If you believe this handy chart, as part of any future corporate tax reform both President Obama and Rick Santorum would institute preferential tax rates for U.S. manufacturers, with Santorum doing away with the corporate tax entirely for businesses that, you know… build stuff.
I add that overly simplistic description because, truthfully, it is not always easy to explain exactly what constitutes “manufacturing.” In a lot of ways, manufacturing is like pornography or the infield fly rule, you can’t define it, but you know it when you see it.
But with preferential treatment potentially to be afforded to manufacturers, meeting the “manufacturing” definition could become extremely important, a fact not lost on David Cay Johnston over at Reuters.
In the column, Johnston compares the assembly of a car — which is considered manufacturing — with the assembly of a fast-food hamburger, which is not:
The notion of hamburger-making as manufacturing may seem silly, a bit like the 1981 U.S. Agriculture Department proposal to classify ketchup as a vegetable for school lunches. But classifying activities as manufacturing or not becomes crucial if manufacturers pay taxes at a reduced rate.
Hamburgers may seem like pure assembly, but a case can be made that they are more like manufacturing than assembling a car from finished parts made overseas. Your local hamburger joint starts with raw meat, fresh or frozen. If it comes in lumps then someone must make the meat into uniform discs or squares. Then the protein must be fried, grilled or broiled. Only then can the meat, lettuce and whatnot be assembled.
Johnston ultimately concludes that the real beneficiaries of preferential manufacturing rates would be the attorneys and CPAs charged with making the case that their clients meet the definition:
Imagine all the high-paying jobs Obama’s plan would create. Companies of all kinds will want to hire more tax accountants and lawyers making the case their client’s business activity is manufacturing. These are not the sort of additional jobs America needs.
I , obviously, beg to differ.
The point, of course, is that even code reform based on good intentions comes with the price of complexity and confusion. Most people agree that providing tax incentives to manufacturers would encourage U.S. job growth, but as is usually the case when it comes to tax law, the problem lies in the execution. Any reform would likely further complicate the code and invite abuse as non-manufacturers clamor to meet whatever definition makes its way into the statute.