The President’s $2 Trillion Tax Hike: Bad News for America’s Manufacturers

A day after the President proposed a $2 trillion tax increase without any meaningful spending cuts as a solution to America’s debt crisis, the President is off to Pennsylvania on a PR tour saying he wants to promote manufacturing in America.  But if President Obama is serious then why is it that he wants to hit those very manufacturers with massive tax hikes that would hurt those business’ ability to hire, expand and invest?   Here’s what the President has proposed and why it’s bad for the very same manufacturing base the President says he wants to help:

According to the National Association of Manufacturers (NAM), two-thirds of manufacturers pay income taxes at individual rates. Therefore, the President’s proposal to raise taxes on the top two marginal tax rates would hit these manufacturers at a time when they are looking to hire, expand and invest in things like new equipment.  (National Association of Manufacturers, “ManuFACTS: Last-In, First-Out (LIFO) Accounting,” June 2011)

The President’s proposal to strip manufacturers and other companies of how they account for their inventories, moving from what’s called “Last-In, First-Out” (LIFO) to “First-In, First-Out” (FIFO) accounting rules, would cripple their ability to hire and invest, and jeopardize their ability to compete in today’s global economy.  

• A recent survey by NAM of small and medium sized businesses found that approximately 80 percent of those respondents said they use LIFO.  In fact, according to NAM, over 40 percent of industrial equipment manufacturers, over 35 percent of makers of building materials, and about 35 percent of all plastics manufacturers rely on LIFO.  (National Association of Manufacturers, “ManuFACTS: Last-In, First-Out (LIFO) Accounting,” June 2011)

Here’s what some of those very same manufacturers said about the President’s LIFO proposal in that same NAM survey:

• “This could have a substantial negative impact by increasing taxes and decreasing capital available for reinvestment in machinery and equipment, which is vital to maintaining our competitive position.”
• “The impact will be a significant drain on cash flow and a further erosion of competitive position for our U.S. manufacturing activities.”
• “It would have a significant tax implication immediately. Over the long term, it would further reduce profits—which are hard enough to generate—and reduce our ability to make capital improvements to keep us competitive.”

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