Three new reports from industry trade groups and the government reaffirm the importance of manufacturing to the U.S. economy and highlight policy and investment actions to tackle rising challenges.

Recent reports make the case that manufacturing can lead the United States into a renewed era of growth through changes to economic and tax policies as well as investment.

This week, the Milken Institute released Jobs for America: Investments and Policies for Economic Growth and Competitiveness, which analyzes job creation possibilities through policy and investment actions.

Specifically, the strategies include: reducing corporate tax rates, increasing and making permanent the research and development (R&D) tax credit; and modernizing export controls on certain products.

“With unemployment at 10 percent, the question on the minds of all policymakers is how to create jobs,” Ross DeVol, executive director of economic research at the Milken Institute and lead author of the study, said in a statement.

Another new report, from the National Association of Manufacturers (NAM) and the Council of Manufacturing Associations (CMA), reaffirms the importance of manufacturing to the U.S. economy and the job market, but points out some mounting challenges for the future success of the industry.

“America’s capacity to generate wealth and long-term economic growth and jobs depends on the enactment of federal policies that encourage manufacturing innovation, productivity and competitiveness,” NAM President John Engler said in an announcement of the report.

Released last week, NAM and CMA’s Manufacturing Resurgence – A Must for U.S. Prosperity recommends numerous strategies to create manufacturing jobs and stimulate manufacturing innovation and productivity, including:

• Reduce the corporate income tax rate to match those of major trading partners.
• Make the R&D tax credit permanent;
• Make policy decisions now to guide private-sector R&D investment toward clean-energy technologies;
• Improve the U.S. education system, especially science, technology, engineering and math fields;
• Support small business viability by widening the lowest corporate income tax bracket; and
• Invest in all levels of infrastructure.

Study co-author Joel Popkin cited the erosion of U.S. leadership in R&D in particular as a major challenge facing domestic manufacturers.

“The U.S. is still the leader in the absolute number of dollars spent. Its strong R&D position, however, is being eroded by the impact of the economic downturn and the rapidly expanding R&D programs in other countries,” Popkin said. “When the data is available, we expect to see the U.S. share of world R&D fell in 2009.”

Basic research is fundamental to any nation’s economic growth, but this imperative is easier to act on in good economic times than in difficult ones.

According to a third recent report, from the Obama administration, manufacturing is responsible for 70 percent of all research and development spending in U.S. industry, yet the U.S. devotes less than 3 percent of gross domestic product (GDP) to R&D, “a ration that is exceeded by a number of countries, including Japan, Sweden, Switzerland, South Korea, Iceland and Israel.”

The government’s American Recovery & Reinvestment Act included the largest increase in R&D funding in the nation’s history, a total of more than $18 billion. “The impact of U.S. stimulus funding on total R&D in 2009 and 2010 cannot be underestimated; without it, total U.S. R&D would have dropped below 2008 levels,” according to Battelle and R&D Magazine.

The Battelle/R&D 2010 Global R&D Funding Forecast, released last month, projects that U.S. R&D spending will increase by 3.3 percent in 2010, rising to $401.9 billion.

While most agree that sustained R&D investment is crucial to economic growth, the R&D tax credit — which historically provided more security for private-sector decisions to undertake R&D and, as a result, helped spur innovation and economic growth — was allowed to expire on Dec. 31, 2009.

“For businesses, the lapsing of the R&D credit — a $7 billion a year break — is a particular problem, since companies must plan for long-term research commitments amid uncertainty,” Forbes reports. “Since its enactment in 1981, the credit has been extended 13 times; in the mid-1990s there was a one-year gap when it wasn’t extended retroactively.”

With a permanent extension of the credit, companies could count on the credit throughout the term of their multi-year R&D projects, the R&D Credit Coalition says. “Uncertainty regarding the availability of the credit automatically results in companies discounting its value.”

Moreover, establishing a permanent R&D tax credit and increasing it by 25 percent could boost real GDP by more than $206 billion (1.2 percent) and generate 316,000 manufacturing jobs by 2019, according to the NAM/Milken Institute study.

“To remain strong players in a competitive world, U.S. manufacturers need government policies that encourage continued innovation and productivity gains,” according to William E. Gaskin, president of the Precision Metalforming Association and former CMA chair. “In particular, we need policies that encourage public and private investments to enhance productivity, such as those in R&D, capital goods, worker training and early education that nurtures math and science proficiency.”

Resources

Jobs for America: Investments and Policies for Economic Growth and Competitiveness
by Ross DeVol, Perry Wong, Armen Bedroussian, Anita Charuworn, Anusuya Chatterjee, Candice Flor Hynek, Kevin Klowden and Benjamin Yeo
The Milken Institute, Jan. 26, 2010

Millions of Jobs Could Be Created with Policy Changes and with New Infrastructure Investment…
The Milken Institute, Jan. 26, 2010

Manufacturing is Essential for Economic Growth and Prosperity but Faces Big Challenges…
The National Association of Manufacturers and the Council of Manufacturing Associations, Jan. 21, 2010

Manufacturing Resurgence – A Must for U.S. Prosperity
by Joel Popkin and Kathryn Kobe
The National Association of Manufacturers and the Council of Manufacturing Associations, Jan. 21, 2010

A Framework for Revitalizing American Manufacturing
U.S. National Economic Council, Dec. 16, 2009

Stimulus Funding Leads to U.S. Rebound in 2010…
Battelle and R&D Magazine, Dec. 22, 2009

2010 Global R&D Funding Forecast
by Martin Grueber and Tim Studt
Battelle and R&D Magazine, Dec. 22, 2009

Congress Lets 50 Tax Breaks Expire
by Ashlea Ebeling
Forbes, Dec. 22, 2009

The Research & Development Credit – Creating Jobs, Growing America’s Economy
R&D Credit Coalition, Jan. 20, 2010