KAM Op-Ed Commentary Educates Kentuckians on Unique Impact of Taxes, Fees on Manufacturers

           Just as the 2008 General Assembly session has come to a close, KAM is releasing the commentary below by CEO Jim LeMaster to the statewide media to make sure our citizens and leaders understand how local and state tax policy has a unique impact on Kentucky manufacturers.  KAM’s strong government relations team worked with other business lobbies this session to defeat new tax proposals that would have negatively impacted KAM members.  Here’s Jim LeMaster’s Commentary:   

No New Taxes or Fees Help Kentucky Manufacturers Compete in Global Economy

By Jim LeMaster, President and CEO
Kentucky Association of Manufacturers

             In his book, The World Is Flat, A Brief History of the Twenty-First Century, author Thomas Friedman does a fabulous job explaining how the global economy works. This makes it a good read for all Kentuckians, who, like it or not, are being impacted daily by what goes on outside the governments, farms, schools, universities, towns and cities of our great state.    

            Friedman’s book describes a "flattening" of the globe, which requires us to run faster (improve productivity) in order to stay in place, and asks, “Has the world gotten too small and too fast for human beings and their political systems to adjust in a stable manner?” 

            A manufacturer in Central Kentucky (not Toyota), recently told of his out-of-state parent company imposing cash flow standards on his factory for 2009-2011 that are based on what it costs to make the same product in lower-wage nations abroad.  “As of today I don’t know how we’re going to do it,” he said.  “But we somehow have to figure out how to lower costs and squeeze out more productivity.”  He’s looking at everything from the cost of uniforms and coffee to reconfiguring production processes.    

            The issue is really simple:  Any broad-based legislation or regulations that are imposed on all Kentucky businesses could have a disproportionately devastating impact on the $27 billion manufacturing industry and its 260,000 Kentucky workers who make an average of $45K per year.   

            Unlike virtually all other businesses whose competitors are in the same town or region, Kentucky manufacturing competitors are increasingly found in places like China, India or Mexico.   

            So you want to impose a tax on services, “equally” affecting all Kentucky businesses so no one has a competitive disadvantage?  Sounds fair, right?  While that may be true for restaurants, grocery stores, hairdressers, repair shops and department stores, it couldn’t be further from the truth for Kentucky manufacturers. 

            The fact is that anything our state or local governments do that drive up costs for Kentucky manufacturers pushes them closer to shutting down and moving offshore to the land of $4-per-day wages and few hassles.  New taxes, license fees, health care mandates, tort bills and over-regulation simply widen the gap between what it costs to make things in Kentucky vs. making them in China. 

            Until now, the sheer beauty of our state, small-town values and readily available workforce have attracted and retained businesses.  But over the past six years, manufacturing in low-wage nations has emerged as a major threat to Kentucky’s largest industry and our future prosperity.  

            Manufacturers in Kentucky operate under much different rules than their counterparts overseas.  Kentucky manufacturers must comply with strict environmental and safety regulations, pay high taxes, and provide worker’s comp insurance, good wages and health care benefits to employees.  

            Manufacturers in many emerging nations have few regulations, pay little or no taxes, pay very low wages and provide few if any employee benefits.  We can complain about how “unfair” that is, but it’s just a reality of the global marketplace. 

            In his book, Friedman explains how the flattening of the world happened at the dawn of the twenty-first century; what it means to countries, companies, communities, and individuals; and how governments and societies can, and must, adapt. 

            The bottom line question is, “Is Kentucky adapting?”  With recession at our doorstep and manufacturers fighting to stay alive, it’s not the time to be thinking about new taxes, fees or anything else that makes it harder to do business in Kentucky.  

            Thankfully, the Kentucky General Assembly wisely reconsidered imposing sales taxes on some service sector businesses after KAM and other business groups pointed out the downside risks.  

            KAM urges all of our elected officials, both state and local, to think twice when considering any new sources of revenue that directly hurt manufacturing.  Because the “flattening of the world” economy just might flatten Kentucky’s future prosperity.            

Editor’s Note: Legislative Update is an E-Newsletter for members and
stakeholders in the Kentucky Association of Manufacturers (KAM). It is
published periodically to communicate important information about how KAM is looking out for your interests in the Kentucky General Assembly, U.S. Congress, local governments, or through other groups and/or associations. Through KAM, you have the largest and most experienced team of lobbyists in Kentucky, led by Hank List, vice president of government affairs. If you do not want to receive KAM Legislative Update, please let us know by return e-mail.

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Kentucky Association of Manufacturers
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