A healthy and robust manufacturing industry is critical to a functioning economy.
Texas knows that well. The manufacturing industry accounts for roughly 13% of our state’s total economic output and employs nearly 7% of our state’s workforce. In 2020, there were about 881,000 manufacturing employees in Texas, with an average annual compensation of about $90,000. And Texas remains the number one exporting state for manufactured products in the U.S., now for two decades running.
Clearly, the manufacturing sector is an important part of the Lone Star State and our essential industries. But the manufacturing sector will also play a significant role in our nation’s infrastructure push.
Republicans and Democrats came together on a $1.2 trillion infrastructure package that will result in new roads, bridges, and other critical needs across the U.S. Building these projects will require equipment, materials, and other products that manufacturers provide.
However, talks about the controversial reconciliation/social spending bill continue. The House plan includes tax increases for businesses that would spell trouble for critical industries that have a multinational presence, especially manufacturers.
As president and CEO of the Texas Association of Manufacturers, I am especially concerned over the prospect of increasing the Global Intangible Low Tax Income (GILTI) rate. As our country recovers from the coronavirus pandemic, it is more important than ever before that our lawmakers make policy decisions that boost manufacturing, enhance economic growth, and support small businesses.
But that is not what raising GILTI does. In fact, it does the opposite.
GILTI is a tax that is applied to the foreign earnings of American multinationals, which combined support 894,000 jobs in Texas. Many Texans from a wide variety of communities and professional backgrounds rely on the work provided by these large corporations.
The Texas Association of Business recently released a report— prepared by EY’s QUEST group and the Bureau of Business Research at the University of Texas at Austin—which found that increasing GILTI could result in the elimination of up to 107,000 Texas jobs and $3.1 billion in lost wages. Further analysis from the National Association of Manufacturers revealed that within the first year of a GILTI increase, our nation could see up to one million jobs lost and $20 billion in economic activity forfeited.
At its current rate of 10.5%, GILTI has done what it is supposed to — kept American profits and jobs at home while supporting investments and growth abroad. In 2018, manufacturers added 263,000 new jobs after the current GILTI rate was finalized, marking the best year for job creation in manufacturing in 21 years. Our competitiveness is boosted when American businesses can invest overseas and integrate their products into new markets—it creates jobs and increases wages here at home. But that is not what happens when American competitiveness is limited by increasing unnecessary tax burdens like GILTI.
It should also be mentioned that the United States is in the middle of talks with other countries about implementing a separate, standalone global minimum tax. This new tax would be added on top of GILTI and has the potential to further encumber our businesses and slow down our economic recovery. We should not be thinking of raising GILTI while considering adding an additional, new global tax at the same time.
We need commonsense tax policies that encourage growth and development in Texas and the rest of the country—not unnecessary burdens that will do far more harm than good to workers, businesses, and our economy.
On behalf of Texas manufacturers, I respectfully urge Congress to vote “NO” on the tax hikes included in the reconciliation bill.
Tony Bennett is the president and CEO of the Texas Association of Manufacturers.