WASHINGTON (Jan. 19, 11 a.m. EST) — U.S. industry suffers from a competitive disadvantage because U.S. manufacturers have relatively high tax rates and pay more for health care, according to a new study by the National Association of Manufacturers and the Manufacturers Alliance/MAPI.
The report says U.S. industry generally is competitive against other developed countries, but it calls for changes to help combat a 22 percent premium that U.S. industry shoulders for things like benefits and litigation.
The groups said the report is the first comprehensive look at how the United States stacks up.
Manufacturing in the United States costs $24.30 an hour, lower than in Germany, at $29.77, and France, at $25.77.
But the United States is higher than the rest of its top nine trading partners: Canada clocks in at $22.46, the United Kingdom at $23.14, and the low-wage centers of China and Mexico, at $3.50 and $6.19, respectively.
“Even with a strong macro-recovery, we will have significant difficulties and challenges in manufacturing because of structural problems in the global economy and here at home,” said NAM President Jerry Jasinowski. “This is the No. 1 obstacle to a full recovery in manufacturing … and it's not been adequately addressed by the body politic.”
Manufacturers in the United States have higher nonproduction costs than most other major industrialized nations, according to the report.
Benefits, energy, regulation, litigation and taxes add about $5 an hour, relative to costs in the other nations, enough to offset the 54 percent gain in productivity U.S. manufacturers achieved in the 1990s, the report said.
Health care and taxes were the highest U.S. costs, with taxes standing out as something of a surprise, according to the study's author, economist Jeremy Leo-nard. Traditionally, the United States is thought of as a low-tax country, he said.
But efforts by other industrialized nations to cut their corporate tax rates in the past five years have left the United States and its 40 percent rate the second highest, trailing only Japan.
The report also argues that U.S. industry is feeling a particular pinch from rising health-care and pension costs, because the United States puts much more of the burden of those costs on companies.
Firms pay about half of the United States' total health-care bill, compared with about one-quarter or less for companies in most of the other nations in the study. Health-care and pension costs add $1.41 to what U.S. firms pay, relative to what companies pay in the other major industrialized nations.
But the report said many trading partners use other government revenue, like personal income taxes, to pay for much of health care, which Washington-based NAM is not advocating for the United States.
And the report does not address the political chances of cutting the corporate tax rate when federal budget deficits are skyrocketing. Jasinowski declined to say how much of the premium U.S. manufacturers could pay or how much it should be reduced.
“That'll have to be decided by the body politic,” he said. “As an economist, I'd start with the question of efficiency. Let's get rid of all the dead weight in the health-care, regulatory and legal systems.”
The report's authors said they want to make the case to U.S. policy makers that they can't continue piling costs on manufacturers in an extremely competitive global economy.
Jasinowksi said the U.S. political culture believes “we can have a free lunch and don't have to worry about the cost of health care or whatever.”
“It sort of predates the highly competitive environment we find ourselves in,” he added.
The report noted that the $5-an-hour tab for the extra U.S. costs is more than the total cost of manufacturing in China.
China is facing tremendous wage pressures, however. The report said wages there have gone up 16 percent a year since 1991, and it said wages for skilled labor will rise dramatically in the next decade.
The report points to South Korea as an example of what could happen to wages in China and Mexico. South Korea was considered low-wage 25 years ago, but as its wealth generated demand for better living conditions, its hourly cost rose to $22.67, comparable with the United States and Europe and much higher than Japan's figure of $16.64.
Leonard also said figures on pollution-abatement costs surprised him. Fighting pollution costs 7.6 percent of manufacturers' output in the United States, higher than any of the other nine nations, including European countries that are considered more green.
The report came to a similar conclusion on tort litigation. Manufacturers in the United States pay 4.5 percent of their output for tort lawsuits, more than the other nine countries.