To support manufacturers, US tax policy must evolve: NAM CEO

The manufacturing sector shows signs of expansion as the US government begins divvying up $39 billion in Chips Act grants to the semiconductor industry to construct domestic plants. Taiwan Semiconductor Manufacturing Co. (TSM) will receive $11.6 billion to build new chip factories in Arizona. National Association of Manufacturers (NAM) CEO Jay Timmons joins Market Domination Overtime to discuss what this means for the American manufacturing sector.

Timmons calls the government investments "good news for America": everything manufactured today has a component requiring the use of a semiconductor chip, he explains. The concerning news, Timmons says, is what's ahead: "Now we have to see some action to provide for the ability of manufacturers to plan for the future," the NAM CEO states.

US government agencies have imposed a regulatory burden on manufacturers "that simply cannot be followed," Timmons says. He adds that today's manufacturers are left trying to determine where to direct their capital, in the US or abroad. The NAM CEO believes that US tax policy does not support manufacturing growth, pointing to China's 200% research and development tax deductions versus America's 0%.

For more expert insight and the latest market action, click here to watch this full episode of Market Domination Overtime.

This post was written by Gabriel Roy.

Video Transcript

- The manufacturing sector is showing signs of life. The industry is showing expansion in March for the first time in over a year. And it comes as the government is shelling out big bucks to the semiconductor industry to build plants here in the US. This week, TSMC getting $11.6 billion in grants and loans to build new chip factories in Arizona.

For more on what this means for the American manufacturing sector, we're bringing in Jay Timmons, National Association of Manufacturers' CEO. Jay, it's good to see you. And maybe we'll start there, Jay, you know, that TSMC news we got this week, part of this broader push by the Biden administration to really boost the American semiconductor industry. Interested to get your thoughts on that. What does it mean for your members for the manufacturing sector?

JAY TIMMONS: Well, I think it's good news for America overall, Josh. Look, I mean, everything that is manufactured today has some sort of an-- of a component that requires the use of a semiconductor chip. So you think about all the smart devices in your home. You think about your automobiles. Truly, just about everything that we touch that's manufactured has some sort of a component like that.

And of course, we went through a period of months, if not actually years, where we had a severe shortage of the ability to access this part of the supply chain, so. Part of that was because much of the work was done in Asia. So we wanted to bring it here.

But that's the good news, Josh. I think the more concerning news is kind of what's ahead. And can manufacturers continue that-- you know, those good economic reports that you just mentioned? We've seen a lot of investment by this administration when it comes to the infrastructure funding the CHIPS and Science Act and even some funding through the Inflation Reduction Act. But we have some challenges ahead. And hopefully, we can talk a little bit about those.

- OK, shoot, Jay. What challenges?

JAY TIMMONS: Well, look, we have the ability right now to make these types of announcements and investments. But we've got some rocky road ahead if Congress doesn't act to, once again, reauthorize the 2017 tax reforms that were put in place. We have these C corporates that are locked in. And that's good news.

And hopefully, whoever's in the White House, whether it's President Biden or former President Trump, hopefully, they won't use points on the C corp rate to negotiate for the balance of things that need to be taken care of like the S corp pass through rates, like the estate tax rates, which so many small manufacturers are very concerned about.

And then in addition to the tax trifecta that we're trying to get through right now, when it comes to innovation and investment opportunities, those expired several years ago. So while we're feeling some really great tailwinds from the government investments, now, we have to see some action to provide for the ability of manufacturers to plan for the future. Or we're not going to see that good news continue.

- I'm interested, Jay, just your kind broader view on the Biden administration and how just their approach to your industry, the manufacturing sector, you know. What have they gotten right? What have they gotten wrong in your opinion?

JAY TIMMONS: Yeah, yeah. I'm happy to give a little bit of a scorecard. Here's what I'm really-- here's what really impresses me about President Biden himself. I think he probably has more of a heart for manufacturing than any president I've worked with.

And that's because he's a product of Scranton, Pennsylvania. That's where he was born. These are the people that he saw working to improve his community and communities around his area. Throughout the years, his record has been one of trying to support manufacturing, but frankly, from our perspective, not always getting it right.

During the administration, again, infrastructure, CHIPS and Science, IRA, those were all good policy initiatives by the administration and showed a commitment to growing manufacturing investment here in the United States. But then you saw some agencies perhaps not living up to the promise of growing manufacturing in the United States by imposing this massive regulatory burden on manufacturers and, in some cases, putting rules forward that simply cannot be followed.

So manufacturers today are trying to figure out, well, where's our capital going to go? Where are we going to invest in new plants and facilities? Where are we going to hire workers? It may or may not be in the United States based on that regulatory regime.

Then you couple that with the tax policies that are-- have either expired or are getting ready to expire. For instance, as far as research and development tax deductions, China actually offers 200% deductions for research and development activities in their country. Today, we offer exactly 0. And that's a problem for us. If we want to out-innovate and we want to outcompete China and other competitors around the world, our tax policy has to be aligned with our commitment to doing so.

So I think the president hasn't-- he's actually been really good on the tax trifecta. And we appreciate his support there. I'm worried, though, that they're very focused on increasing the tax burden, especially on C corporations should they be re-elected next year.

- And, Jay, finally, I want to ask you about the pending steel deal here. The Nippon Steel of Japan trying to buy US Steel. The president, once again, commenting today saying that he supports the workers there. Prime Minister Fushida of Japan saying he hopes something that can be worked out. What is the association's position on that deal and whether it should go forward?

JAY TIMMONS: So we're confronted with a lot of questions about mergers and acquisitions. And that really isn't in our wheelhouse. What I will say, and I would probably echo the president as well, when we are advocating for policies, whether they're tax policies, regulatory policies, trade, infrastructure, immigration policy, it's all about growing the manufacturing workforce and making it stronger here in the United States.

I think it's pretty safe to say that the United States-- or that manufacturing in the United States has a heavy dependence on steel, on aluminum, on other products like that that help us build the base. So we're going to have to wait to see how that all unravels or unrolls or rolls out, I guess, is the right terminology. But in the end, we hope it's good for the people of the United States.

- Jay, thank you so much for joining the show today. I appreciate your time.

JAY TIMMONS: Thanks for having me.