“You can catch more flies with honey than vinegar” is a truism, and a variation on the carrot-and-stick bit of wisdom we’ve all heard over the years. It also happens to be true: Rewards are more effective than threats, and rewards also have the virtue of giving the participant freedom and choice. It’s always better for someone to choose to do what you want them to do, rather than being forced to do so.
In policy and law, this is doubly true. In the American free market system, we can force people to do things, or we can offer them incentives. Lovers of liberty should always be uncomfortable with the use of government force. If through our political process we decide we want to encourage certain behaviors, it makes much more sense to offer incentives rather than mandates.
A consensus seems to be forming that it would be better for critical medical manufacturing to be based here in the United States, as opposed to overseas, and especially as opposed to being located in countries with potentially hostile regimes, such as China.
I’m a free-trader and a believer in comparative advantage. I don’t think we should fall under the delusion that we should or even can “make everything we need right here.” Adam Smith proved the foolhardiness of such sentiments in 1776, and global wealth has increased dramatically since as nations have more or less adopted trade liberalization.
But that’s not to say that we shouldn’t use access to U.S. markets as an incentive toward good behavior, and national security demands that we not be dependent upon a potential enemy state for anything deemed critical to health, safety or security.
President Donald Trump has a habit of thinking that the presidency has more power than it actually does, and often talks as if he can force businesses to do what he wants them to do. But most of the time there is no actual legal authority for the executive branch to deliver on such demands, unless Congress has unwisely delegated such powers to the executive branch. In our constitutional system, almost all policymaking rightfully occurs within the legislative branch, which more closely approximates the considered will of the governed.
That’s why proponents of bringing critical American manufacturing home should be cheered that U.S. Rep. Chip Roy, a Republican from Hays County, has introduced creative legislation designed to encourage medical and pharmaceutical manufacturing to relocate to the U.S. by providing potent tax incentives instead of threats of government force. Roy’s “BEAT CHINA Act” (H.R. 6690) would allow companies to fully expense their relocation of plant and equipment in the first year, instead of having to depreciate such investments over a 39-year timeframe. As research by my organization, the Institute for Policy Innovation, has demonstrated, such long depreciation requirements raise the long-term cost of capital and are a disincentive to investment.
Most tax reformers would like all business investment to be deductible in the year it is made. The 2017 tax reform included a welcome but limited expensing provision, but there’s still a long way to go toward full expensing. Roy’s bill would at least extend this ideal tax policy to the relocation of medical and pharmaceutical manufacturing, which continues tax reform in the right direction while also encouraging the reshoring of medical and pharmaceutical manufacturing.
Roy’s BEAT CHINA Act is thus a “two-fer” — a major move toward a more pro-growth tax code and a carrot rather than a stick approach toward bringing critical manufacturing home. It’s a great policy move and I hope it gains support.