The document discusses three ways to improve the declining state of manufacturing in the United States: 1) Restructuring corporate tax policies to incentivize manufacturers to stay in the U.S. by eliminating tax deferrals and implementing an alternative minimum tax, 2) Increasing funding for programs that support small and medium manufacturers through initiatives like the Manufacturing Extension Partnership, and 3) Expanding worker training programs through apprenticeships and tax credits for employer training to develop skilled workers for manufacturing jobs. The decline of American manufacturing will continue without changes to policies that have encouraged offshoring of production.

1. Running head: MANUFACTURING DECLINE 1
A Nation on the Edge
Robin Erickson
Globe University

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A Nation on the Edge
Our manufacturing sector has greatly declined in America; as a result, it has affected
millions of families, communities, and our entire nation in a negative way. The effect of one
plant closing has a dramatic effect on a community. For example, when one manufacturing plant
closes, it not only affects the employees and their families, but local businesses in the service
sector, and suppliers of the plant, as well. According to Dr. Robert D. Atkinson, president of the
Information Technology and Innovation Foundation and author of Innovation Economics: The
Race for Global Advantage, we have lost 5.7 million jobs in the manufacturing sector since the
turn of the century. This amounts to 33 percent of all manufacturing jobs which exceeds the rate
of lost jobs that occurred in the Great Depression (Atkinson, 2012). Each lost job has affected
over five million families. According to Richard McCormack, editor of Manufacturing &
Technology News; founding editor of High Performance Computing and Communications Week
in 1991; and New Technology Week in 1987, “Since 2001, the country has lost 42,400 factories,
including 36 percent of factories that employ more than 1,000 workers (which declined from
1,479 to 947), and 38 percent of factories that employ between 500 and 999 employees (from
3,198 to 1,972).” (McCormack, 2009) With over 42,000 factories that have closed their doors,
you can bet that over 42,000 communities have been affected, as well. Your community could
be next. The decline in American manufacturing is an urgent problem and can be improved
through restructuring our corporate tax policies, increasing our funding support for small-and
medium-sized enterprise manufacturers, and expanding our worker training programs. My
research will show how each of these possible strategies can help America’s manufacturing
sector.

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One way to improve the state of manufacturing in the United States is to restructure our
corporate tax policies so that manufacturers would have more of an incentive to stay in the U.S.
According to authors William T. Evans, MBA, a lecturer, Brian F. O’Neil, PhD, a distinguished
lecturer, and William J. Stevenson, PhD, an associate professor, all at the Saunders College of
Business, Rochester Institute of Technology, located in Rochester, NY, “U.S. corporations
complain that the United States has a higher statutory tax rate than many countries.” One would
say that taxes are an important part of sustaining our economy; I would agree with that. But,
some countries have encouraged U.S. manufacturers to relocate to their countries by offering low
tax rates. As a result, manufacturers have taken advantage of this opportunity and moved their
production capabilities outside the U.S to enjoy the cost and tax savings which our U.S. tax
policies allows them to accomplish. According to the authors, our current tax policies, “Allows
companies to defer or avoid taxes on earnings outside the United States but does not permit the
same thing for earnings generated domestically.” Our U.S. tax policy allows earnings that are
made outside the U.S. to remain untaxed until the earnings are repatriated back to the U.S. As a
consequence of this, we currently have a trade deficit, a depressed economic base, and millions
of Americans who have lost their jobs due to the relocation of manufacturing overseas (Evans,
2010). We cannot compete with tax policies that encourage manufacturers to relocate elsewhere
and that is one reason why our corporate tax policies need to be revamped.
Another reason why our corporate tax policies need to change is that companies are
granted the right to transfer intellectual property, such as patents, to our foreign counterparts. As
a result, we are losing our patents on our technology. When the patents transfer to the foreign
country, all royalties from those patents now belong to the hosting international subsidiary.
Ireland, for example, encourages the transfer of patented technology by offering small tax rates

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on royalty earnings. According to the authors, “The combined tax savings to corporations
attributable to the transfer of manufacturing and technology are estimated in the billions of
dollars.” (Evans, 2010) It seems to me that our current corporate tax policies are costing us more
in lost tax revenue; technology; American manufacturing jobs, and this is why our corporate tax
policies need to change in order to encourage U.S. manufacturers to remain here at home.
Although, revising our corporate tax policies will not result as a total fix, eliminating the
tax deferral, connecting the R & D tax credit to U.S. manufacturing, and establishing an
Alternative Minimum Corporate Tax are possible ways to change the current trend of shifting
manufacturing overseas. Eliminating the tax deferral would make it less attractive to conduct
manufacturing overseas. Currently, corporations do not pay taxes on earnings until the earnings
are repatriated back into the U.S. Corporations may argue that if they have to pay taxes on their
income generated outside the U.S., then they may become less competitive in the market. I
disagree, if a corporation produces a good product, then people will buy those products based on
value and necessity. A second possibility, is to connect the R& D credit to manufacturers that
produce within the United States. Currently, manufacturers take advantage of the credit to
support their R & D activities; transfer the technology and manufacturing overseas; and at the
same time, they may or may not pay any taxes. Finally, an Alternative Minimum Corporate Tax
could offset the multiple credits and deductions that are currently being taken advantage of by
corporations and it would minimize the incentive to move their manufacturing. A portion of the
revenue generated could be offered back to manufacturers if it relates to creating U.S. based jobs
(Evans, 2010). By creating a fair tax system that does not encourage the movement of our
manufacturing base, our economy will have a healthier chance to grow and flourish. We’ve
discussed how we can improve U.S. manufacturing through improving our corporate tax

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policies, now let’s look at how we can provide improvements for our small-and medium-sized
enterprise manufacturers.
A second way to improve the manufacturing sector in the U.S. is to increase funding in
programs that are designed to help small- and medium-sized enterprise manufacturers (SMEs)
become more competitive. The SMEs are a vital part in the manufacturing sector. According to
Stephen Ezell, a senior analyst at the Information Technology & Innovation Foundation in
Washington D.C., and coauthor of the September 2011 report International Benchmarking of
Countries’ Policies and Programs Supporting SME Manufacturers, “SME manufacturers account
for more than 98% of manufacturing firms in almost all economies, they form the backbone of a
nation’s industrial supply chain.” Given this information, we can see just how vital SMEs are in
an economy such as ours. A challenge that we seem to be facing is that the U.S. invests very
little in helping our manufacturers become more competitive compared to our competing nations.
In contrast, competing countries such as China, Germany, Japan, and Korea are progressively
funding programs and policies that support the growth of competitiveness, productivity, and
innovation of their SME manufacturers. The deficiency of support for our SME manufacturers
was a principal element in the decline of U.S manufacturing since the turn of the century (Ezell,
2012). If this country is serious about being a competitor in a global environment, then we need
to step up our support for SMEs. To help accomplish this, we need to fully fund our
Manufacturing Extension Partnership centers at the state level. The MEP programs aids SMEs
to accomplish higher productivity levels, competitiveness, and provides greater access to
innovative technologies. Some of the benefits that SMEs can utilize from a fully funded
program are conducting audits which identify opportunities for improvements in the
manufacturing and operational processes, access to research labs, receiving coaching in the areas

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of innovation and growth skills; export assistance and training; R & D grants; and innovation
vouchers which will encourage new product development and innovation (Ezell, 2012).
Supporting our local SMEs are crucial to sustaining our economy because the manufacturing
sector is still a large employer in many local communities. Therefore, this is why we need to
improve our funding and support of our SMEs. We’ve covered how we can improve our
corporate tax policies; the importance of fully funding our SMEs, and now let’s see what we can
do to expand our worker training programs.
Manufacturing represents the largest traded sector in America and without it, our
economy will not be able to sustain itself. The reason why the traded sector is so important is
that manufacturing has a high employment multiplier. Typically, manufacturing jobs pay more,
they represent a good source of employment for general laborers, and it is a major driver of
innovation. According to Atkinson, “It is impossible to have a vibrant economy without a
competitive traded sector.” (Atkinson, 2012) In order to be competitive, we need to have a
skilled and educated work force.
We need to expand our worker training programs. The manufacturing sector has a high
demand for skilled technicians, engineers, etc. Funding should be provided to prepare
individuals with the skills that are sought after by manufacturers to gain an increased amount of
on-the-job training and work experience. This can be accomplished through apprenticeship
programs, tax credits for employer-based training, and employer-community college
partnerships, etc. For example, some states such as Wisconsin and Georgia, have been proactive
in this area by providing apprenticeship programs. Other states, such as Michigan, have created
industry –led partnerships that focus on specific workforce needs in that region. Pennsylvania
has addressed its support to the Precision Manufacturing Institute, the Advanced Skill Center,

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and New Century Careers. Companies in Rhode Island, for example, that have incurred training
costs for their employees can deduct up to 50 percent of the costs off their taxes (Atkinson,
2012). Throughout the country, there are local and state tax incentives and programs that are
designed to promote education in the manufacturing sector. We need to continue to provide and
promote educational opportunities in the manufacturing sector because without a national push
for education, our competitiveness in the global environment may cease to exist.
Finally, we’ve discussed how we can revitalize manufacturing in the U.S. by creating fair
tax policies, supporting our local SMEs, and expanding educational opportunities for
manufacturing based jobs. These are just a few strategies that can possibly help to reverse the
damage that has been done to our nation. Revitalizing manufacturing in America will take a
long time; it won’t happen overnight. The decline of American manufacturing will continue if
nothing changes.

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References
Atkinson, R. D. (2012). U.S. Manufacturing-Decline and Economic Development Prospects.
Economic Development Journal, 5-11.
Evans, W. T. (2010). Revitalizing U.S. Manufacturing: The Role of Tax Policy. CPA Journal,
50-53.
Ezell, S. (2012). Revitalizing U.S. Manufacturing. Issues In Science & Technology, 28,41-50.
McCormack, R. (2009, December 21). The Plight of American Manufacturing. Retrieved from
The American Prospect: https://prospect.org/article/plight-american-manufacturing