Tax break for manufacturers designed to spur hiring

Though diminished in size, manufacturing still exhibits a strong presence in the regional economy and in the job-growth policies of political leaders.
Even with many business subsidies facing scrutiny, Democratic leaders in the Rhode Island House this year want to create a new tax-incentive program aimed at large manufacturers willing to expand here.
The Manufacturing Industry Revitalization Act, part of House Speaker Gordon D. Fox’s economic-development agenda, would provide a $500 per-worker corporate income tax credit to companies who build new facilities and hire at least 100 new employees.
Only large manufacturers would be able to take advantage of the program as the minimum capital investment to qualify is $10 million.
But supporters of the proposal say it is necessary if Rhode Island is going to stay competitive with other states that offer similar and even more-generous tax breaks.
“I think it is something that could benefit manufacturers,” said Bill McCourt, executive director of the Rhode Island Manufacturers Association. “Most manufacturers understand that if they are going to grow, they have to make capital investments. And if they invest, in equipment or facilities, it will reduce the chance they will relocate.”
McCourt would like to see the bill as a starting point for a program eventually expanded by lowering the minimum investment size and making it available to smaller firms and pass-through companies that don’t pay corporate tax.
But while support for manufacturing may be broad, many are questioning whether a new layer of narrowly targeted tax breaks is the best long-term economic-development strategy.
They include Gov. Lincoln D. Chafee, who’s made his distaste for subsidies and special deals known since his 2010 campaign and in proposals to scale back or eliminate the Jobs Development Act, the largest tax-incentive program.
While Chafee hasn’t indicated whether he would veto the Manufacturing Revitalization Act if it passes, spokeswoman Christine Hunsinger said the idea of creating new tax credits, especially those that only apply to a small number of companies, is a concern.
“In the past he has been hesitant to support tax credits that benefit only a handful of companies,” Hunsinger said. Greg Pare, spokesman for Senate President M. Teresa Paiva Weed, declined to say whether or not she supported the manufacturing tax credit.
While advocates of the bill hope someday it will help draw new manufacturers to Rhode Island, it’s easier to predict existing Rhode Island companies benefiting from the tax credit, especially submarine-maker Electric Boat.
Rhode Island’s largest manufacturer with 2,700 workers at its North Kingstown facility, EB expects to reach 5,000 workers in the state over the next decade as it expands work on Virginia-class submarines and begins work on a new ballistic-missile submarine.
Along with the new hiring, Electric Boat anticipates making significant capital investments at Quonset Point, although exact plans have not been made and it is unclear whether the timing would allow the company to claim the credit for all the new workers.
Assuming it could and the bill passes as written, Electric Boat could claim up to $11.5 million in credits from the 2,300 new hires expected.
“We definitely support it,” Electric Boat spokesman Robert Hamilton said about the proposed tax credit. “It would reduce costs for the Navy. Taxes are a cost of doing business. We would not pass as much of those costs along.”
Other large Rhode Island manufacturers, including Amgen Inc., International Packaging Corp. and Taco Inc. either declined to comment or didn’t return calls about the proposed tax credit.
John Simmons, executive director of the business-backed Rhode Island Public Expenditure Council, testified in support of the manufacturing tax-credit proposal, but acknowledges that it’s difficult to determine the exact cost.
“It all depends on how you determine cost and if you believe everyone who comes to Rhode Island would have come anyway,” Simmons said.
Although ideally the state would not have to give tax breaks, Simmons said the manufacturing credit is necessitated by the fact that so many other states offer even-more-generous incentives and Rhode Island’s business climate lags behind them.
“You run the risk of not doing anything and hoping that the overall business climate is good enough,” Simmons said. •

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