03 May 2012

Reuters on Tax Incentives for Manufacturing

A very well-done piece from Reuters on the perverse incentives created by special tax breaks for a poorly defined segment of the economy - manufacturing.

H/T @gregmankiwblog.

UPDATE:  On this very theme, at The Atlantic Derek Thompson has a neat piece on Big Macs and the global economy.  Here is an excerpt:
McDonald's is a restaurant, but it functions much like a factory. Labor is supported by a deep well of technological innovation, such as vacuum packing, exceptional preservatives, deep freezing, vibrant artificial flavors, and high-speed microwaves. Workers assemble specific parts at great speed to deliver dependable and replicable products. "[McDonald's doesn't] put something on the menu until it can be produced at the speed of McDonald's," CEO James Skinner said in 2010, sounding not unlike Henry Ford from a century earlier.
Thompson's essay draws upon research in this paper on wages in the global economy.


  1. Different tax treatment for manufacturing is problematic at the state level too. The 5/4/2012 issue of The Wall Street Journal reports that a state judge in Texas “reversed an earlier decision to exempt some oil and gas drilling equipment from sales tax, which Texas officials had warned could deprive the state of as much as $4.4 billion of revenue through 2017.” The company “argued that bringing oil and gas out of the ground fundamentally changes it, and so should be considered a manufacturing process. Manufacturing equipment is exempt from Texas's sales taxes.” At least they kept some attorneys and accountants busy for a bit.

    Texas does not have an income tax, relying on the sales and use tax at 6.25% for the bulk of its income. Local taxing jurisdictions may piggyback up to 2% for a maximum combined rate of 8.25%.

  2. "Are you in a factory, or are you in a restaurant?"

    In my youth I worked in a restaurant at Sesame Place, an amusement park based on the Sesame Street theme. The name of the restaurant? The Food Factory.

    Manufacturing indeed.