An update of the widely cited manufacturing “cost study” released November 13 by the National Association of Manufacturers (NAM), The Manufacturing Institute and the Manufacturers Alliance/MAPI shows that U.S. manufacturing is making progress in reducing its cost disadvantage against nine major foreign competitors but that high corporate tax rates now account for more than half of the burden.
The new study by economist Jeremy Leonard finds that the overall structural cost burden facing U.S. manufacturers for corporate tax rates, employee benefit costs, tort litigation, pollution abatement and energy is 17.6 percent relative to their nine largest trading partners, compared to 31.7 percent in the 2006 study and 22.4 percent in the groundbreaking 2003 study.
“There is clearly encouraging news in this report,” said NAM president and chief executive officer John Engler. “But an excessive cost burden of 17.6 percent is still a serious impediment to our ability to compete. In particular, high corporate tax rates account for more than half of the burden, and this has gotten worse since 2003. We continue to fall behind by standing still. We’re paying the second-highest corporate tax rate in the world. A great way to boost our economy and improve our competitiveness will be to bring our corporate tax costs under control.”
Manufacturers Alliance/MAPI president and CEO Thomas Duesterberg said the main drivers of the narrowing cost gap are employee benefits and pollution abatement costs. “Together, they account for three quarters of the improvement in the overall cost disadvantage for U.S. manufacturers,” he said. “More complete data from China reveal that these costs are higher there than found in previous cost studies. Though much of the improvement for U.S. manufacturers is due to global dynamics, the best way to compete is not to sit back and hope that the structural costs of our trading partners rise faster than ours.”
The study also shows that growth in health insurance costs in the United States has slowed markedly in recent years. “Companies are increasingly using health savings accounts and high-deductible health plans, which is helping contain employer costs,” Duesterberg noted.
“These new numbers show that even though global wage differentials are narrowing, policy-induced costs in the United States, especially corporate taxes, continue to undermine manufacturers’ ability to compete with our largest trading partners,” Duesterberg said.
Leonard noted, “Even though the cost gap for employee benefits, tort litigation and pollution abatement has narrowed with respect to the previous cost studies, the stubborn fact remains that these costs are still higher than in other countries. The one area where virtually no progress has been made is in lowering corporate taxes. And energy remains a structural cost as well, primarily because it has slipped from a major net advantage for U.S. companies just ten years ago to a negative in this decade.”
“The study shows how a combination of favorable U.S. policy changes advocated by the NAM, actions by manufacturers to innovate and manage structural costs, and rising costs among our major international competitors have contributed to closing the aggregate cost differential faced by U.S. manufacturers over the past two years,” said Emily DeRocco, president of The Manufacturing Institute and senior vice president of the NAM.
“While progress has been made, we look forward to working with the new Administration and Congress to further reduce U.S. manufacturing’s structural costs and help get the economy back on track in 2009,” Engler concluded.
The new 2008 cost study, “The Tide Is Turning: An Update on Structural Cost Pressures Facing U.S. Manufacturers,” is available at: www.nam.org/coststudy.
The National Association of Manufacturers (NAM) is the nation’s largest industrial trade association, representing small and large manufacturers in every industrial sector and in all 50 states. Headquartered in Washington, D.C., the NAM has 11 additional offices across the country. Visit www.nam.org for more information about manufacturing and the economy.
The Manufacturing Institute is the research, innovation, education and workforce arm of the National Association of Manufacturers. Established in 1991 as a 501(c)3 non-profit, its mission is to increase the understanding of and respect for industry and develop human capital strategies and solutions for manufacturers. Visit www.nam.org/Institute.
The Manufacturers Alliance/MAPI, established in 1933, is a nonprofit organization engaged in economic and policy research, continuing professional education and allied activities. The Alliance’s corporate membership includes U.S.-based and international companies in manufacturing and related business services. Web site: www.mapi.net.