Senator Pat Toomey
Pennsylvania’s manufacturing sector has played a crucial role in our state’s economy since the early years of the commonwealth. From the steel mills of Pittsburgh, to the paper mills of York and St. Mary’s, to the medical device makers across the state, manufacturing makes up 12 percent of our economy and employs more than 560,000 workers.
Unfortunately, President Barack Obama would impose a massive tax increase on most of Pennsylvania’s manufacturers, costing us jobs we cannot afford to lose.
The president has misleadingly argued that he seeks only to raise taxes on “high-income” earners, but businesses will bear a large burden of his proposed income-tax increases. For a variety of reasons, about 80 percent of manufacturers organize as “pass-through” companies instead of corporate entities, according to a 2012 Ernst & Young report. This means their profits are not taxed at the corporate rates imposed on most larger companies, but instead are attributed to the business owners and taxed at individual rates. Virtually all of these small- and medium-sized businesses would be hit with a huge tax increase under the president’s plan.
This week I released a comprehensive report that studies the negative impact of President Obama’s tax increases on Pennsylvania’s manufacturing sector, including 10 detailed case studies of companies across the state. The report finds that many Pennsylvania manufacturers would face a devastating tax increase under the president’s plan. Most glaring is the president’s desire to effectively raise the top rate to 41 percent from 35 percent.
This is a terrible idea. Higher tax rates discourage entrepreneurs from starting new businesses and make it riskier for existing companies to expand their operations. Tax increases diminish the funds available for manufactures to invest in new facilities, to upgrade their machinery and software and to hire new workers. Lower investment levels mean lower worker productivity and correspondingly lower wages. Fewer jobs and lower wages from President Obama’s tax increases are hardly the prescription our ailing economy needs.
The proposed tax increases are an even worse idea when you consider the foreign competition many companies must contend with. At the current rate of 35 percent, American manufacturers already pay the highest corporate tax rate in the developed world. Comparable companies in China pay 25 percent; in Canada, they pay 15 percent; and in Ireland, the rate drops to a low of 12.5 percent. Even though our convoluted tax code already places American businesses at a competitive disadvantage, President Obama and his Democratic allies are clamoring to raise taxes on small and midsize businesses even further.
In a global business environment, it is not uncommon to see businesses move to friendlier business climates due to excessive taxes or regulation. The last thing we should do is give companies another reason to leave the United States. Yet this is exactly what the president’s tax policy would achieve.