What Matters at the Polls From a Manufacturing and Metals Perspective

As we head to the polls today in this important mid-term election, we wanted to take the opportunity to once again highlight some of the key policy platforms as well as specific pieces of legislation (and in some cases regulation) likely to impact manufacturing and metal buying organizations. We have covered many of these policies in recent months on MetalMiner and have recapped a few of them and added a few twists.

Plank One: Strong Manufacturing policy to drive job growth – We have often discussed a series of federal policies some positive and some negative that will or would have a lasting impact on the ability of corporate (or small businesses for that matter) to positively impact the job situation and stimulate growth (including export growth which we will come to in a moment). The policies include:

  • R&D tax credits The Obama administration has publicly stated it wants to “enhance, make simpler and make permanent these tax credits. We think this contributes to a vital manufacturing policy
  • Tax policy Much of the discussion around tax policy relates to individuals earning more than $200k or couples earning more than $250k and the fact that their taxes will increase in January 2011. These people are of course considered “rich but what many fail to see is that couples earning greater than $250k/year (or individuals earning over $200k/year) are often owners of S corporations – job shops, small manufacturers and small business owners those most likely to create new jobs
  • Uncertainty as to the impact of new health care legislation on businesses of all sizes (as an example, our own health care premiums increased by 28% for next year, the single largest percentage increase we have ever seen)
  • Corporate tax rates small and medium sized manufacturers end up paying a much greater percentage of their profits on taxes vs. some companies such as Google read the accompanying article for more information on the structures behind these effective tax rate minimization strategies (the US has one of the highest corporate tax rates in the world 35% which results in:
  • Lower foreign direct investment the US used to be the leader in foreign direct investment but has now fallen to fourth place

Plank Two: Energy policy we could probably write ten posts on energy policy. Instead we’ll link to one that examines the facts behind an average (dare we say typical) American’s energy consumption and what that means from a policy perspective. Carbon cap and trade legislation, despite not having passed during this last session of Congress could get passed during a lame duck Congress. The uncertainty around energy policy (among other uncertain policies) continues to mute economic growth.

Plank Three: International Trade policy – We take a page from the Consumer Metrics Institute, with its analysis of GDP and in particular, some recent conclusions on the impact of X-M (exports imports) on overall trade numbers. First the GDP equation:

GDP = private consumption + gross investment + government spending + (exports − imports)

Or in algebraic shorthand: GDP = C + I + G + (X-M)

But look closer and we see that tremendous impact the trade balance/deficit has on overall economic numbers:

According to the Consumer Metrics Institute, “One of the real eye-openers in the above table is how much the export-import portion of the equation (“X-M”) has impacted the headline growth number over the past seven quarters. For the newly reported quarter the net contribution from foreign trade was -2.0%, as contrasted with a -3.5% number for the prior quarter — resulting in an improvement of 1.5% in the foreign trade contribution relative to the prior quarter.

But we’d caution readers not to get overly excited. The export numbers have declined for three consecutive quarters. Any improvement has more to do with a slowing growth rate of imports that as our friends at ISRI have pointed out to us, tend to go hand in hand with weaker economic activity. And with that a slew of policies aimed at re-balancing the trade situation (see our follow-up post this afternoon).

Much is at stake this mid-term election cycle. Vote wisely!

–Lisa Reisman

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