Manufacturing and the Democrats

We have been hearing about the loss of manufacturing jobs in this country for years. Ross Perot talked about a “great sucking sound” in Mexico. That may apply for unskilled jobs but the real manufacturing job is one requiring skill. Not everyone can be a packer or a assembler. A lot of that can be automated. Why is manufacturing leaving our shores ? There are some theories being talked about now. An interview of an executive a couple of weeks ago started another round.

Nov. 11 (Bloomberg) — Emerson Electric Co. Chief Executive Officer David Farr said the U.S. government is hurting manufacturers with regulation and taxes and his company will continue to focus on growth overseas.

“Washington is doing everything in their manpower, capability, to destroy U.S. manufacturing,” Farr said today in Chicago at a Baird Industrial Outlook conference. “Cap and trade, medical reform, labor rules.”

Emerson is a big company and has been expanding in other countries for a while. Still, he struck a chord as the administration produced a response from a spokesman for Gary Locke, who is the Secretary of Commerce but has no business experience.

“This attack isn’t supported by the facts,” Kevin Griffis, a spokesman for U.S. Commerce Secretary Gary Locke, said today in an e-mail from Singapore, where they are attending the Asia-Pacific Economic Cooperation meetings.

“This administration has made a significant commitment to U.S. manufacturing, including reforming the country’s health insurance system to bring down costs and make American companies more competitive globally,” Griffis said.

If Locke thinks that health care bill will bring down costs, he hasn’t read it. Of course, no one else has either.

Here is a response, to the Obama Secretary of Commerce and his flunky.

Well, yes it is Kevin. There is a great article in today’s Wall Street Journal that you and Gary ought to read on global warming before they rush off and saddle American manufacturing with Cap and Trade. And rather than slam the manufacturing community represented by the US Chamber of Commerce because they have ideas on health care that are different from the government take-over scheme your boss urges, you ought to shut up and listen. And even the Democrats who control the Senate won’t support your ridiculous Card Check scheme to try to bring labor unions back from the dead. You set up a labor lawyer as the manufacturing czar and a certifiable nut case on the NLRB. You have attacked manufacturing at every turn since taking office.

The Wall Street Journal article on Global Warming closes with:

But from our first column on this subject, we have been convinced that the scientific questions are interesting and irrelevant, since it was never in the cards that Western societies (or Brazil or India or China) would sacrifice economic growth for the uncertain benefits of fighting climate change. Unable to do anything meaningful about climate change, policy would therefore default to satisfying the demand of organized interests for climate pork.

That is no way to run a railroad. Cap & Trade will kill off the rest of manufacturing. I remember when a lot of the fiberglass boat building industry was in Orange County, a half hour or less from my home. The Clean Air Act drove most of it out of business, along with the oil crisis of the 70s as petroleum products quadrupled in price. OIl came back down but the EPA was still there so most of southern California manufacturing moved to Mexico where the Mexican liked jobs more than clean air. In fact, the air was pretty clean in Newport Beach all along.

What else is Obama doing to help industry?

Well, the new hand-picked CEO of AIG, e insurance giant bailed out by the administration last spring wants to resign after 3 months on the job. Why ?

“The executive is chafing under constraints imposed by AIG’s government overseers, particularly a recent compensation review by the Obama administration’s pay czar, Kenneth Feinberg,” WSJ said citing people close to the development.

AIG, which is 80 per cent government owned since its rescue last year, is one of the companies under Feinberg’s purview.

That’s not manufacturing but one thing executives have in common is the desire to make money. Then, of course, there are the new taxes. These are enormous increases in marginal tax rates and they are not indexed for inflation.

In order to raise enough money to make their plan look like it won’t add to the deficit, House Democrats have deliberately not indexed two main tax features of their plan: the $500,000 threshold for the 5.4-percentage-point income tax surcharge; and the payroll level at which small businesses must pay a new 8% tax penalty for not offering health insurance.

This is a sneaky way for politicians to pry more money out of workers every year without having to legislate tax increases. The negative effects of failing to index compound over time, yielding a revenue windfall for government as the years go on. The House tax surcharge is estimated to raise $460.5 billion over 10 years, but only $30.9 billion in 2011, rising to $68.4 billion in 2019, according to the Joint Tax Committee.

Then there is the stimulus which takes the taxes and throws them away.

Taxing the rich hits small business very hard as many file personal returns and many of these new taxes are not subject deductible expenses, just like the AMT.

Americans of a certain age have seen this movie before. In 1960, only 3% of tax filers paid a 30% or higher marginal tax rate. By 1980, after the inflation of the 1970s, the share was closer to 33%, according to a Heritage Foundation analysis of tax returns.

These stealth tax increases—forcing ever more Americans to pay higher tax rates on phantom gains in income—were widely seen to be unjust. And in 1981 as part of the Reagan tax cuts, a bipartisan coalition voted to index the tax brackets for inflation.

We also know what has happened with the Alternative Minimum Tax. Passed to hit only 1% of all Americans in 1969, the AMT wasn’t indexed for inflation at the time and neither was Bill Clinton’s AMT rate increase in 1993. The number of families hit by this shadow tax more than tripled over the next decade. Today, families with incomes as low as $75,000 a year can be hit by the AMT unless Congress passes an annual “patch.”

The Pelosi-Obama health tax surcharge will have a similar effect. The tax would begin in 2011 on income above $500,000 for singles and $1 million for joint filers. Assuming a 4% annual inflation rate over the next decade, that $500,000 for an individual tax filer would hit families with the inflation-adjusted equivalent of an income of about $335,000 by 2020. After 20 years without indexing, the surcharge threshold would be roughly $250,000.

This is a job killer. So is card check.

And on we go toward the fate of Argentina.

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9 Responses to “Manufacturing and the Democrats”

  1. doombuggy says:

    There is an awful lot of class envy on the Left. The few blogs I read go on and on about overpaid CEOs and rich people having too much political power (never mind that rich Leftists pull rank more than anyone else).

    We’ve seen these passions unleashed full time in the French revolution and China’s cultural revolution. Not an encouraging precedent.

  2. There are very few small business Democrats. There was a discussion yesterday on the new Dodd bill for financial regulation. A professor of business said it would cause all hedge funds to move offshore. They do not require any plant and communications technology today allows them to operate from anywhere. This is also true of manufacturing more and more.

  3. Mark B. says:

    Just to make this conversation real. I am one of those 20,000 people that was “enrolled” in Mr. Farr’s cost reduction program. I have 25 years of experience in my profession and was a Director with +$100k income.

    I do not blame him for this action. America must compete every day to be the best place in the world to add the next job. The Obama regime must be overturned so that America can regain its competitiveness in the global marketplace.

    As for me, I will find a way to add value that results in true wealth creation….

  4. doombuggy says:

    Mark B., I like your attitude.

    I’m hearing that Obama has donned a Mao jacket and bowed to the Japanese emperor on his trip. Un-frickin-believable.

  5. The key to job creation, in my estimation, is small business. Thousands of people who were big business employees and got laid off or saw it coming have formed their own small businesses that are more agile and can fill niches too small for the giants. One reason why Perot understood this was because he had lived it. When he was a salesman for IBM he wanted them to set up a division to provide service and applications for their customers instead of simply repairing mainframes. They turned him down so he left and did it himself. That was EDS.


    “The executive is chafing under constraints imposed by AIG’s government overseers, particularly a recent compensation review by the Obama administration’s pay czar, Kenneth Feinberg,” WSJ said citing people close to the development.


    Seems to me that the CEO of AIG being apparently more focused upon issues such as internal compensation than – oh… I don’t know… PROFITABILITY – is a bad sign in itself.

    Mike. Let me ask you: What was your best year ever in terms of compensation? Now… whatever it was you did during that year to make the money you did, would you have been better, more productive, more competent if you have been paid double… triple… quadruple…???

    I’m sorry, Mike, but there’s the law of diminishing returns to consider; there’s such a thing as cost/benefit. Yeah. Agreed. All else being equal and assuming an actual ability of management to distinguish and hire talent, you’re going to appeal to a better class of perspective employees by offering $20/hr. as opposed to $10/hr., $60/hr. as opposed to $40/hr., but is let’s say a sports star really going to be appreciably better at his or her sport if paid $400 million over seven years vs. $200 million over seven years?

    Now don’t get me wrong. I’m not “defending” Obama. I’m not championing the Pay Czar concept. But I am saying that “conservatives” need to get away from these simpleminded assumptions that there’s a direct correlation between pay and performance.

    The POTUS makes what, $400,000? Do you really suppose we’d get “better” presidents if the job paid $4 million or even $40 million?



  7. Bill, you will see the effect (If it is not concealed) in medical school applications. I was at the Homecoming picnic last Saturday. Many alumni pay for tickets so the students can go to the medical alumni party. I was thinking about them as I sat there. Six or eight years ago, students told me that they weren’t worried about the economics of the profession because they would be in training for years and the problem would be fixed, one way or another, by the time they were ready to start practice. I don’t think they dreamed what they would find now.

    Financial people and hedge funds traders are more motivated by money than many other professions. There is a point, though, when you cannot get the talented people into the field. For a hedge fund trader, which I wouldn’t do no matter what they paid me, the number may be larger but compensation is a factor. General surgery, which was perceived as well paying and of high status when I was in training, is now in crisis. These kids know they will not make enough money to justify the long hours and family stress. They are opting for “life style” specialties. The dirty secret of primary care is that the pay is crap. And it is getting worse. Remember that student loans are subtracted from the first ten years of income.

  8. I’ve been involved in taxes for longer then I care to admit, both on the personal side (all my working life!!) and from a legal standpoint since passing the bar and pursuing tax law. I’ve provided a lot of advice and righted a lot of wrongs, and I must say that what you’ve posted makes perfect sense. Please keep up the good work – the more people know the better they’ll be equipped to deal with the tax man, and that’s what it’s all about.

  9. What a impressive post! I did a kind of blogging for dummies over on one of the CPA Marketing forums and I thought it was too easy for them, but the number of emails I got asking questions just like what you addressed was unbelievable. As young people today we have grown up with computers, but it’s easy to forget that even individuals just a a couple of years older have not! Really good post! :)