Previewing President Barack Obama’s Tuesday night State of the Union speech, a White House official said the president will propose ideas for sparking economic growth “by investing in manufacturing, clean energy, education, and infrastructure.”
Since three of those fields -- manufacturing, energy, and infrastructure – are so tightly inter-related, what investments is the federal government already making in each of those fields?
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And apart from simply increasing the amount of money Congress appropriates, or boosting the size of the tax breaks for -- manufacturing, energy, and infrastructure, what new policy ideas might be available in each for those fields?
In last year’s State of the Union address, Obama said his strategy for economic growth “begins with manufacturing.”
In his Fiscal Year 2013 budget proposal unveiled last February, Obama called for providing $120 billion over ten years in tax incentives and preferences for manufacturing in the United States, including tax breaks for making alternative-fuel commercial vehicles.
Apart from tax breaks, he proposed a total of $2.2 billion in direct spending for projects at the National Science Foundation and elsewhere in the federal government to encourage manufacturing.
Obama also proposed spending $1 billion over ten years to “develop a national network of manufacturing innovation institutes” -- a proposal which Congress never passed, but which the Obama administration jump-started with $30 million in funding for a center in Youngstown, Ohio.
But since the government is still functioning on a six-month continuing resolution, which keeps spending levels at those of the fiscal prior year, most of Obama’s new initiatives from last February haven’t been fully funded, or funded at all.
It’s worth noting that the administration still has money available from the $830 billion stimulus program that launched Obama’s job creation effort in 2009. Just last week, the Department of Energy announced it had $150 million available in unused Advanced Energy Manufacturing Tax Credits for clean energy and energy efficiency manufacturing projects.
It’s hard to debate whether the federal government is doing enough, too much, or too little to support manufacturing through direct spending and tax breaks. That’s because even the experts cannot give a precise answer as to how much is being spent.
A recent report from the non-partisan Congressional Research Service said: “There appears to be no comprehensive, reliable estimate of the amount the federal government is spending on programs that support the manufacturing sector.”
The report said it is hard to get a precise figure because “such support is delivered through direct and indirect channels.” For example, the research tax credit is not limited to manufacturing firms, but “they are the biggest users of the credit among all sectors.” That tax break will cost about $6.8 billion this year, according to the staff of the Joint Committee on Taxation.
The CRS report also notes the arguments against targeted spending or tax incentives for manufacturing: “it is unlikely that special aid for manufacturing would spark a significant rise in job creation in the current economy. The sector’s contribution to overall employment has been declining for more than three decades and now stands at 9% of U.S. non-farm employment.”
Aric Newhouse, senior vice president for policy and government relations at the National Association of Manufacturers, said his group hopes to hear from Obama on Tuesday night “very specific, concrete actions the president can take,” for example, “We’d love to see the president announce that he’s initiating bilateral free trade agreements with ten, 20, 30 different countries around the world with we don’t have bilateral agreements.”
He added, “Ninety-five percent of the world’s consumers are outside of our borders and we’ve not really seen much action on the trade side over the last four years. We’re hopeful that we’ll see some real movement.”
There’s much overlap between Obama’s effort to spur U.S.-based manufacturing and his crusade for alternatives to traditional fossil fuels.
The wind turbine and biodiesel industries scored a major victory when Obama signed into law the American Taxpayer Relief Act on Jan. 2. The law extended tax preferences for those industries.
According to the Congressional Research Service, the wind production tax credit, which dates back to a 1992 law signed by President George H. W. Bush, has been “the main policy tool in the deployment of U.S. wind power” and “a significant driver of the recent growth of the U.S. wind industry.”
But the surge in U.S. production of natural gas has altered the global energy landscape, making relatively cheap U.S.-produced natural gas the preferred energy alternative for many utilities and industrial operations.
One decision Obama administration must make is whether to allow increased exports of liquefied natural gas to send “cleaner energy” – cleaner than coal, especially – to other countries. Increased LNG exports could spur new investments in energy infrastructure and thus create jobs.
With Obama saying that there’s a need for additional tax revenue, tax policy could be a major driver of energy policy, especially if the chairmen of the House and Senate tax-writing committees launch a push for tax reform.
Obama’s allies at the Center for American Progress, a progressive Washington think tank, said in a recent report: “A progressive carbon tax would put a price on carbon pollution and other greenhouse gases, creating an economic incentive to emit less.” The revenue “could be rebated to middle- and lower-income households to offset higher energy prices” and “could boost investments in emerging clean energy technologies and/or reduce the federal deficit.”
Newhouse at NAM makes the connection between jobs and infrastructure by calling on Obama to approve the building of the Keystone pipeline to bring oil from Alberta, Canada to the Gulf Coast. “The Keystone pipeline is 118,000 jobs and it really drives the point that infrastructure matters,” Newhouse said.
Newhouse also cited the need for Congress to pass bills reauthorizing the Federal Aviation Administration, modernizing the nation’s electric utility grid, and “a whole host of things in the infrastructure space that we think need additional resources. We’re sitting in the 21st century looking to compete internationally and we’re sitting with infrastructure that sadly is not where it needs to be.”
The havoc left by last October’s super-storm Sandy has made members of Congress – especially those from the Northeast -- take another look at using infrastructure money to help cities and town defend themselves against disaster.
The buzzword of the moment is “resilience.”
The Center for American Progress white paper on Obama’s second-term energy agenda said, “The federal government must help communities protect themselves from the future surge of extreme weather events…. Infrastructure improvements must include ‘hardening’ community shelters, water-treatment facilities, electricity transmission, roads, and other vital infrastructure.”
It added that “Clearly, cities will need assistance with these resilience efforts. The federal government should create a dedicated revenue stream for this essential purpose, which will save $4 in damages for every $1 spent on resilience.”
The group wants Obama to create a bipartisan panel of experts “to identify and recommend a reliable revenue stream for community resilience.” As the report indicates, Obama’s investment agenda for his second term may well become entangled in the debate over his second-term tax agenda and his hunt for new revenues.