In this election season, many Presidential candidates including the incumbent have been running on a platform of bringing manufacturing back to the United States. MIT recently held their annual technology day where much of the focus was on at same topic. However, when asked about the likelihood of returning manufacturing to the U.S., MIT’s outlook was grim. Business Insider reports:
“In a panel discussion afterwards, the speakers were asked what it would take to make the U.S. more competitive for manufacturing.
The answer was that it was pretty much hopeless at current tax rates.
Big companies make a lot of money in foreign countries, but if they bring the profits back home they get hit with the world’s highest corporate tax rate. So they leave the money in China, for example, and then invest it there in research and development or a new factory. I.e., our own multinational companies are financing the new facilities around the world that are rendering the U.S. uncompetitive.
A new enterprise, meanwhile, would be facing a choice between China, with a 15 percent corporate tax rate, proximity to all kinds of suppliers, and low costs, and the U.S., with a 35 percent tax rate (plus any state corporate income tax) and an ocean separating it from most component vendors.
Other than for defense contracting, nobody seemed optimistic about the U.S. becoming comparatively more attractive. (Can we still call it “defense” when we keep starting the wars?)
[I was a bit skeptical of the message that high costs and taxes explain the U.S. decline. After all, Germany has high costs for everything and Europeans are famous for high tax rates. Yet Germany is wonderfully successful in manufacturing. Then I looked up the corporate tax rate in Germany and it turns out to be 15%, the same as China’s]