In yet another installment of the Jobs and Innovation Forum Series, hosted by the Energy and Commerce Committee, House leaders focused on job promotion and creation by discussing the obstacles facing American manufacturers with actual American manufacturers.
Some of the non-politicians at the table included Liat Tala, the owner of a denim manufacturing company based out of central California. Liat was asked to speak about her company’s journey to China and back. She moved the company out of the U.S. during the recession due to the high costs of American labor (something eliminating the minimum wage law would help alleviate) and due to the high health insurance costs required by the government (something Obama’s health care mandate will only make worse). Liat still prefers having her company in California because the of the unmatched quality of production in the U.S.
Sam Harwell, the President & CEO, Big Time Toys came out to inform the Members of the trials and tribulations toy companies constantly go through in paying high U.S. corporate tax rates and high cost employee healthcare packages. And, most important in his industry, the trials and tribulations in dealing with the extreme, and often times repetitive, regulatory mandates for safety testing. Some tests must be repeated every year on a product that hasn’t changed its design or manufacturing process. And the tests are expensive, very expensive.
There to represent Intel was William Holt, their Sr. Vice President and General Manager. Holt explained how his company paid a 29% corporate tax rate last year (the government received $4.5 billion from that one company alone!). He warned the Members, we don’t have to stay here and continue to pay this rate, we can leave- others have done it already.
Holt also spoke of the need for more skilled workers. America is losing its manufacturing work force. Our jobs are going overseas, and the next generation is not learning the skills needed to continue innovation and production here in the U.S.
The President and CEO of the National Association of Manufacturers, Jay Timmons, drew attention to the 20% higher cost rate of doing manufacturing business in the U.S. verses overseas. The four driving forces of this rate were, in his mind, our tax policy (the highest corporate tax rate in the world), the high cost of regulatory compliance (this cost the manufacturing sector $1.8 trillion last year), the increasing cost of energy, and the ever present need to protect a company against extreme torts claims (litigation costs averages out to about 2% of a company’s GDP).
My favorite speaker of the day, however, had to be Susan Dudley, Director of the Regulatory Studies Center at George Washington University and the former Administrator of the White House Office of Information and Regulatory Affairs (2007-09). Her wisdom on, and familiarity with, the topic of regulatory burdens was immediately obvious. She spoke about the fact that regulations have no bounds in the sense that they are not required to come in below a certain cost, how regulations are nearly impossible to track in both the size and scope, and about the difficulties of undoing a regulation once it is in place.
She debunked Obama’s claim that he had created less regulations than George Bush in his first three years in office. The Obama administration’s regulations have resulted in 40% more $100 million regulations than did Bush’s. Obama also signed the Dodd-Frank Bill and the Healthcare Bill. These bills have not yet been fully implemented, but when they are, they are sure to result in billions of dollars worth of regulations. Thus, although there may be a smaller number of regulations from this administration, the bills passed will certainly require regulations soon (these regulations are sure to be some of the most costly the U.S. has ever seen) and the regulations already in place are still far more impactful in size and scope than any implemented under Bush.
Dudley explained how regulations bring uncertainty to the marketplace. They also divert energy from manufacturing and innovation to compliance. And the Obama administration calls this “job creation”! What a joke. There is absolutely no value added to society when workers use their energy solely to comply with regulations. This is Econ 101.
Dr. John Langford, CEO of Aurora Flight Sciences spoke up about his company’s difficulties in complying with the Federal Aviation Administration’s regulations. He would like to get different types of aircraft into the skies. Perhaps robotic aircraft, as he called it. Because they can’t get these aircrafts off the ground, pun intended, they have a real barrier to participating in the world market.
Also, small companies, such as his, are getting the short end of the stick in that they are not getting nearly the same interest rate on their capital as is Boeing or Lockheed Martin (which are usually getting it for around 3%).
There to speak about the EPA’s regulatory impact on the aluminum industry was Mike Baker, Executive Director of the Kentucky Aluminum Network and Director of the Hancock County Industrial Foundation. Mike was adamant that we need a national energy policy that would actually help manufacturers. He said that EPA’s newly proposed utility MACT rule will drive businesses away from the U.S. since the price of electricity will rise so drastically. At today’s committee hearing regarding the rule, the EPA completely denied this of course, claiming only a 3% energy increase in cost will occur.
The Republican Members of the Energy and Commerce Subcommittee on Commerce, Manufacturing, and Trade agreed fully with these propositions. Mr. Baker said, “We need a common sense balance.” We don’t want to lose our capacity to create these raw materials because of our inability to maintain a skilled workforce and our inability to cope with rising energy costs due to regulatory compliance measures.Top of Form Rep. Brett Guthrie (R-KY) explained how being competitive translates to a higher standard of living for everyone, including the middle class.
It appears that everyone agrees, being competitive, creating jobs, and encouraging manufacturing skills will come when we lower regulatory compliance measures, decrease the corporate tax rate, put a cap on tort litigation damages, and change healthcare policy.
Bottom of Form
Nice reporting, Gio. Any sense of what the reaction was among the House leaders? Were people hearing what the industry leaders were saying? Protesting? In denial?