Canadian Manufacturing

Obama’s pledges on debt, manufacturing face mixed prospects

by Christopher S. Rugaber, The Associated Press   

Canadian Manufacturing
Financing finance Manufacturing politics

Proposal to cut taxes for manufacturers has been caught in stalemate with congressional Republicans

WASHINGTON—The United States economy is recovering from the Great Recession but at a modest, uneven pace.

Many scars remain visible, particularly an unemployment rate of 7.6 per cent.

The U.S. has 2.8 million fewer jobs than in December 2007, when the recession began.

And average hourly wages have trailed inflation in the past three years.


Meanwhile, the federal budget deficit has ballooned, topping $1-trillion each year in President Barack Obama’s first term.

It is forecast to fall to $845-billion this year.

Obama faces the challenge of reducing that gap without cutting it so quickly that it slows growth.

During his recent campaign, Obama promised a balanced approach to deficit reduction that wouldn’t undermine the recovery or place most of the burden on the middle class.

He also sought to revitalize manufacturing, harkening back to an era when high-paying factory jobs were a gateway to the middle class.

Obama promised to cut the corporate tax rate for U.S. manufacturers to 25 per cent from 35 per cent, while penalizing those who shift work overseas.

He also proposed more job training and called for the creation of 15 to 20 manufacturing research hubs, all as part of his promise to create one million new manufacturing jobs by the end of 2016.

“We can help big factories and small businesses double their exports. And if we choose this path, we can create a million new manufacturing jobs in the next four years. You can make that happen. You can choose that future.”—Democratic convention speech, Sept. 6, 2012.

Obama has had mixed success in reducing the deficit without unduly impacting growth.

He struck a deal with Congress to avoid the “fiscal cliff,” a set of tax increases and spending cuts scheduled for Jan. 1.

Relieved businesses responded by stepping up hiring and spending.

But he and Republican congressional leaders allowed Social Security taxes to rise two percentage points at the beginning of the year, cutting take-home pay for nearly all working Americans.

Middle and lower-income Americans were hardest hit because the tax is levied only against the first $114,000 of income.

And Obama wasn’t able to avoid $85-billion in automatic spending cuts that kicked in March 1.

Economists warn the cuts could shave a half-percentage point from growth this year.

Obama said in a presidential campaign debate that the cuts “will not happen.

But they have.

They could be reversed in a future agreement.

In his budget plan, Obama now proposes cutting future Social Security benefits by changing how they are calculated.

Some liberal Democrats in Congress expressed opposition, charging that the move would harm lower-income recipients.

And Obama’s proposal to cut taxes for manufacturers has been caught up in a stalemate with congressional Republicans over deficit reduction.

On a brighter note, a provision to create the manufacturing research hubs garnered bipartisan support and was attached to a Senate budget proposal.

Manufacturing is picking up a bit and creating more jobs, but adding one million more by 2016 is unlikely.

That would require 250,000 new factory jobs per year, nearly double the current pace.

Several trends are working in favour of American manufacturing.

Labor costs are rising in China.

U.S. corporations are increasingly worried that overseas supply chains are vulnerable to natural disasters and other disruptions.

And an oil and gas drilling boom has made energy much cheaper in the U.S., reducing manufacturing costs.

Factories have added more than 500,000 jobs in the past three years.

But factories still only employ about nine per cent of the U.S. workforce.

That’s down from 14 per cent in 1997.

And more manufacturing output doesn’t create many more jobs, because automation has made many factories highly productive.

The Congressional Research Service estimated in a July report that manufacturing output increased 19 per cent in the three years after the recession ended.

But employment rose only four per cent.

—One in a series examining President Barack Obama’s campaign promises and what he is doing, or not doing, to keep them


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