For over three years, Texas has seen a surge in manufacturing productivity. For Pennsylvania, it has been more of the same.
Since President Trump’s election in 2016 a trend has emerged: large manufacturing increases for reliable red states, and mostly stagnation for blue and swing states.
From December 2016, until December 2019, 8 of the top 10 states for manufacturing job growth voted for Trump, according to data from The U.S Bureau of Labor Statistics. Among the bottom 10 states, only four did, including Pennsylvania, which had gone Democrat in the previous six presidential elections before barely turning red in 2016.
Despite narrowly winning the state on promises of bringing back shuttered factories, Pennsylvania’s manufacturing job growth is only 1.4 percent-41st in the nation-since Trump’s election. Other rust belt, formerly “blue wall” states Michigan and Wisconsin have seen little to no growth as well.
It has been a very different story in Texas. The state’s seasonally adjusted manufacturing jobs increased 9.1 percent over the same span, fourth best in the nation.
Venicia Queen, a quality manager at product testing company Vandergriff Technologies has noticed an uptick in the variety of products her company has tested over the last 3 and a half years.
“In the Dallas-Fort Worth Area we are heavy in aerospace, but now we are seeing more diversity of products. Not only aerospace but transportation, rail and defense…it has become more varied since Trump,” says Queen.
While red state manufacturing growth generally accelerated as soon as Trump was elected, the gulf between slow and fast growing manufacturing states widened further after December 2017, with the passage of the Tax Cuts and Jobs Act. One of the bills key provisions was a $10000 cap on the State And Local Tax Deduction (SALT), which allows filers to deduct a portion of their various state and local taxes from their federal taxes.
For 2017, prior to the passage of the bill and its SALT cap, 7 of the 10 slowest growing manufacturing states, as of December 2019, had an average deduction of over $10000 while 9 of the 10 fastest growing had an average of under that amount. In effect, the bill increased the tax burden for high tax, mostly blue and swing states, giving a leg up to states with an already low tax burden.
“Capital is very slippery, it basically flows where it’s going to make more money,” says Chuck Devore, vice president for national initiatives at the Texas Public Policy Institute.
Any tax advantage is especially important to manufacturing, where the vast majority of firms are small businesses, often sole proprietorships that file as individuals. An even small change in tax burden can have a ripple effect on investment in plant, machinery and workforce.
“If you were a manufacturer with the exact same numbers in New York, all the same numbers except for your state and local taxes which would be really high, and then you have the other manufacturer with the same exact income profile but was in Texas, the challenge for the New Yorker is that for every dollar above that 1000 dollar figure, he is going to lose roughly 35 percent more in federal taxes,” says Devore.
“The tax changes were very warmly received by our members,” adds Tony Bennett, president of the Texas Association of Manufacturers.
Other federal initiatives have likely contributed to red state manufacturing growth as well. The Trump administration has slashed regulations, further bolstering states with less of a regulatory hurdle. Even the promise of lifting regulations may have led to a surge of optimism leading to more investment.
“Because he was elected promising regulatory reform, and because the executive can control that more than tax rates, you saw this growth in anticipation of things getting better as soon as the guy was elected,” says Devore.
Still, the economic fallout from the COVID-19 pandemic threatens to wipe out all the manufacturing gains in states like Texas. Unemployment may reach higher than 30 percent, as global demand for expensive manufactured goods plummets.
Despite nationwide work closures and many clients severely hit by the pandemic including Boeing, Vandergriff Technologies has yet to see a major drop off in their contracts.
“When we receive the product it is already made, so all we have to do is test it. the consumables we use are very small and already made, so we haven’t had many problems because of the Coronavirus yet,” says Queen.
Tony Bennett still feels that “the number one exporting state in the US” can recover and maintain its advantage.
“The sentiment is optimistic…up until 30 days ago things were rocking and rolling,” he says.