In 2009, a newly elected American chief executive was faced with an economy headed in the wrong direction. A 9 percent unemployment rate fed a lack of consumer confidence and created the very real possibility of a double-dip recession.
The Obama administration's solution was to persuade a unified Democratic congressional majority to move expeditiously on a $787 billion economic stimulus package correctly titled the American Recovery and Reinvestment Act.
Most people remember "the stimulus" as a massive spending package. Fewer remember that $288 billion of the final package came in the form of changes to the tax code. That was the reinvestment portion of the bill. To name just a few, ARRA included an $829 million reduction in the capital gains tax rate for small businesses, an increase in the Earned Income Tax Credit, and a sales tax deduction for vehicle purchases.
In 2017, a different and newly elected American chief executive – this time operating with a unified Republican congressional majority – is confronting a sustained economic recovery which has been at best sluggish and which achieved anemic growth in the first quarter of this year of just 0.7 percent. Like President Obama, President Trump has turned to tax changes as the centerpiece of efforts to get from the 1.8 percent economic growth rate experienced in 2016 to a more robust 3 percent annual economic growth standard.
All of the discussion about credits, deductions and exemptions (special interest tax breaks) boils down to one thing: What kinds of productive economic choices do we want Americans – especially those who operate businesses – to make? It starts with an up-front admission.
By failing to modernize our tax code since the 1980s, and by allowing the income of our domestic companies to be taxed whether earned domestically or abroad, we have allowed prevailing tax rates outside the United States to be a more important factor in business investment and location than whether the investment can create an American manufacturing job.
Our corporate tax rate of 35 percent is the highest in the developed world and most countries use the territorial approach whereby they tax only the income earned within their borders. An American company that would choose to bring income earned abroad back to the U.S. would pay substantially more in taxes to repatriate those earnings to the U.S. than they would to sustain production and jobs abroad. That's why over $2 trillion in earnings that could be invested in American manufacturing remains trapped overseas.
A combination of a lower rate for repatriated earnings abroad with immediate expensing of business investment in equipment and operations, and with lower overall rates for businesses large and small, would send a powerful and encouraging message to multinationals and to the small and medium-sized American businesses that are part of their supply chains. And that message is to confidently invest in increased production, exports and the jobs that come from those pursuits.
According to the Bureau of Labor Statistics, there were 17 million American manufacturing jobs in 2000. Right now, there are 12.4 million of them. That's some painful change and adjustment over the course of the last 15 years or so.
The Aerospace and Defense industry employs 1.7 million Americans, accounting for 13 percent of America's manufacturing jobs. We sustain those jobs by generating exports. The industry's exports have increased 52 percent over the past five years, and totaled $146 billion in 2016.
Fiscally responsible and comprehensive tax reform would provide us the opportunity to make an even more substantial contribution in creating new jobs and putting American manufacturing employment much closer to where we were in 2000. It's not only where we've been all along, but where we would very much like American manufacturing to go.
David Melcher is President and CEO of the Aerospace Industries Association. Thinking of submitting an op-ed to the Washington Examiner? Be sure to read our guidelines on submissions.