Tax Analysts Blog

Misplaced Subsidies for Manufacturing

Posted on Feb 5, 2012

In this morning's New York Times Christina Romer, Chair of President Obama's Council of Economic Advisors until leaving in September 2010, argues that the value of subsidies for manufacturing are not justified by economics. Her article is essential for readers who want to get beyond all the recent hype about manufacturing--from both parties. Its only shortcoming is the conclusion. It is too mild, too polite: "So far, a persuasive case for a manufacturing policy remains to be made."

There are no more good economic reasons for special tax breaks for manufacturing than there are for any other business sector we have a fondness for. (Take your pick: small business, homeownership, self-employed. etc.) But the American public, and hence American politicians, have a nostalgic and irrational attachment to the sector that was the shining symbol of America's postwar greatness. As Bruce Springsteen said about the employment situation in Freehold, NJ ("My Hometown"): "Forman says these jobs are going boys/and they ain't coming back." Not even with tax breaks.)

Unfortunately, unjustified subsidies do not create jobs, they destroy them.

So instead of trying to enhance the misguided manufacturing subsidy in current law (section 199), the President--if he really believes what he says about tax reform--should be proposing to repeal it.

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