Improving Manufacturing Economic Conditions in the United States

 

Manufacturers cannot cover the spiraling healthcare benefit costs!


There are many causes of the U.S. Manufacturing Industry has shrunk to its lowest percentage revenue level. Still, the leading cause is the healthcare industry's growth and how the U.S. pays for it, and the manufacturers cannot cover the spiraling healthcare benefit costs.

The U.S. manufacturing industry is at its lowest in modern history, now at 11% of GDP. As such, there is no comparison between these two industries, but on the basis of the healthcare cost and taxes, there is a difference between the two industries in terms of changing GDP and revenue level as well.

USA healthcare sector is in many ways the most substantial part of the United States economy. It is a fundamental part of people's lives, supporting their health and well-being. Moreover, it matters because of its economic size and budgetary implications. The healthcare sector now employs 11 percent of American workers (Bureau of Labor Statistics [BLS] 1980–2019b and authors' calculations) and accounts for 24 percent of government spending (Centers for Medicare & Medicaid Services [CMS] 1987–2018; Bureau of Economic Analysis 1987–2018; authors' calculations).[1] Health insurance is the most significant component (26 percent) of nonwage compensation (BLS 2019b), and health care is one of the largest categories of consumer spending (8.1 percent of consumer expenditures; BLS 2019a). The United States has a healthcare system that primarily consists of private providers and private insurance, but as health care has become a larger part of the economy, a higher share of healthcare funding. As of 2018, 34 percent of Americans received their health care via government insurance or direct public provision

A simple comparison of the percentage change in the healthcare industry's GDP versus the manufacturing industry shows a direct correlation between the growth of one and the shrinkage of the other, percentage point for a percentage point. No other industry sector,except the manufacturing industry, has seen such a decline during this time. The U.S. is the only industrial country where the employer directly pays a substantial share of employees' health care benefits. In other nations, citizens themselves and businesses foot the bill through income taxes.

U.S. payment of health care costs by employers causes the loss of U.S. manufacturing companies and manufacturing jobs. Health care costs, both primary and secondary, are passed during each step to the next contributor in the manufacturing process; think of it as value-added tax, moving the health care benefit costs to the next purchaser of services or goods. But each time the cost is passed on to another manufacturer in the supply chain, there is an additional markup for profit; therefore, the $3.6 trillion for healthcare is included in manufacturing costs. No other industry has as many links in the supply chain for cost markups or has international competition.

A manufactured good is made through several steps to get to the finished product, with each step adding the subsequent employee healthcare benefits cost to the finished product. These costs are referred to as indirect healthcare costs.

The providers and insurance companies violated the tax laws, antitrust laws, federal and state kickback laws and destroyed the nations' manufacturing industry. Price discrimination concept also prevails in it in terms of the different amount collected from private-pay patients, insured v. uninsured, different amounts collected from different insurance companies, the kickback amounts are separately negotiated; their different amount collected, within same insurance contract, for different services, this is what is known as cost-shifting, many times the charges reflect the demographics of the insured members not the average cost to price ratios of each service, this is especially true when increasing the charges for the elderly where the government picks up the charges.
The amounts collected from different insurance companies are different due to the amounts of the kickbacks paid. This is done to get the insurance companies insured members and have the insured members boycott the competitive providers. This is why the kickbacks are called trade secrets and hidden from competitors. The competitors often are lower in price, but with the providers' kickbacks, the insurance company gets a better financial deal. The charges do not reflect the actual price, except for the uninsured, but the charges are used to reflect the insurance companies' premiums to their customers, the employers.

The decline of the manufacturing sector in the U.S. economy is even more evident looking back further in time. In 1998, there were 18.1 million manufacturing jobs, 11% of total jobs, and 5.6 million more than in 2018. Also, while total GDP increased 47% from 1998 to 2018, the manufacturing sector increased just 5%.

All of these factorshas shrunk the USA Manufacturing industry to its lowest percentage revenue level.


Ways to fix the U.S. Manufacturing Industry in terms of percentage revenue level:

Each group must sell its products above its break-even point of costs to stay in business and then add amounts to cover its profits and taxes. By eliminating the direct and indirect employer's benefit costs, the final finished good's break-even point is much lower and can be competitively priced.

 

Manufacturing Sales Price

Profits

Income Taxes Percentage

 

Break Even Point

 

Costs

EmployeeHealthcare Benefits

 

Indirect Healthcare Costs

Wages

Manufacturing Material Costs

FICA Taxes

Fixed Capital Costs

 

 

 

 

 

 



Competitive Pricing

Manufacturing Sales Price

 


Profits


Income Taxes Percentage


Now Includes FICA Taxes

 

 

Break Even Point

Lower



Costs

Wages 

Manufacturing Material Costs

Fixed Capital Costs




 

NoFICATaxes

No Healthcare Costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 











Discussion of how new tax proposal affects the break-even point of an individual in terms of competitive pricing and FICA taxes.

All international manufacturing competitors have eliminated employer-paid health care costs. For the United States to compete, we must eradicate employer-paid health care insurance costs.

 

When these recommendations for a single-payer system and revised tax system are implemented there will be many changes taking place, some good and some bad. On the good side, everyone will be covered for health care, people with pre-existing conditions will be covered and people will have their choice of healthcare provider. Employees with existing illnesses or disabling skills will be able to get jobs and hold on to them with their skills to produce. Themoney allocated to the employees for health care will be paid to them in the form of higher wages, about $10 thousand per employee, plus FICA taxes. The salary increase will be the biggest recorded in our nation's history while creating a huge consumer group flush with money. The half-million personal bankruptcies due to health care costs will be eliminated. The 25 percent of administrative health care expenditures for billing and collecting will be eliminated. The national health care expenditure will be cut in half or lower. The trade deficit will be eliminated. The National Debt will be lowered. With universal healthcare, all employees will have greater freedom of choice of where they work and not have to worry about changing jobs with a loss of medical coverage. The state's Medicaid expenditures will be eliminated and should immediately be moved to offset the cost of free higher education, like every other industrial country. 

 

On the downside the bad news is based on a comparison with the insurance companies' employees per capita of Canada, 250,000 sales jobs will be lost, there is no need for salespeople; these sales jobs should easily be moved to the manufacturing industry. Taxes paid for The Federal Insurance Contributions Act (FICA) will be substituted by a flat tax added to the corporate and personal income rates. The total FICA tax is 15.3%. That percentage is given to the employee's gross pay.

New Tax Proposal – Calculations

 

Old Tax System

New Tax System

U.S. Dollar, Millions

 

 

2017

2018

2018

Extra Revenues - 3%

Taxes on income, profits and capital gains of individuals

 

2,025,518

2,039,144

2,083,564

44,420

On income and profits of individuals

Individual income tax federal

 

1,477,863

1,480,663

1,525,083

44,420

Individual income tax state and local govt.

 

348,727

361,411

361,411

0

On capital gains of individuals

Capital gains federal

 

160,949

158,405

158,405

0

Capital gains tax state and local govt.

 

37,979

38,665

38,665

0

 

The New tax system adds $15,000 to cover the addition of the average health care employee expense and the FICA taxes. The $15,000 is now taxable income; therefore, the United States' tax revenues have increased. The lower- and middle-income classes see an increase in their take-home wages. The New tax rates are the 2017 Tax rates plus 3% for each tax group. Although this seems a tax increase, it is lower for the lower- and middle-income groups because it has eliminated the 7.5% FICA taxes; therefore, it is lowering their taxes by 4.5%. The upper-income groups will have a 3% increase. The amount of tax revenues will be substantially increasedbecause all individuals will be paying taxes on healthcare costs and FICA taxes; all lower- and middle-income groups will be taking home larger paychecks but pay more significant taxes.

The employer and employee each pay 7.65%. Here is the breakdown of these taxes:

Within that 7.65%, the OASDI (Old Age, Survivors, and Disability program, AKA, Social Security) portion is 6.2%, up to the annual maximum wages subject to Social Security.

The Medicare portion is 1.45% for each employee on all employee earnings.

The new amount of the flat tax will have to be determined by the General Accounting Office and should be added on all earned income tax levels, ensuring all people pay their fair amount of taxes. The medical portion should only rise 3% to 4%, raising each contribution to 10.65% to 11.65%. Included will be the government's obligation to our military veterans. The rise in the amount collected for the new taxes will be far lower than each person's increase of income.

Our progressive personal income tax system is fair. We realize certain individuals will always make more than others, allowed to keep most of it which is a strong motivator for success. We also realize that when more is given to an individual under our capitalistic system, a strong financial system is required for maintaining our freedom, therefore in the short run more has to be given to the government for the maintenance of the country, maintenance of our capitalistic system and the benefit of its citizens who make it possible. In the future we will pass legislation for the maintenance of a balanced budget.  When the transition is finished, we must allow market forces to stabilize all industries and keep government interference to a minimum.

The country must make the changes advocated, or we will be facing financial ruin. Manufacturing creates wealth. Without a strong manufacturing industry, we will become a third-world country, with our primary industry becoming agriculture. Our products' cost will keep rising because other rich nations will be buying our products and inflate our costs.

A massive stimulus program will give employees more money directly and the first steps to rebuild the United States manufacturing industry. The employers are to cancel all health insurance contracts for employees; the employers are to pay each employee an average salary increase of the amount allotted for health care benefits. Medicare is going to cover all medical expenses at the rates already determined. Every patient will give the health care provider their Social Security Number or their guardians S.S. #. Internal Revenue Service will freeze all assets of health insurance companies while audits are in process.

The highest-rated government-sponsored health care system is the United Kingdom's; it is least expensive and provides good service. This system controls its doctors' salaries, which will have to be reduced in this country. Moving to this health care system means the U.S. national health care costs will be$1.5 trillion. This will cover medical services, medicines, hearing aids and glasses.

In a nutshell. To improve the quality of our lives, substantially lower the nation's healthcare costs, cover all individuals, including those with existing conditions, improve employees' salaries, make our manufacturing industry competitive with other countries, we must eliminate employer-paid health care benefits and have a single-payer healthcare system, with universal coverage and change the tax system to pay for healthcare and Social Security benefits.

Future trends in USA Manufacturing Industry

2020 has been a year like no other in recent history, and the U.S. manufacturing industry has felt the impact. Along with declines in production, forced shutdowns in the early days of the pandemic caused a significant dip in manufacturing employment levels. In our 2021 outlook, we look at the future of manufacturing and outline four trends for the year ahead.

Looking ahead to 2021, the recovery may take longer to reach pre-pandemic levels, as Deloitte projections based on the Oxford Economic Model (OEM) anticipate a decline in annual manufacturing GDP growth levels for 2020-2021, with a forecast of -6.3% for 2020 and 3.5% for 2021.

Reeling from the effects of a global pandemic-driven shutdown, U.S. industrial production (-16.5% year over year) and U.S. total factory orders (-22.7% year over year) saw a steep decline in April, followed by suppressed improvement. The current U.S. Industrial Production Index stands at 105.7 in December (the most recent month available), a substantial dip from its pre-pandemic level of 110. Production and order levels are still below 2019 levels, but the trajectory of the decline has slowed. Total industrial capacity utilization improved to 74.5% in December, up from 64.1% in April; however, it's still below pre-pandemic levels of 77%.

In 2021, there are four manufacturing industry trends which are: navigating disruption in the manufacturing industry, digital investment, supply chain resilience, adapting to the new workplace plays a vital role in the success of the USA manufacturing industry. How these trends help the USA manufacturing industry explain below:

The year ahead (2021) will vary for manufacturers depending on where they have felt the greatest impact from the pandemic. For some, it will focus on rebuilding lost revenue streams; for others, it could require recalibrating supply networks to serve different market demands. But for all manufacturers, it should include a commitment to increasing agility in operations. By continuing to invest in digital initiatives across their production process and supply network, manufacturers can respond to the disruptions caused by the pandemic and build resilience that can enable them to thrive.

Roy J. Meidinger

14893 American Eagle Ct.

Fort Myers, Fl. 33912

Email RoyJMeidinger@comcast.net

Tel No. 954-790-9407

 

References:

https://www2.deloitte.com/us/en/pages/energy-and-resources/articles/manufacturing-industry-outlook.html

https://www.brookings.edu/research/a-dozen-facts-about-the-economics-of-the-u-s-health-care-system/

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