US Debt Reduction Sequester Tax Solution #14: Improve Effectiveness of Domestic Production Activities Tax Deduction

Presently, US manufacturing companies get a US Federal Income Tax Deduction equal to 9% of their Qualified Production Activities Income (QPAI).  Oil-related companies get such Income Tax Deduction of a lower 6% of their QPAI.

And in President Obama’s Framework for Business Tax Reform, this percentage increases from 9% to 10.7%, and even to a much higher percentage for Advanced Manufacturing.

To improve the effectiveness and cost efficiency of the Domestic Production Activities Tax Deduction, I make the following recommendations.

First, there needs to be a proper focus on rewarding manufacturing companies that have a higher Labor Cost mix of their Total Manufacturing Costs.

Thus, I recommend that the percentage tax deduction should be higher, the higher the Manufacturing Labor and Employee Benefit Cost mix is of the Total Manufacturing Costs (i.e. Manufacturing Labor and related Employee Benefit Costs, Manufacturing Material Costs, and Manufacturing Overhead Costs).

Thus, this percentage should be a much wider range, varying depending on this Manufacturing Labor percentage mix.

Perhaps some scheme like the following Domestic Production Activities Tax Deduction Percentages, based on Total Labor and Related Employee Benefit Costs as a Percentage of Total Manufacturing Costs, would make sense.

	Percentage	Percentage
	US Federal	US Federal
Total	Income	Income
Labor and	Tax Deduction	Tax Deduction
Related	as a % of	as a % of
Employee	Qualified	Qualified
Benefit Costs	Production	Production
as a % of	Activities	Activities
Total	Income:	Income:
Manufacturing	Regular	Advanced
Costs	Manufacturing	Manufacturing
< 10%	0.0%	0.0%
10%-15%	1.2%	1.5%
15%-20%	2.4%	3.0%
20%-25%	3.6%	4.5%
25%-30%	4.8%	6.0%
30%-35%	6.0%	7.5%
35%-40%	7.2%	9.0%
40%-45%	8.4%	10.5%
45%-50%	9.6%	12.0%
> 50%	10.8%	13.5%

What this above scheme accomplishes is to substantially reward with tax benefits the highly labor intensive manufacturing companies.  And it also substantially reduces the tax benefit for much less labor intensive manufacturing companies.

This is what I call fairly sharing the economic tax benefits between the manufacturing companies and the middle class workers.

And second, Oil and Gas Companies should be excluded from being eligible for this huge tax deduction.

When I run the rough numbers, there is a very significant overall reduction in the Total US Government Tax Benefits given to US companies related to this recommendation, and thus also a very significant reduction in the US Debt.

But yet this recommendation is much more effective from an economic fairness standpoint because its gives more tax benefits to the manufacturing companies that fairly share their economic benefits with their manufacturing employees.

This is another case of how you can change US Tax Policy, which both reduces the US Debt significantly and also increases high-paying, full-time US jobs.  And this proposal also creates a very lucrative incentive for US multinational manufacturers to move higher-paying labor intensive manufacturing activities, and especially advanced manufacturing activities, back to the US.