[Excerpt] The ongoing debate over whether the manufacturing sector deserves targeted government assistance continues in the 112th Congress. Numerous bills have been introduced to provide new or enhanced federal support for manufacturing companies. Some of the proposals would do so by using tax preferences to bolster their competitiveness and encourage increased domestic production and job creation in manufacturing. These initiatives are attracting attention at a time when Congress is considering options for reforming the federal tax system as a key element of a broader plan to eliminate or substantially lower projected federal budget deficits. To critics of the current federal income tax, proposals for new or enhanced tax benefits for manufacturing underscore what they regard as a critical problem with the system: it is laden with special benefits that reduce effective tax rates and act in the same manner as federal spending, except that the spending is not subject to the scrutiny and oversight built into the appropriations and authorization processes.
To provide helpful background information for the congressional debate over whether manufacturing deserves targeted federal support, this report addresses a key component of that support: tax benefits. More specifically, it summarizes the main federal tax preferences under current law from which manufacturing firms derive significant benefits, identifies the bills in the 112th Congress that would enhance those preferences benefits and how they would affect manufacturers, and discusses the arguments for and against additional targeted support for the manufacturing sector and their implications for federal policy. To broaden the context for the current policy debate over federal support for manufacturing, the report also provides a brief overview of federal non-tax support for manufacturing. It will be updated as warranted by changes in tax law or congressional action.