Manufacturers Alliance/MAPI: Obama budget proposals will harm industrial firms

Tax increases in President Obama's 2011 budget proposals will have unintended adverse consequences on American businesses, and on manufacturers in particular, while the Wyden-Gregg proposal has more positive effects, according to a new report by the Manufacturers Alliance/MAPI, a public policy and economic research organization in Arlington, Va.

In A Closer Look at the Business Tax Burden: C-Corps, S-Corps, and the Impact of the Federal Budget's 2011 Tax Proposals, economic consultant and report author Jeremy Leonard shows that under the Administration's plan, while the corporate rate remains unchanged, measures to broaden the base would increase the aggregate business tax bill by more than $350 billion over the next 10 years, amounting to a 6 percent tax increase relative to the pre-budget baseline. Conversely, the report shows that the competing proposal of Senator Ron Wyden (D-Oregon) and Senator Judd Gregg (R-New Hampshire) has a more favorable impact on economic growth.

"We found that the Administration's proposal results in an increase in the federal deficit of $100 billion relative to the baseline," Leonard said, "while the Wyden-Gregg bill adds to GDP growth and employment and reduces the deficit by $300 billion relative to the baseline."

The paper also examines the effects of the 2011 federal budget's tax provisions on pass-through businesses, which include almost four million S corporations and more than three million partnerships, which together account for 80 percent of U.S. businesses and one-third of total U.S. business activity. According to the report, pass-through businesses in the manufacturing sector will see their tax bills increase by an average of 14 percent.

Ronald D. Bullock, chairman of Bison Gear and Engineering Corporation in St. Charles, Ill., and report sponsor, concurred.

"S corporations and partnerships have become a central pillar of U.S. economic strength," he said, "and it would be ill-advised to inadvertently shoulder them with a disproportionate share of the tax burden."

Thomas J. Duesterberg, Manufacturers Alliance/MAPI president and chief executive officer, argues that "policy makers should reform the tax code to assist – not punish – the manufacturing sector which is a key to U.S. innovation, productivity and well-paying jobs."