Partisan Joint Economic Committee Argues Over What’s Better: Trump Tax Cuts Or Biden Industrial Policy

Partisan Joint Economic Committee Argues Over What’s Better: Trump Tax Cuts Or Biden Industrial Policy

Last week, Republicans and Democrats from the Senate’s Joint Economic Committee squared off against each other – with one side arguing in favor of industrial policy programs like the Inflation Reduction Act – and the other side arguing in favor of lower corporate taxes.

At the heart of the debate, for Republicans, was that the Tax Cuts and Jobs Act is expiring next year. If so, there is a risk of corporate tax rates returning to 35% from the 21% currently. For what it’s worth, Mexico’s federal corporate income tax rate is 30% and Canada’s is 28% (or 15% for manufacturing companies).

“The economy has added hundreds of thousands of new jobs in manufacturing and construction as private investment has flowed into the clean energy sector, semiconductor production, and advanced technology manufacturing throughout the U.S. This wasn’t an accident. Democrats fought hard to bring real solutions to the table and move forward the Inflation Reduction Act, the Bipartisan Infrastructure Law, and the CHIPS and Science Act. These policies have driven the comeback story we are seeing.”

The Committee Ranking Member, David Schweikert (R-AZ) held up a chart during Wednesday’s hearing titled “Made in America: The Boom in American Manufacturing Investment” that showed where the IRA and CHIPS Act were implemented and how manufacturing investment grew. It was a CATO Institute chart, not a staff chart. The graphic suggested that the Trump-era Tax Cut and Jobs Act was better for manufacturing investment because it impacted all industries, not just green tech and semiconductors.

There were two CATO witnesses at the hearing.  Scott Lincicome was one of them. He likened the investment spike from the IRA and CHIPS subsidies to a “sugar high”.

“Before the IRA and CHIPS Act became law, we were already seeing some announcements of investments that were coming in, not because of tax credits or subsidies, but because corporate investors saw a legitimate long-term investment that they wanted to make,” he said.

Schweikert said manufacturing employment today is not much different from where it was in 2020.

This is not exactly the case, as Bureau of Labor Statistics data shows. U.S. manufacturing labor is at least a couple hundred thousand workers stronger today than it was in 2020, and is greater than it was in 2018.

Schweikert and other Republicans largely came out against the IRA even as his home state has benefited from investments that were sparked by that law. For Schweikert and others on the Committee sharing the same line of thinking: “China will subsidize more. The EU will subsidize more. This is a global race to the bottom of subsidy policy,” he argued, adding that it creates a sort of dependence on the government from the private sector.

At times, Lincicome tried playing the role of unifier in the room. “We all share the same objectives; we want a strong labor market and a strong economy and we want to get there in a sustainable way,” he said. But overall, it is clear Lincicome views policies like the IRA with a high dose of skepticism and is in favor of tax cuts. His blind spot is competing with low-cost labor and subsidies from other countries – namely India, China and Mexico.

“You don’t want to put Washington in charge of which factory or what industries get dollars because that can create problems and creates a risk for more protectionism in the future,” he said. This is arguably the biggest ongoing debate in the U.S. at the moment.

“We have another solar panel trade case now pending. Intel is now talking about a CHIPS 2.0. These things have a way of staying with you forever,” Lincicome said.

Some manufacturers see things differently. This is especially true for those on the receiving end of production tax credits.

“These provisions in the IRA have led to a definitive practice of onshoring and is bringing jobs to the U.S. that were once done in Southeast Asia,” said Kevin Hostetler, Chief Executive Officer for Array Technologies in Albuquerque, NM. “Our factory will hire 50 new people to do the work we used to source from Southeast Asia,” Hostetler told the Committee.

Array is a manufacturer of solar panel tracker equipment used in utility-scale solar energy projects. Array solar trackers rotate solar panels, allowing them to follow the sun and generate more energy.

“I am grateful to be leading Array during this nation’s manufacturing renaissance. In April, Array broke ground on a new manufacturing campus in Albuquerque where we make our clamps, center structures, drive systems and electrical controllers. To start, our new facility will employ more than 300 local residents in the near term. This growth will enable us to further develop more onshore capacity and make more solar technology here at home. The IRA and other federal investments have helped to grow our domestic production.”

Sen. Peter Welch (D-VT) asked about tariffs to a general anti-tariff group of CATO witnesses. “If the ultimate goal is just to get the lower price, then businesses will always go offshore,” he said. “We saw that with the machine tooling industry in rural Vermont.”

Springfield, Vermont was once known as “Precision Valley,” based on its robust machine-tool manufacturing industry. Those companies are all gone now, having left years ago.

Skanda Amarnath, Executive Director of Employ America, one of the four witnesses, did not come out directly in favor of tariffs. He did not address Welch’s question directly. Instead, he said that “machine tooling is one of those specialized industries where there is not fair competition on a global scale. These people in tooling are developing a certain type of skill and know-how and it is very costly if you lose these people due to foreign competition.”


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