Obama manufacturing plan gets mixed R.I. reaction

Rhode Island manufacturers agree on one thing about the plan President Barack Obama outlined in his State of the Union address to boost factory work in the Unites States: They were glad to hear a president talk about the importance of manufacturing.
Aside from that, local manufacturing executives appear mixed on the proposals, which seek to encourage domestic production and job creation through tax credits while punishing companies who move work overseas.
Generally supportive of the plan’s intent, Rhode Island manufacturing leaders are concerned about the details and whether the proposals would actually simplify the tax code as intended or make it even more complicated.
“Anytime there are measures taken that recognize the importance of manufacturing in the Unites States and anything that can be done to level the playing field with overseas companies, it is a good thing,” said William McCourt, executive director of the Rhode Island Manufacturers Association, about the plan. “However, our preference would be to see something done as an overall tax policy, not just the bits and pieces in this legislation.”
The comprehensive overhaul of the tax code McCourt said manufacturers are looking for is one that broadens the revenue base by closing loopholes and then lowers rates across the board.
Closing loopholes is a major facet of the Obama manufacturing plan, but although the proposal includes the goal of broad-based tax-rate reductions, there are no details of specific measures to do so.
Some of the bits and pieces in the Obama plan include a provision to block U.S. companies who move operations overseas from deducting expenses related to the move from their domestic tax bill. At the same time, Obama would offer a 20 percent income tax credit to any company now doing work outside the country if it brings some of that home.
To encourage homegrown manufacturing, the plan would target the existing tax-deduction incentive for domestic production more narrowly toward manufacturing and no longer allow it to cover functions like oil production.
Another proposal would deliver $6 billion in tax credits to “finance projects in communities that have suffered a major job-loss event.”
While Rhode Island’s persistently high unemployment rate has made the entire state seem like a major job-loss event, McCourt said it is unclear what could qualify the state for any of that money. The biggest targets in the Obama manufacturing plan are companies that move either operations or profits out of the country to avoid paying taxes.
The plan proposes a “minimum tax” on overseas profits belonging to U.S. companies that the White House estimates would generate $23 billion in revenue.
If the minimum tax for companies sheltering their profits offshore is passed, the Obama plan promises to push forward a tax-reform plan that would lower tax rates for individuals and corporations, but does not provide further details.
Karl Wadensten, president of Vibco Vibrators in Richmond, said he is worried that some of the measures designed to prevent companies from outsourcing or sheltering profits could end up catching firms like his that make their products here but are looking to expand sales internationally.
Vibco has a sales office in Toronto and Wadensten said he was concerned the Obama plan could cause his company to pay more because of that.
Another part of the manufacturing plan that Wadensten said typifies the pitfalls of trying to encourage growth through narrow tax incentives is the proposal to double the existing deduction for domestic production for “advanced manufacturing technologies,” which is not well-defined.
“What we are doing is basic manufacturing, but we are employing high-tech ways to do it,” he said.
One thing Wadensten said he would like to see in the president’s plan is a move to adopt the much more rapid depreciation rates for capital equipment that exist in Europe.
The faster rate of depreciation means European companies can afford to replace their equipment more often, which makes them more efficient, he said.
“The big positive is … he is focusing on manufacturing and has some people in the cabinet thinking about this and how we can strengthen our position,” Wadensten said.
John Hazen White Jr., president of Taco Inc. in Cranston, agreed.
White supports the proposal to eliminate tax breaks for companies that send work out of the country.
White said what he isn’t as enthusiastic about is the idea of trying to create jobs through a variety of tax credits.
“If I need someone I am going to hire them anyway,” White said. “I think what’s more pertinent is not having rewards for taking jobs overseas.” •

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