Letter from Phil Kirk

Why Taxes Are Crippling the Furniture Industry
Economic policies at the federal and state levels have crippled the textile, furniture and apparel industries in North Carolina. Several major companies are surviving, thanks to superior, creative management.

I have met twice within recent months with Andy Counts, CEO of the American Furniture Manufacturers Association, and with several of his key members to determine how NCCBI can help this important industry survive in our state.

Counts reports, “While some furniture manufacturers are striving to remain largely domestic producers, others are pursuing strategies that combine domestically produced products with products produced overseas. For both groups, one thing is clear: The costs associated with domestic production are an obstacle to economic growth and competitiveness.” That’s the conclusion reached by a recent study titled, “How Structural Costs Imposed on U.S. Manufacturers Harm Workers and Threaten Competitiveness.”

The study reveals that key external overhead costs add at least 22.4 percent to unit labor costs of U.S. manufacturers — nearly $5 per hour worked — relative to their major foreign competitors. This puts the United States at a significant competitive disadvantage with its largest industrial trading partners. Not surprisingly, the study points out that the largest cost burden imposed on domestic producers comes from high corporate tax rates and employee benefits, with additional burdens caused by litigation costs and compliance with federal regulations.

Although the United States is recognized for being a low-tax nation relative to its European and Asian competitors, it actually taxes corporate income at a higher rate than its major trading partners.

The NAM study recommends reducing statutory corporate tax rates, as most trading partners have done; lowering the cost of innovation and investment by making the R&D tax credit permanent and accelerating capital depreciation schedules; repealing the corporate alternative minimum tax; and completely eliminating taxation of profits distributed as dividends.

Furniture manufacturers in North Carolina face the same anti-business, anti-jobs tax rates all businesses in our state face — the highest personal income taxes in the Southeast and the third-highest corporate taxes in the Southeast.

Counts continues, “Not only does the United States spend more on health care than its major trading partners as a percentage of gross domestic product, but the private sector share is far larger than in other countries, too, at nearly eight percent of GDP. The future of so-called defined benefit pension plans, which occur more frequently among large companies in more mature industries, is another concern.”

The study recommends improving affordability of health coverage for individuals and companies through individual tax credits, group purchasing opportunities and tax-favored savings accounts for consumers. In addition, it advises modifying funding requirements for pensions to reduce volatility of cash calls on a business, increasing contribution limits, and simplifying complex pension rules and requirements.”

Counts points out “the cost of the tort system reached $205 billion in 2001, a 14.3 percent increase over 2000. Factors contributing to the higher costs are an increase in class action lawsuits and large claim awards, record jury awards in medical malpractice cases, and an increase in the number and size of shareholder lawsuits against boards of directors of publicly-traded companies.

Referring to regulatory costs as the “silent” killer of manufacturing competitiveness, the study looked at environmental, economic, workplace and tax-related regulations. Environmental regulations accounted for nearly half of all the regulatory costs reported.

The Commerce blueprint also supports AFMA’s call for more aggressive promotion of U.S. exports, especially in the area of consumer goods, and for eliminating tariff and non-tariff barriers to exports of American-made manufactured products.

It is imperative that this effort not be limited to the federal government. AFMA — and NCCBI — support a Manufacturing Initiative to be spearheaded by the NC Department of Commerce that will work to lessen the domestically imposed structural costs placed on manufacturers in North Carolina. This initiative will require the coordination of industry and several agencies within the state government.

AFMA and NCCBI will continue to challenge policymakers to answer the question, “How can government help U.S. manufacturers compete in the global marketplace?”

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