Posted on 12/06/2016 5:17:57 AM PST by MostlyAnti-Lib
Donald Trump’s critics on the left are enraged with his handling of the Carrier Corporation’s intention to move their Indianapolis operation to Mexico. He has possibly been slightly overgenerous in his favors to Carrier in order to get them to reconsider sending 1100 jobs out of the country.
Let us compare the alternative choices of other US companies who consider similar moves in the future:
Cost of an AC unit produced and sold in the US: $4000 approx.
Labor cost to produce (@ 20% average): $800.
Tax savings (under Trump) to produce in US $4000 x (35%-20%): $600.
Note: Current corporate tax rate in US: 35 percent.
Possible proposed tax rate under Trump: 20 percent.
Bottom line to manufacturer:
$4000 – $800 labor + $600 tax savings = $3800!
Cost of an AC unit produced in Mexico and sold in the US: $4000 approx.
Labor cost to produce (@ 20% average): $800 x 5/28 = $142.
Note: Avg. hourly manufacturing wage in Mexico: $5 per hour.
Avg. hourly manufacturing wage in USA: $28 per hour.
(These are ball park numbers, folks, no hair-splitting, if you please.)
Penalty to sell in US if produced in Mexico: $4000 x say 20% = $800.
Note: Trump mentioned a tariff of 35% in his campaign.
He should be able to push 20% through Congress.
Bottom line to manufacturer:
$4000 – $142 labor - $800 tariff = $3058!
$3800 > $3058!
It shouldn’t require a mathematical wizard to make sense of that one!!
Note: Needless to say, there are ancillary costs of doing business that enter into the bottom-line return to the manufacturer: parts, materials, leasing of buildings, cost and maintenance of machinery, etc., but for argument’s sake, let’s assume these costs are approximately equal in the US and Mexico.
Sarah Palin (incidentally, I happen to be one of her biggest fans) has recently erroneously claimed that Donald Trump’s influence in the saving of 1100 US Carrier jobs has been tantamount to “Crony Capitalism”.
To this I say, “Au contraire, Sarah!”:
Obama and Solyndra:
That’s picking winners and losers, i.e., Crony Capitalism.
Trump and Carrier:
That’s smart economics, i.e., NEGOTIATION!!
“The word is out”
I haven’t heard that news as yet.
I think future circumstances would correspond to the example I gave.
“the same lower taxes and less regulation”
We are on the same page.
I don’t know how many companies can be lured back to the US, but I think the new business environment that Trump promises to provide will keep most
companies from leaving.
“Your math is a bit oversimplistic.”
You are obviously way more into it than I.
But I think you’ll agree that the oversimplistic illustration I provided would give the accounting department of most companies food for thought.
Not meant as a criticism, I just wanted to go further and see if some more realistic assumptions led to the same conclusion, and they do so long as the threatened tariff were passed and a reduction in corporate tax rates occurred. My math was simplistic too, but I think the notion that Carrier stayed in Indiana because of $7 million in tax breaks is ludicrous. It’s not crony capitalism; it’s a gamble that Trump will come through as promised.
“Shipping or transportation involved?”
But of course!! This cost would provide further motivation to keep your operation in the US.
“it’s a gamble that Trump will come through as promised.”
We’re all holding our breath and hopin’, partner!
They ignore all the “green” companies which went belly up after receiving $million$ in federal funds.
Now, that was “crony capitalism”, which isn’t captitalism at all.
Why isn’t Obama being criticized by the leftist media for these demonstrated examples of fake-capitalism?
“lower tax rates do not apply to income from foreign source products.”
This would probably work if it is important to avoid tariffs.
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