U.S. Tax Code Penalizes Manufacturing
Angelos Angelou, head of an economic consulting firm, told participants at the ISMI Symposium that the U.S. economy will experience a "slowdown of decline" over the next six months, and may not return to pre-2007 levels for five to seven years. "Our tax system penalizes manufacturing, with the result that more jobs are moving overseas," he said.
David Lammers, News Editor -- Semiconductor International, 10/22/2009
Declaring that "all is not over with our recession," economist Angelos Angelou gave a somewhat gloomy view of U.S. economic prospects in a keynote speech at the ISMI Symposium this week in Austin, Texas. "We may see growth in 2011, but it will be five to seven years before we get back to normal. It will take some time to get back to pre-2007 activity," Angelou told several hundred participants in the symposium, organized by the International Sematech Manufacturing Initiative (ISMI, Austin).
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Angelos Angelou, AngelouEconomics |
Angelou heads up the AngelouEconomics consulting firm based in Austin, advising governments on the best locations for manufacturing sites and giving periodic speeches on the pulse of the regional and national economy. He offered one controversial opinion: that the proposed reforms to the U.S. health care system will prove to be a boon to the economy, boosting employment as "50 million more (now uninsured) Americans demand health-care services."
World economic growth, which can reach 4.5% in a good year, will be -1% this year. The U.S. economy will continue to shrink until April 2010, in what Angelou called "a slowdown of decline" over the next six months. Christmas may prove disappointing to strapped retailers, as consumers — frightened by neighbors and family members who have lost their jobs — boost their savings rate and tighten purse strings.
The employment picture remains a major concern, both in the short- and long-range view. Since December 2007, ~7.4 million jobs have been lost in the United States. The weak job picture will cause foreclosures to increase over the near term, even as new housing starts to pick up. By mid-2010 the U.S. economy will shift from losing a half million jobs a month to adding ~140,000 jobs per month. But that rate won't be nearly strong enough, as immigration and population gains swell the workforce. "A whole lot more needs to happen," to return to relatively full employment, he said.
Year-to-date, venture capital investing is only $12.2B, roughly half the rate before the downturn began, which Angelou said "is a good indicator of the continuing challenges in the years to come." Manufacturing jobs in the United States have declined from 16.4 million in 2001 to 13.4 million now.
Angelou saved his strongest remarks for the alleged failure of U.S. politicians to support the U.S. manufacturing sector, arguing, "The tax structure penalizes manufacturing, particularly the high capital-intensive industries." Manufacturing companies pay 50× higher tax rates than financial firms on Wall Street, he said, suggesting that the R&D tax credit be made permanent among other tax code adjustments. "In 2019, the U.S. debt will be equivalent to 82% of GDP, which will require hard choices by our political leaders."
Semiconductor manufacturing employment in the United States has dropped from 292,100 in 2001 to slightly less than 200,000 now. "The semiconductor sector is in trouble in Austin," he said, noting a recent layoff announcement by Freescale Semiconductor Inc. (Austin) as typical of the high-tech employment scene. "Demand has shifted to Asia, so the fallout comes to manufacturing." Small businesses face even tougher problems, he said, as banks continue to freeze loan applications.
A decade ago, Angelou was involved in a comparison study of the cost of chip manufacturing. At that time, fabs could be operated overseas at less cost, with 90% of the cost difference coming from higher income taxes in the United States. "Our tax system penalizes manufacturing, with the result that more jobs are moving overseas," he concluded.
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The worst part of US business environment is environmental regulation. The possibilities of costs going up 100 or 1,000% for emissions cleaning or disposal charges or outright banning of materials drive factories overseas.
D. Cowdrick - 10/30/2009 5:40:22 PM CDT -
I agree whole heartedly. Aside from tort reform, the government should back off on inventory taxes and do whatever they can to get American business rolling. Unfortunately, since the majority of US politicians have never owned a business and don't have to worry so much about retirement ( as they have a retirement plan way better than most Americans ) their perception of reality is a bit different than the folks who they are suppose to be working for. How did we ever get into a situation of competing with a communist country like China ?? Something is rotten in Denmark.
Bill Smith - 10/23/2009 5:19:01 PM CDT -
Well, duh!
John Maynard - 10/22/2009 5:55:24 PM CDT
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