In his 2013 State of the Union speech, President Obama stated that "our first priority is making America a magnet for new jobs and manufacturing." The President was signaling that a revitalized manufacturing sector was a key element of his strategy for promoting faster U.S. economic growth. Recent calls to use government policy to revive the U.S. manufacturing sector, particularly the companies involved in developing and making advanced technology products, have re-kindled a debate among lawmakers, economists, and other analysts over the desired economic role of manufacturing and the proper role of the federal government in the sector's performance. In the current policy debate, differences of opinion have emerged that evoke the conflicting views that characterized the domestic debate over industrial policy in the late 1970s and early 1980s. Back then, proponents of government policies to promote the competitiveness of U.S.-based manufacturing companies argued that such support was warranted for two reasons. First, manufacturing contributed more to the performance and growth of the U.S. economy than any other sector. Second, the competitive gains made by foreign companies in a range of industrial markets in the 1970s and early 1980s were partly due to government support in their countries of origin. But some saw little or no merit in that argument. In their view, what mattered most for future growth in jobs, real wages, and output was not government support for so-called strategic industries but public investments in the main forces propelling rises in the standard of living in the long run: worker skills, education, research and development (R&D), and the economic infrastructure. These critics said that industrial policies were unlikely to succeed because civil servants in general were no match for businessmen in identifying the new technologies that had a significant potential to generate large numbers of well-paying jobs in coming years. The question of what role federal policy should play, if any, in reviving manufacturing has re-emerged as a policy issue in the 114 th Congress, especially in the context of proposals to reform the federal income tax. Some critics of the current federal income tax contend that existing tax benefits for manufacturing underscore a critical problem with the system: that it is laden with special benefits that unevenly reduce effective tax rates and have the same budgetary effects as federal spending, except that the benefits are not subject to the scrutiny and oversight built into the congressional appropriations and authorization processes. This report examines the provisions in current federal tax law that benefit most or many manufacturing firms. More specifically, it identifies and describes those provisions and discusses the main arguments for and against targeted federal support (tax and non-tax) for the manufacturing sector. To set the stage for these topics, the report begins with brief overviews of the economic contributions of the sector and existing federal non-tax support for manufacturing. The report will be updated as warranted by changes in federal tax law. According to the North American Industrial Classification System (NAICS), the manufacturing sector consists of establishments that are primarily engaged in the transformation of materials, substances, or components into products. Establishments in this case are the factories, plants, or mills that use power-driven machines and equipment to effect this transformation. But they also include individuals who transform materials, substances, and components into products by hand in their homes, as well as the multitude of small businesses that sell directly to the public items they make on their premises. In general, the products made in manufacturing establishments are finished or semi-finished. The former are ready for consumption or final use, while the latter serve as inputs for the production of finished products. In the U.S. national income accounts, manufacturing is broken down into a series of sub-sectors (or industries) that reflects the links among companies as a result of the production process. Basically, the output of some manufacturing companies becomes the inputs of others and vice versa. For example, makers of machine tools buy needed materials and components directly from producers of these items, and in some cases, the latter purchase machine tools from the former so they can produce those materials and components. Nonetheless, the economic boundaries between manufacturing and other sectors sometimes are not clearly drawn, or even confusing. For example, the bottling and processing of milk and spring-fed water are regarded as manufacturing activities under the NAICS, although they involve no transformation of materials or components into a new product. On the other hand, the erection of an office building (including any fabrication performed at construction sites) is considered a construction activity, even though the final product is the result of a substantial transformative process. Manufacturing's role in the U.S. economy has changed considerably since 1960. Back then, it accounted for 27% of real gross domestic product (GDP), 31% of non-agricultural employment, more than 20% of domestic non-residential fixed investment, nearly 99% of business investment in research and development (R&D), and 62% of exports. Since the 1970s, however, the manufacturing sector's economic contributions have declined sharply. The extent of this decline can be seen in Figure 1 . Basically, it tracks the manufacturing sector's share of non-agricultural employment, gross domestic product (GDP), business investment in research and development (R&D), exports, and domestic investment in capital assets between 1960 and 2010. Relative to 1960, manufacturing's share of exports in 2010 was 17% lower; its share of business R&D investment 29% lower; and its contribution to non-agricultural employment 71% lower. Except for non-agricultural employment, manufacturing's share shrank because the contributions of other sectors rose faster than those of manufacturing. In the case of employment, manufacturing's share declined because it lost workers while combined employment in other sectors grew, except during recessions of course. Every indicator in Figure 1 trended downward except one: employee wages and salaries. Labor compensation per employee in manufacturing was somewhat larger in 1960 than it was in most other sectors. That gap grew steadily until the mid-1990s; by 2010, it was 7% smaller than in 1995, but nearly 18% larger than in 1960. Still, wages and benefits were consistently higher in manufacturing than they were in several other sectors (e.g., construction, mining, transportation, and utilities) from 1960 to 2010. Several trends related to the ones shown in Figure 1 are worth noting. First, among all sectors, manufacturing held the largest share of GDP (measured in current dollars) until 1986, when the government sector's share surpassed it. Several other sectors have risen in importance since then, and in 2010, government, finance, insurance, real estate, rental and leasing; and professional and business services each had larger shares than manufacturing. Second, manufacturing had the largest share of non-agricultural employment among all sectors until 1989, when employment in the government sector topped employment in manufacturing. Since then, retail trade, professional and business services, education, health services, and leisure and hospitality have joined government as larger sources of employment than manufacturing. Third, although payroll employment in manufacturing has fallen gradually since 1979, when it reached an all-time peak of 17.985 million, the sector's value added (in current dollars), which measures its contribution to GDP, grew by a factor of 11.9 from 1960 to 2013, when it reached an all-time peak of $1.8 trillion. The divergent trends in manufacturing's contribution to GDP and its employment reflect the relatively robust labor productivity growth in recent decades within the manufacturing sector. From 1990 to 2000, output per hour of labor in manufacturing rose at an average annual rate of 4.3%, compared to a rate of 2.2% in all non-farm businesses. The gap narrowed from 2000 to 2007, when the rate of growth for manufacturing fell to 3.7%, while the rate for the non-farm business sector rose to 2.6%. There was little difference between the two growth rates between 2007 and 2013: labor productivity grew at an average annual rate of 1.6% in manufacturing and 1.5% in non-farm businesses. Figure 1 also does not address the diverse outcomes among manufacturing industries from 1960 to 2010. Depending on how finely the manufacturing sector is sub-divided, many different industries can be identified and analyzed. Under the NAICS, which federal agencies use to organize and report industry data, manufacturing encompasses durable goods and non-durable goods industries, and each group, in turn, is divided into 10 major industries. The performance of these 20 industries can be evaluated using some of the same indicators of economic importance. A comparison of the change in full-time-equivalent (FTE) employment and real value added from 1998 to 2013 for major manufacturing industries reveals that their performance was remarkably uneven. Some grew or declined in importance more than others. As the figures in Table 1 show, FTE employment fell over the period in each of the industries, but the extent of the decrease ranged from -7.2% for food, beverages, and tobacco products to -75.9% for apparel, leather, and similar products. The range was even greater for real value added. Of the 20 industries, real value added decreased for eight of them and increased for the other 12 between 1998 and 2013. The decreases ranged from -7.0% for plastics and rubber products to -50.2% for apparel, leather, and similar products, while the increases extended from 1.5% for printing and related support activities to 561.2% for computers and electronic products. Rising foreign competition, offshoring, and the growth of the information economy were among the key forces driving these changes. Federal support for manufacturing encompasses a number of tax and non-tax subsidies. The tax benefits are discussed in the following section, while this section describes the other kinds of assistance. Several federal programs assist manufacturing firms of all sizes outside the federal tax code. The assistance mostly focuses on workforce training, export promotion, business counseling, and technology development.