Obama's Traveling Tax-Break Show: The Ticker

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By Caroline Baum

I've been listening to President Barack Obama's stump speech for a few weeks now. You know, the one where the president, having been fully briefed on Company Fill-in-the-Blank's business, lands at its Midwest plant and gets the crowd oohing and ahhing with promises of special tax breaks for domestic manufacturers.

Yesterday it was Master Lock Co. in Milwaukee. Obama told the crowd he knows the company well. In fact, he was a good customer back in high school, forgetting his combination so often he routinely had to have his lock sawed off, then buy a new one. But his main purpose was to reassure his audience with his version of what Ronald Reagan called the nine most terrifying words in the English language: "I'm from the government, and I'm here to help."

Help in this case means using the tax code to reward certain behavior, such as producing things in the U.S., and to punish other types of behavior. Obama wants to eliminate the tax deduction companies get to outsource jobs. (It would have been more accurate to explain that companies can deduct the costs incurred in the course of doing business. Closing a U.S. plant is no exception. They don't get a credit deduction for outsourcing per se.)

Obama wants to give domestic manufacturers "a bigger tax break," he said yesterday. Bigger than what? The misrepresented break for outsourcing? And high-tech manufacturers should get double the tax cut for producing new products here.

Of course, the "insourcing" trend, as he calls it, is already underway without these incentives, as China loses its cost advantage because of rising wages and the U.S. becomes increasingly efficient. U.S. manufacturing is humming. My advice to Obama would be the same as what he gave Congress following the upbeat January employment report: Don't muck it up. Creating new tax loopholes to close existing ones is the least best option. Best would be removing all loopholes and giving all companies an equal advantage. In other words, creating a level playing field.

Yes, other countries, such as China, have "industrial policies," with government subsidizing favored industries. History isn't on their side. In the 1980s, Japan was a manufacturing and exporting powerhouse, the envy of the world. Three decades later, where's the evidence of success?

(Caroline Baum is a Bloomberg View columnist. Follow her on Twitter.)

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-0- Feb/16/2012 17:23 GMT