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Parting Shots: Candidates must embrace solutions or step aside

Keywords: Tags  Parting Shots, 2012 Republican primary, Thomas Graham


The Republican presidential candidates are being forced by Rick Santorum to discuss techniques to help manufacturing. There is a growing concern that our economy is becoming so dominated by health care and other service industries that our ability to produce something is diminishing, to our long-term disadvantage. Santorum’s suggestion is a preferential 15-percent corporate income tax on manufacturing companies. He has detected an important problem, but has proposed the wrong solution.

Using the tax code to help—or hurt—specific sectors of the economy is the politician’s classic remedy for all problems. It has resulted in a 15,000-page tax code that requires a large Internal Revenue Service to enforce it and has created, on the other side, a large counter-industry of lawyers and accountants to represent the taxpayer. As is now obvious to everyone, manufacturing has withered in recent years—but so has commercial construction, home building, retail banking, air travel, etc. Instead of picking favored sectors to help (wind and solar energy) and other sectors to punish (oil drilling, private equity funds, etc.), elected officials would be better advised to focus on the actions that benefit the economy at large, without reverting to the tax code to do social engineering. The tax code does need simplification and major restructuring: It is a major deterrent to manufacturing in areas where manufacturers are competing internationally.

There are two classes of action that would boost the economy as a whole, not just manufacturing.

The first would be to lift the yoke of excessive regulation that recent congresses have created and rein in the agencies created to enforce these regulations.

The U.S. Environmental Protection Agency has become an outsized arm of the government, with no apparent restraint on its own interpretation of its mandate. The National Labor Relations Board has been packed with pro-union members appointed on an “interim” basis by a President who identifies with union goals. The impending actions of the new agency created by the Dodd-Frank Wall Street Reform and Consumer Protection Act give every indication that they will hamper, rather than help, recovery from the recession. And finally, a specific plan and timetable to unwind Fannie Mae and Freddie Mac should be established forthwith.

The second class of actions required are those that face up to the growing outsize deficit. Economists who argue “not now” are playing into the hands of unscrupulous politicians. We must face up to the deficit, and the entitlement mentality that creates and sustains it.

Candidates for public office who embrace this laundry list are the ones who deserve your support.

Thomas C. Graham is a founding member of T.C. Graham Associates. He is a former chairman and chief executive officer of AK Steel Corp., president and chief executive officer of Armco Steel Co. LP, chairman and chief executive officer of Washington Steel Co., president of the U.S. Steel Group of USX Corp. and president and chief executive officer of Jones & Laughlin Steel Co. His column appears monthly.

He invites readers’ comments and can be contacted at tom.graham@tcgrahamassociates.com.

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In a comparison of earnings before interest, taxes, depreciation and amortization (Ebitda)/sales ratios for selected steel companies, Gerdau SA emerges as the global leaderÑall the more remarkable because it is a construction market-oriented company in the United States, and this market is probably the weakest business sector. As has been the case for several years, international iron ore suppliers lead in profitability.

BHP and Rio Tinto report results on a half-year basis vs. quarterly. Severstal reports its results for the quarter ended Dec. 31, 2011, post-publication deadlines.

 





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