An innovative policy to stimulate investment in manufacturing now awaits action in the Pennsylvania House. State Rep. Tommy Sankey (R-Clearfield) recently introduced HB 869, which allows smaller manufacturers to set aside pre-tax money to cover future costs much the same way an individual would set up an IRA or a health savings account. The plan is modeled on an existing program in Connecticut.
"Small business employs 570,000 Pennsylvanians, accounts for more than 12 percent of our Gross State Product, and is a catalyst for many other related businesses that rely on it," Sankey said. "This legislation allows them to make investments that will promote job growth and expansion from both the logistical and manpower standpoints."
The Manufacturing Innovation Account Program was the brainchild of Hugh McCann Jr., President of Identification Products Corp., a business label manufacturer in Bridgeport, Connecticut.
Working with the New Haven Manufacturers’ Association, McCann pushed the legislation through the Connecticut General Assembly in 2010. (There, it’s called the Manufacturing Reinvestment Account (MRA) Program.) The pioneering law got the attention of Governor Corbett’s Manufacturing Advisory Council (GMAC), which adopted it under 14 recommendations unveiled last August to make Pennsylvania more receptive to the growth of manufacturing.
"One-by-one the GMAC recommendations are falling into place and making a positive difference for manufacturers," said David N. Taylor, Executive Director of the Pennsylvania Manufacturers’ Association and a member of the Council. "The Sankey bill is another important step to empower Pennsylvania’s manufacturers to reinvest in their businesses, upgrade their infrastructure, and expand production capacity."
Here’s how it works: Businesses that apply for the program through the Department of Community and Economic Development must have fewer than 50 employees. Accepted applicants would be permitted to contribute no more than $100,000 to its account in a tax year and no more than $500,000 over the lifetime of the account. The money could be used for plant expansion, new equipment, or employee training. Accounts would expire after six years in existence, and the participating business would be penalized 10 percent if the account is used for an ineligible expense. The tax free status holds no matter how the business is organized under the Pennsylvania tax codes.
"I applaud Representative Sankey for introducing this legislation which will give small manufacturers an incentive to expand and hire," said Kevin Shivers, State Director of National Federation of Small Business/Pennsylvania. "Tommy has run a small business and knows what it takes to spur investment by a business owner and how the Commonwealth will ultimately profit."
Similar legislation is being considered at the federal level. Connecticut Democrats Richard Blumenthal in the Senate and Rosa L. DeLauro in the House are circulating ‘Dear Colleague’ letters asking for co-sponsors. The federal legislation would allow manufacturers with 500 or fewer employees to save up to $500,000 a year in an MRA over a seven-year period. The nominal tax rate would be about 15 percent, a tax reduction of more than half over the current rate.