markets,” McCain said in a June 10 speech. McCain’s plan would reduce the corporate tax rate from 35% to 25%, with the conviction that a lower corporate tax rate is essential to keeping desirable jobs in the United States and allowing entrepreneurs to start new businesses.

McCain’s plan also would allow for a first-year deduction, or expensing, of equipment and technology investments, which is intended to provide a boost to capital expenditures and reward investment in technology.

The plan also calls for a permanent tax credit that would be equal to 10% of wages spent on research and development, which would be implemented to simplify the tax code, reward those doing business within the United States, and at the same time increase U.S. competitiveness, because a permanent credit would provide an incentive to innovate.

Other policies that a McCain-led administration would enact to help strengthen the U.S. economy center around lessening the cost of doing business in the United States, with a particular emphasis on small businesses.

The Lexington Project, an initiative aimed at decreasing U.S. dependence on foreign oil, would address the rising costs of energy, with increased domestic exploration of oil and natural gas. The project also has the goal of building 45 new nuclear power plants by 2030, which the McCain camp asserts would create 700,000 jobs and provide cheap electricity. The project also would devote $2 billion annually for research on clean-use coal energy.

McCain has a health care reform plan aimed at reducing the burden for small businesses that offer health insurance. The plan would provide $5,000 for health insurance to every American family to support small businesses that seek to offer insurance.

Keeping the top tax rate at 35%, and taxing sole-proprietorships, partnerships, landlords and other small businesses under the individual income tax also will be a stimulus for entrepreneurial growth, according to the McCain camp. The plan would maintain the 15% rates on dividends and capital gains, and phase out the Alternative Minimum Tax.

Also, to help small businesses, McCain proposes reducing the Estate Tax rate to 15% and permit a $10 million exemption.

Obama’s proposed agenda to help manufacturing is predicated on “education and energy, innovation and infrastructure, fair trade and reform,” he said at a June 16 speech in Michigan. Obama says that his administration would invest in the manufacturing sector with a resultant 5 million new green jobs. This would be accomplished through increased funding that has an underpinning focus on advancing green technologies.

Obama would create what he calls the Advanced Manufacturing Fund, which would serve to identify the most advanced manufacturing strategies and then make sure they are adequately funded. The fund would have a peer-review selection and award process based on the Michigan 21st Century Jobs Fund, a state-level initiative that has awarded more than $125 million to Michigan businesses.

Obama also advocates double funding the Manufacturing Extension Partnership (MEP), which works with manufacturers across the country to help them improve and grow. The program has a successful track record, yet funding for the MEP has been slashed by the Bush administration.

In the creation of a clean energy economy-and the manufacturing jobs to go with it-an Obama-led administration would invest $150 billion over 10 years to advance biofuels, the fuel infrastructure and facilitate the commercialization of the plug-in hybrid. The plan would promote development of commercial-scale renewable energy, invest in low-emissions coal plants and begin the transition to a digital electricity grid.

This plan also would invest in America’s skilled manufacturing workforce and manufacturing centers, to ensure that up-to-date skills and tools are available. Funding would be increased for federal workforce training programs that would be mandated to incorporate green technologies.

Another possible engine for job creation-in manufacturing and elsewhere-is what Obama calls the federal Renewable Portfolio Standard, which would require 25% of U.S. electricity be derived from renewable sources by 2025.

The Question of Trade

In matters of trade and American jobs, Obama advocates reform and government intervention, while McCain is largely viewed as a supporter of unfettered free trade. However, both candidates support the strengthening of the nation’s unemployment insurance program.

Obama emphasizes that certain trade agreements undermine U.S. economic security. The Obama camp’s statement on trade boils down to a promise to work for a trade policy that uses foreign markets to support American jobs and spreads first-rate labor and environmental standards worldwide.

“China must stop manipulating its currency because it’s not fair to American manufacturers, it’s not fair to you, and we are going to change it when I am president,” said Obama in April, at a speech in Pittsburgh.

Obama is against policy such as the Central American Free Trade Agreement (CAFTA), and, if president, would pressure the World Trade Organization (WTO) to enforce trade agreements and stop countries from continuing unfair government subsidies to foreign exporters and nontariff barriers on U.S. exports.

Obama also is calling for the amendment of the North America Free Trade Agreement (NAFTA), saying that it lacks the labor and environmental provisions that ensure fair trade. An Obama-led administration would work with the leaders of Canada and Mexico in the attempt to make the agreement lean more toward American interests.

McCain is strongly in favor of free trade. McCain has supported major trade agreements, from NAFTA to CAFTA, to agreements with Peru and other countries. McCain says globalization is an opportunity for the American worker and that the United States needs to engage in multilateral, regional and bilateral efforts to reduce barriers to trade, become competitive with other countries and create effective enforcement of global trading rules.

“For all the success of NAFTA, we have to defend it without equivocation in political debate because it is critical to the future of so many Canadian and American workers and businesses,” McCain told the Economic Club of Canada in June. “Demanding unilateral changes and threatening to abrogate an agreement that has increased trade and prosperity is nothing more than retreating behind protectionist walls.”

McCain concedes that globalization will not benefit every American worker, however, and believes that the competitiveness of future workers must be ensured through improvements in education.

McCain and Obama both support overhauling and modernizing the nation’s unemployment insurance. A McCain-led administration would make changes appropriate for a global economy, making it a program for retraining, relocating and assisting workers who have lost jobs.

Obama is calling for a $10 billion stimulus package to be added to the nation’s insurance program, strengthening it for the needs of long-term unemployed, which are defined as displaced older workers who have difficulty finding new employment.

Whomever America elects next month will take office with a plan to rectify U.S. economic problems, though through starkly different means. During the next four years, the yet-to-be-decided President will enact policy to revive manufacturing and manage trade in the United States. And the American worker -as well as the world-will be watching. Q

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