Hearing of the House Ways and Means Committee - Tax Reform and the U.S. Manufacturing Sector

Hearing

Good morning and thank you for joining us for another in a series of hearings examining how comprehensive tax reform can help spur economic growth. Today's hearing is an opportunity to look more closely at the manufacturing industry. Specifically, we will examine how the current tax system affects U.S. manufacturers, including U.S.-based public companies, small and closely-held manufacturers, and foreign-owned U.S. manufacturers. We will also explore how comprehensive tax reform might affect manufacturers' ability to expand and create jobs.

The importance of the manufacturing sector to the U.S. economy has been well established. In 2011, manufacturing accounted for 12.2 percent of the country's gross domestic product (GDP) and approximately $1.27 trillion in exported goods, according to the Commerce Department's Bureau of Economic Research (BEA). With a long and treasured history in America, manufacturing touches every aspect of our lives. From the food we eat, to the cars we drive, to the clothes we wear, the impact of manufacturing is felt each and every day.

Supporting about one in six private sector jobs, the manufacturing industry is a cornerstone of our economy that provides high-paying and high-quality jobs to approximately 12 million people according to June's Labor Department data. Manufacturing is closely connected with research and innovation, which improves our lives and our standard of living. Whether small, medium or large -- whether publicly traded or closely held -- manufacturing companies contribute to the American economy every day. Nowhere is that more evident than in my home state of Michigan -- the heart of the auto industry and the engine of the industrial Midwest.

Manufacturers have been hit particularly hard in this economy. Since the President took office, we have lost over one-half million American manufacturing jobs. According to the Department of Labor, the precise number is 590,000. So, as we examine the effect of our current tax code as well as the implications of comprehensive tax reform, the importance of understanding how tax reform can make America a more attractive place for the industry to hire and invest cannot be overstated.

A recent op-ed authored by the National Association of Manufacturers sums up the challenges posed by today's tax code, stating: "Manufacturers have added 13 percent of the net new jobs gained since the end of 2009, and we have made larger-than-normal contributions to gross domestic product. But there is a black cloud looming with much uncertainty ahead." The op-ed goes on to describe the impact that those looming tax increases will have on manufacturers -- both for individual and corporate taxpayers. Citing a recent survey, 64 percent of manufacturers describe the tax and regulatory environment as their top concern.

The concern expressed by the manufacturing community is well founded, and it is a concern shared by many on this Committee and in Congress. We are all familiar with the statistics. The United States has the highest corporate tax rate in the world at 39.2 percent (federal and state combined). The high corporate rate and our outdated worldwide system of taxation do little to attract the investment and hiring we need to help get America back to work. Similarly, as the NAM-authored op-ed reminds us, businesses paying at the individual rate are also affected by today's broken tax code -- not to mention its December 31 expiration date. If the tax relief originally enacted in 2001 and 2003 expires, then two-thirds of manufacturers that operate as "pass-through" entities and pay taxes at the individual rate will face even higher tax bills.

The bottom line is that today's tax code is not working. It is not working for the manufacturers that are organized as pass-through entities, because it is too complex, too costly and too expensive to comply with. It isn't working for manufacturers who operate internationally, because it is outdated and leaves America uncompetitive in the global marketplace. Most of all, it is not working, because it is not helping families struggling in a weak economy get back to work.

It is time America's tax code puts the American economy first. We know what doesn't work -- and now it is time for a comprehensive tax reform plan that will work. Since this Congress convened in January of 2011, the Ways and Means Committee has had more than 20 hearings focused on the steps Congress might take to transform our broken tax code into a pro-growth code that will provide employers the certainty, flexibility and freedom they need to invest and hire. At the request of the Ways and Means Committee, the last two House-passed budgets have outlined a framework for comprehensive tax reform that lowers rates for individual and corporate taxpayers, repeals the AMT for 31 million households, and transitions America to a more competitive territorial system of taxation -- which even the Obama Administration pointed to as a "hopeful area of consensus."

The framework is a good start, but more must be done. Today, we will hear directly from stakeholders in the manufacturing community as they share their ideas for what Congress can do to help -- and what we ought to avoid that might hurt. Your voices are critical to the discussion. After all, it is not enough simply to write a plan that reads well in Washington. It has to be a plan that works in the real world, the world where you run your businesses. Thank you for taking the time to be here today, and I look forward to your testimony.

I will now yield to Ranking Member Levin for his opening statement.

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