​ Group raises concerns about fate of industry incentives in future federal budget

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Photo By Shealah Craighead, whitehouse.gov The White House's 18 acres of grounds covered in snow on March 14 in Washington, D.C.

With the Trump administration releasing broad outlines of its first budget today, and calling for steep cuts in some domestic programs to bolster security spending, one manufacturing trade association is warning that too many cuts could ultimately harm U.S. industrial competitiveness, productivity and innovation.

It highlights a debate about what is the best way for government to support business: Targeted help or simply get out of the way.

The Washington-based Information Technology and Innovation Foundation argued in a late February report that the federal government runs important programs that support manufacturing, like the Manufacturing Extension Partnership and the Export-Import Bank.

It said it was worried about reports that the Trump administration would follow budget plans outlined by the conservative Heritage Foundation. ITIF said cutting too much would undermine U.S. companies because other countries already provide that kind of support to their industries.

"There is no doubt that many federal programs, including some that support business, could be cut, or even eliminated, with little or no negative effect on economic growth," ITIF said. "But that doesn't mean that most could.

"In fact, many programs are intended to compensate for serious market failures and effectively advance one or more of three key national goals: competitiveness, productivity, and innovation. Rather than being cut or eliminated, such programs should be improved and expanded," the group said.

While more details will be released in May, the March 16 blueprint budget calls for a 31 percent cut in the Environmental Protection Agency and a 21 percent cut in the Department of Labor, which includes job training programs and the Occupational Safety and Health Administration.

The Trump administration argues that the cuts are necessary to increase defense and border security spending by $54 billion and without increasing the federal deficit. (Of course, before people get too worked up about this plan, many observers point out that any president's budget proposal is dramatically changed every year, as it goes through Congress, so the ultimate spending could be quite different.)

But Trump administration officials are arguing that the government can do more with less in domestic and foreign aid programs, and maintain core domestic programs, with these cuts.

"To keep Americans safe, we have made tough choices that have been put off for too long," Trump said. "But we have also made necessary investments that are long overdue."

Mick Mulvaney, federal budget director, told reporters March 15 that "we absolutely believe, again, as with State [Department cuts], that the core functions of the EPA can be satisfied — in fact, beyond the core functions can be satisfied with this budget."

In some areas, the administration budget said it will strengthen efforts, like on trade enforcement, while "rescaling" support for some export promotion, as part of a 16 percent cut in the Department of Commerce.

It seems to be silent on the Ex-Im Bank, a government program some plastics companies have supported, but the Trump plan cuts all federal funding for the Manufacturing Extension Partnership, one of the programs highlighted by ITIF.

That federal funding provides up to half of the budget for state MEP centers, and would transition the MEP back to entirely non-federal revenue sources, as was intended when the MEP was first established, according to the Trump budget blueprint.

ITIF, however, argued that other countries invest much more in similar programs to help their small and medium-sized manufacturers. It said Japan invests 30 times, Germany 20 times and Canada 10 times as much.

"Eliminating MEP would be... unilateral disarmament and would harm U.S. industrial competitiveness and mean fewer U.S. manufacturing jobs," ITIF said.

In early comments on the budget, as I was preparing this blog, ITIF reinforced its earlier report and said the cuts proposed by the administration, including in trade agencies and support for R&D, "would signal the end of the American century as a global innovation leader."