Helping Manufacturers Save For the Future
As manufacturing continues its rebound in this country, there’s a lot of discussion about the best ways for government to encourage the trend. One group of manufacturers in Connecticut think they’ve found the perfect policy tool, and they’re pioneering it here in Connecticut.
Hugh McCann practically glowed with pride as he show off the main Bridgeport facility of his company Identification Products. “We make custom labels, name plates, decals, graphic overlays, control panels – things that go onto or into other products that are manufactured around the world,” he said.
McCann's business is innovative and successful, but like many other business owners, he’s bothered by one of the consequences of that success. “Right now, when we make a profit at the end of the year, there’s a tax event," he said. "The taxes on my profits are 46 percent.” He has a different idea about what he could do with that money instead of seeing such a big chunk go to the government. “We’d like to be able to husband, or put away, those excess profits into a qualified plan, into a local community bank, to be earmarked and invested back,” he said.
In other words, McCann would like a tax-advantaged account where he could save the money he earns for future use in his business. If that sounds familiar, you’re right: the concept is pretty similar to the personal accounts many of us use for retirement. “It’s like an IRA," he said. "You put money away for future investment in yourself, in the case of an IRA, or into your factory and your people, in the case of an MRA.”
The MRA, or Manufacturing Reinvestment Account, is actually now a reality, at least in Connecticut. The state version allows qualified companies to put away savings without paying state income tax.
There are strict rules about how the money can then be used. “For capital, for plant expansion or for job training,” said Jamison Scott, the owner of Air Handling Systems in Woodbridge.
McCann has pioneered the setting up of the MRA in Connecticut. The legislation creating the original MRA program was passed by the legislature in 2010, but it was small in scope and the idea didn’t catch on. “When it was initially introduced it was only a 50 percent reduction on the state income tax, and at that point it really was not worth it, and that was the bottom line.”
In fact, no companies signed up. Scott has worked in the years since to get the program revised and this session he succeeded. Now the state MRA allows companies to exempt their savings from state income tax altogether. They can save up to $100,000 a year for five years — any company that maxed out its MRA would see a tax saving of more than $30,000. It also allows companies with up to 150 employees to sign up.
Scott said the timing for this revision couldn’t be better. "Manufacturing is rebounding, regrowing and there is a manufacturing renaissance," he said. "There’s a lot of manufacturing activity going on nationwide, and I think we are certainly leading that effort here in the state of Connecticut."
Its proponents see this state as just the trial balloon for an idea that they believe has national potential. The state of Pennsylvania is already working towards its own version of the MRA, and members of the Connecticut delegation have introduced federal legislation.
McCann believes that’s where the real multiplier effect will happen. "This is how you grow jobs," he said, "through business people having a great reason to invest back into their community with money that they earn. ...If you do it with the big boys, there’s trillions of dollars that could potentially be brought back into the United States of America, and we could take off like crazy."
While the push for a national bill has been slow going so far, Connecticut manufacturers hope the a growing appetite at the nation's capital for tax reform and for promotion of manufacturing, will mean their time has come.