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Does Santorum Have a Factory Fetish?

CNBC.com

Rick Santorum’s tax-cutting plans are catching heat from unexpected quarters — namely, the Republican Right.

What has the Right up in arms about Santorum’s tax proposals is he would reduce the corporate tax on manufacturing companies all the way to zero, while only cutting the tax on other corporations in half.

The other day I pointed out the Wall Street Journal doesn’t like the pro-manufacturing aspect of the plan one bit. CNBC’s own Larry Kudlow described the manufacturing tax benefit as “terrible.” (Click here to see his debate with my brother Tim Carney.)

Now we have Kevin Hassett of the American Enterprise Institute taking to the pixels of National Review Online to blast Santorum’s plan:

This plan caters to the fetishistic political focus on giveaways to manufacturing. An optimal code would reward job-creating businesses regardless of their industry. The radical differences between taxes for manufacturing and other activities would introduce perhaps the biggest and most damaging tax distortion in American history. It would also invite endless fraud. As I type this piece, I am manufacturing sentences, am I not? Shouldn’t my income be taxed as manufacturing?

I understand Hassett’s fear of government showing favoritism to one sector over the other. But I’m not sure he understands the full picture here. A number of government regulations are actually favoring almost every other kind of business sector over manufacturing.

Immigration Law: Retail and human services — especially those that demand high quality professionals meeting face to face with customers — do not face the same kind of competition from foreign imports that manufacturing does. Our open borders for goods, closed borders for professionals policy means that manufacturing companies face competition others don't.

Zoning Law: Our zoning regulations limit the places manufacturers can operate, driving up their costs. Most other sectors are welcome inside of cities, free to operate near where their employees live and work.

Labor Law: This is almost self-evident. Manufacturing has a long history of disputes with labor unions. Laws that strengthen the unions have weakened manufacturers.

ERISA: Many manufacturing companies face huge pension liabilities. Should they die simply because we enacted ex-post facto rules that made many of these unaffordable?

Environmental Laws: The burden of these falls disproportionately on manufacturing.

Workplace Safety Laws: Again, the burden falls disproportionately on manufacturing.

This list could go on and on.

The fact is that one hundred or so years of growth of the regulatory state has already introduced the biggest and most damaging economic distortion in American history.

Maybe leveling the playing field a bit by giving the manufacturers a tax break isn’t such a terrible idea.

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