Blumenthal Backs Tax-Saving Investment Accounts for Manufacturers

Senator says manufacturers could save pre-tax money and spend it on their businesses later at a lower tax rate, like a retirement account.

Allowing companies to channel profits back into their business through Manufacturers’ Reinvestment Accounts (MRAs) could help revive the nation’s manufacturing industry, according to U.S. Sen. Richard Blumenthal.

Blumenthal (D-CT) visited Air Handling Systems, a small manufacturing company in Woodbridge, Thursday to help develop a strategy for passing legislation for allowing the MRAs.

He and Air Handling Systems President Jamison Scott said MRAs are similar to IRAs, Individual Retirement Accounts, which allow people to save pre-tax income to create a retirement nest egg.

But instead of retirement, the MRAs provide businesses a special tax benefit that, according to Scott, would help small businesses compete with foreign competitors.

Manufacturers could save the money for up to seven years, then pay only 15 percent in taxes when they withdraw it to hire or train new employees, buy new machinery or expand their manufacturing operations.

"They pay half the tax they would otherwise," Blumenthal said.

"This is what 'Main Street' needs," said Scott.

So far, he said, much of the economic help from the federal government has benefited Wall Street and big corporations, but MRAs would benefit small manufacturers like his company.

Scott, who is a past president and board of directors member of the New Haven Manufacturer’s Association, said he first heard of MRAs from Hugh McCann, a Bridgeport businessman.

He helped McCann get U.S. Rep. Rosa DeLauro (D-CT) interested in the idea. She introduced a bill in the U.S. House of Representatives last summer but was unable to get it to the floor for a vote.

Blumenthal said he would introduce the bill in the Senate later this month and is optimistic about its prospects. He said passing the bill in the Senate would improve the prospects for passing DeLauro’s bill, even though Republicans control the House.

Blumenthal said it is really not a partisan issue and has much appeal to congressmen and senators from both side of the aisle. It doesn’t involve new spending, only tax cuts, he said.

He also hopes to get the support of national manufacturing associations, which would also help overcome any partisan inertia.

Scott and his father, David E. Scott, the company president, gave Blumenthal a tour of their operation. Air Handling Systems makes ductwork and noise mufflers for controlling dust and fumes in industrial facilities.

They said they previously got much of their business from companies that make wood shelves, cabinets and furniture. Lately they have sold their systems to the U.S. military, including the Navy submarine base in Groton, CT, and Army bases in Iraq and Afghanistan.

The family started the business in 1950 in Stratford, moved it for a time to Bridgeport, and relocated it 21 years ago to Woodbridge. Most of its employees have been with the company for decades.

Scott told Blumenthal that the recession that started in 2007 hit the company hard.

"We cut expenses. We cut everything we could," he said.

Unfortunately, he added, they ended up having to layoff employees.

But Air Handling Systems has recently found customers in South America and Asia. As it expanded its sales into foreign trade, Scott told the senator the company has encountered problems it never had to deal with before, such as China’s currency manipulation that artificially keeps Chinese goods less expensive than American goods.

That is why his company and other small manufacturers need the tax break they would get from the MRAs.

"They need that competitive advantage that other countries give their companies," Blumenthal said.

Robert Chambers June 03, 2011 at 12:37 PM
Blumenthal, doesn't get it. Companies and individuals don't need tax breaks, they need the state to keep its fiscal house in order and keep it there. Don't spend more than you bring in for taxes and don't raise taxes to pay for out of control spending. That's why companies are pulling up their roots and going to more friendly states. Pretty soon all that's going to be left here are state workers, government and their entourage and a few wealthy fortune 500 types in lower Fairfield county to pay for it. How long do you think they will stick around when they are the only ones paying the bills?
Rusty Nail2 June 03, 2011 at 12:50 PM
Most small manufacturing entities are S Corporations and thus have to pay taxes on profits at the individual rates. This is wrong as most small business owners do not remove the profits from the company but invest them back into the business. So, this bill has some merit but saving money for seven years to get the benefit is way to long. If a company puts the money in the account and wants to invest it the following year then they should get the tax benefit on the withdrawal. How is waiting for seven years to get the benefit going to generate any jobs right away? It should also not be for only capital investment but any investment that could drive business such as marketing programs or changes in distribution. Also, the tax rate should be zero not 15% if run through this account. The fact that we have to even do this tells you our entire tax code is destroying the business climate. The state tax code is no better.


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