Luring Medical Manufacturing Home with the BEAT CHINA Act

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“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. And it has the additional virtue of being 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. Force, of course, is contrary to liberty, and so should be a last resort. If through our political process we decide we want to encourage certain behaviors, it makes much more sense to offer incentives rather than mandates. Lovers of liberty should always be uncomfortable with the use of government force, and so it’s always better to offer incentives.

A consensus seems to be forming that it would be better for critical medical manufacturing to be based here in the U.S., as opposed to overseas, and especially as opposed to being located in potentially hostile regimes like China.

And while President Trump has a habit of talking in terms of forcing people and businesses to do what he wants them to do, most of the time there is no actual legal authority for the executive branch to deliver on such demands. In our constitutional system, almost all policymaking rightfully occurs within the legislative branch, which more closely approximates the considered will of the governed.

Along those lines, Rep. Chip Roy (R-TX) has introduced creative legislation designed to encourage medical and pharmaceutical manufacturing to relocate to the U.S. by providing potent tax incentives in place of an inappropriate use 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 IPI’s tax policy research has repeatedly demonstrated, such long depreciation requirements raise the long-term cost of capital and are a disincentive to investment.

In our view, all businesses should be able to fully expense all investment 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. Rep. Roy’s bill would at least extend this ideal tax policy to the relocation of medical and pharmaceutical manufacturing, which represents further tax reform while also accomplishing the goal of encouraging the reshoring of medical and pharmaceutical manufacturing.

Chip 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 we hope it gains support.

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