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Nonsense as Usual: Bush Contention that Tax Reform Is Key to Manufacturing Competitiveness
AmericanEconomicAlert.org ^ | Wednesday, April 14, 2004 | Alan Tonelson

Posted on 04/15/2004 9:57:36 AM PDT by Willie Green

For education and discussion only. Not for commercial use.

It must have been a genuinely pathetic moment. Leading New York State officials such as Republican Governor George Pataki, Democratic U.S. Senator Charles Schumer, and Democratic Congressman James Walsh had just spent months trying to persuade Carrier Corp. to keep two air conditioner factories in the Syracuse area rather than transfer them to Georgia and Asia. Ultimately, the politicians and the company´s unionized workers offered this United Technologies division a combined $210 million in tax breaks, subsidies, and wage and benefits givebacks.

Last October 28, they got their answer from Carrier: “Thanks, but no thanks.” The explanation: The package “cannot reverse the economic realities that Carrier is facing.” Translation: “We can make much more money by moving to penny-wage manufacturing sites.” And the clear lesson for anyone following globalization issues: Tinkering with the tax code won´t stop or even stem trade-related job flight.

The sharp limits of taxes as globalization policy tools will come as bad news to the (multinational company-dominated) National Association of Manufacturers and the Bush administration. Both have been insisting that high domestic taxes and not outsourcing-focused trade agreements are really to blame for the millions of manufacturing and now service jobs streaming overseas.

Sen. John Kerry, however, won´t welcome straight talk on taxes, either. The presumptive Democratic presidential nominee, a strong supporter of outsourcing-focused trade deals, is also blaming U.S. tax policies for outsourcing – specifically, alleged tax incentives for creating jobs and hiding profits offshore.

Yet this tax reality check shouldn´t come as news at all to Bush, Kerry, or anyone else even minimally informed about global economic and business realities. After all, it´s common knowledge that regardless of its official tax rate, the typical multinational company pays little or even no taxes. That´s what all those pricey accountants and loophole-writing lobbyists are for. So it´s always been hard to imagine that overall tax burdens or specific tax code provisions per se are driving multinationals´ job-creation activities overseas. But as so often happens with subjects raised as globalization issues, almost no one bothers to put two and two together.

A cursory Lexis-Nexis search alone reveals example after example of how stunningly irrelevant tax rates and even tax breaks have been to job flight. Some companies, like Motorola and Maytag in Illinois, have simply taken the money and then run offshore or simply closed down U.S. factories. Others, like Electrolux in Michigan, have mimicked Carrier and brushed off offers of tax breaks and other incentives. And still others, like semiconductor producer LSI Logic in Oregon, seem to have split the difference.

LSI built a chip factory and an R&D center in the state in exchange for hundreds of millions of dollars in property tax breaks. But these considerations have been swamped by continuing uncertainties in the high tech sector, and LSI has balked at building additional Oregon facilities that it and the state had envisaged. Nonetheless, last fall, LSI announced plans to outsource 20 percent of its total production work to Asia immediately, and suggested that a big recovery in semiconductor demand would push the figure up to 50 percent.

Just as important, new systematic evidence of widespread corporate tax avoidance has recently been published by the nonpartisan General Accounting Office, the investigative arm of Congress.  According to the agency, a big majority of all companies operating in America, big and small, reported no tax liabilities at all between 1996 and 2000 – a time when sources ranging from news accounts to their own websites revealed that these firms were outsourcing like crazy.

The GAO reported that big companies – which are likeliest to outsource – actually were more likely than small companies to pay some tax during this period. But 45.3 percent of all large U.S.-owned companies and 37.5 percent of all large foreign-owned companies with U.S. operations reported no tax liabilities during this period. An additional 35 percent of both categories combined paid less than five percent of their total income in taxes from 1996 to 2000. (The basic federal corporate tax rate for large companies is 35 percent.)

Moreover, the share of large U.S.-owned manufacturing companies that paid no taxes rose from 20.3 percent to 34.1 percent from 1996 to 2000, and the share of their foreign-owned counterparts reporting no tax liabilities increased from 25.7 percent to 37.9 percent.

Still skeptical? A 2000 report by the private Institute on Taxation and Economic Policy disclosed that some of the industries with the lowest effective (as opposed to official) tax rates between 1996 and 1998 were among the country´s most robust and fastest growing outsourcers – e.g., electronics and electrical equipment, motor vehicles and parts, and computers, office equipment, and software.

True, these effective tax rates are low in some cases because companies do dodge taxes by parking revenues and job-creating investments overseas. But most tax evasion seems centered around domestic practices, like accelerated depreciation write-offs, research and development tax credits, un-expensed stock options, and the purchase of depreciation rights to public transportation systems.

No one likes taxes and surely U.S. leaders can and should identify ways to cut needless or counterproductive tax burdens for everyone, as well as fix specific wrong-headed tax code provisions. But no tax code changes that would enable Americans to finance essential first-world public services responsibly could come close to offsetting the advantages companies have been enjoying from producing overseas. They flow not only from enduring conditions like poverty-level wages, but from powerful foreign government carrots and sticks developed specifically to attract jobs – including big tax breaks of their own, subsidies for everything from land and fuel to raw materials, and high tariffs and other barriers against imports.

It´s these conditions and practices, combined with trade agreements that enable multinational companies to serve the U.S. market by exploiting them, that would make even a model domestic tax system uncompetitive internationally. Blaming the tax system itself simply confuses cause and effect.

Tax policy is complex and confusing, but here´s a rule of thumb you can count on: The more candidates push tax policy changes as cure-alls for our trade and jobs challenges, the less serious about such challenges they are.

Alan Tonelson is a Research Fellow at the U.S. Business & Industry Educational Foundation and the author of The Race to the Bottom: Why a Worldwide Worker Surplus and Uncontrolled Free Trade are Sinking American Living Standards (Westview Press)


TOPICS: Business/Economy; Culture/Society; Editorial; Foreign Affairs; Government
KEYWORDS: axixofevil; globalism; taxes; taxreform; thebusheconomy; trade
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A Plan to Save American Manufacturing
1 posted on 04/15/2004 9:57:39 AM PDT by Willie Green
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To: Willie Green
GO TO A NAT'L SALES TAX
CUT REGULATIONS
KILL THE TORT LAWYERS!

Problem Solved!
2 posted on 04/15/2004 10:01:07 AM PDT by kaktuskid
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To: AAABEST; afraidfortherepublic; A. Pole; arete; billbears; Digger; DoughtyOne; ex-snook; ...
ping
3 posted on 04/15/2004 10:01:36 AM PDT by Willie Green (Go Pat Go!!!)
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To: Willie Green
Moreover, the share of large U.S.-owned manufacturing companies that paid no taxes rose from 20.3 percent to 34.1 percent from 1996 to 2000, and the share of their foreign-owned counterparts reporting no tax liabilities increased from 25.7 percent to 37.9 percent.

This entire article is just one big error of omission.

Every U.S. company (doing business here) pays taxes on their payroll. No one is exempt. For a $50k/year employee, this amounts to about $4,000.

So let's try to be clear here: not paying any corporate income taxes is not the same as not paying any taxes. We shouldn't be taxing coporate income anyway; the customer just ends up paying it. It's bad enough that there is an effective 15% tax on payroll. That's disgusting.

4 posted on 04/15/2004 10:05:35 AM PDT by Mr. Bird (Ain't the beer cold!)
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To: Willie Green; ancient_geezer
Yet this tax reality check shouldn´t come as news at all to Bush, Kerry, or anyone else even minimally informed about global economic and business realities. After all, it´s common knowledge that regardless of its official tax rate, the typical multinational company pays little or even no taxes. That´s what all those pricey accountants and loophole-writing lobbyists are for. So it´s always been hard to imagine that overall tax burdens or specific tax code provisions per se are driving multinationals´ job-creation activities overseas. But as so often happens with subjects raised as globalization issues, almost no one bothers to put two and two together.

SPOT ON TARGET!

5 posted on 04/15/2004 10:07:28 AM PDT by Bigun (IRSsucks@getridof it.com)
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To: Willie Green
Translation: "We can make much more money by moving to penny-wage manufacturing sites." And the clear lesson for anyone following globalization issues: Tinkering with the tax code won't stop or even stem trade-related job flight.

Baloney.

If this were the case, then why did Carrier move some of their operations from Syracuse to Georgia? Is Georgia a "penny-wage manufacturing site?"

I said this at the time, and cases like this reinforce the point I made. The EPA's decision a few years ago to force General Electric to pay the massive cost of cleaning PCBs from the Hudson River in upstate New York will go down in history as single most devastating factor in the movement of manufacturing jobs offshore. If I were in charge of Carrier I wouldn't even have listened to what George Pataki had to offer.

6 posted on 04/15/2004 10:08:02 AM PDT by Alberta's Child (Alberta -- the TRUE north strong and free.)
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To: Willie Green
No nonsense in THIS article Willie! Not one modicum and a great many are figuring it out!
7 posted on 04/15/2004 10:15:59 AM PDT by Bigun (IRSsucks@getridof it.com)
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To: Mr. Bird

So let's try to be clear here: not paying any corporate income taxes is not the same as not paying any taxes. We shouldn't be taxing coporate income anyway; the customer just ends up paying it. It's bad enough that there is an effective 15% tax on payroll. That's disgusting.

How true, and we end up paying for the payroll taxes and the costs involved in the compliance with both income and payroll taxes.

 

John Linder in the House & Saxby Chambliss Senate, offer a comprehensive bill to kill all income and payroll taxes outright, and provide a IRS free replacement in the form of a pure consumption tax:

H.R.25, S.1493
A bill to promote freedom, fairness, and economic opportunity by repealing the income tax and other taxes, abolishing the Internal Revenue Service, and enacting a national retail sales tax to be administered primarily by the States.

Refer: http://www.fairtax.org & http://www.salestax.org

With manufacturers free of taxation, our exports would gain a 20-25% advantage in foreign markets, while imports would be taxed at the retail register the same as all other products, where today they enter subsidized from other nations with credited removing their VATs.

The differential would change our trade relationships profoundly.

Chairman of the House Ways and Means Committee,
Rep. Bill Archer (R-TX)
Speaking in his Congressional District in Houston, TX - August 12, 1996


8 posted on 04/15/2004 10:24:13 AM PDT by ancient_geezer (Equality, the French disease: Everyone is equal beneath the guillotine.)
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To: *Taxreform; Taxman; Principled; Bigun; EternalVigilance; kevkrom; n-tres-ted; Poohbah; CliffC; ...

So let's try to be clear here: not paying any corporate income taxes is not the same as not paying any taxes. We shouldn't be taxing coporate income anyway; the customer just ends up paying it. It's bad enough that there is an effective 15% tax on payroll. That's disgusting.

How true, and we end up paying for the payroll taxes and the costs involved in the compliance with both income and payroll taxes.

 

John Linder in the House & Saxby Chambliss Senate, offer a comprehensive bill to kill all income and payroll taxes outright, and provide a IRS free replacement in the form of a pure consumption tax:

H.R.25, S.1493
A bill to promote freedom, fairness, and economic opportunity by repealing the income tax and other taxes, abolishing the Internal Revenue Service, and enacting a national retail sales tax to be administered primarily by the States.

Refer: http://www.fairtax.org & http://www.salestax.org

With manufacturers free of taxation, our exports would gain a 20-25% advantage in foreign markets, while imports would be taxed at the retail register the same as all other products, where today they enter subsidized from other nations with credited removing their VATs.

The differential would change our trade relationships profoundly.

Chairman of the House Ways and Means Committee,
Rep. Bill Archer (R-TX)
Speaking in his Congressional District in Houston, TX - August 12, 1996


9 posted on 04/15/2004 10:28:47 AM PDT by ancient_geezer (Equality, the French disease: Everyone is equal beneath the guillotine.)
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To: Willie Green
this needs a barf alert
10 posted on 04/15/2004 10:29:00 AM PDT by longtermmemmory (Vote!)
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To: Willie Green
http://www.howtobuyamerican.com/

http://www.bac-america.org/

http://www.madeinusa.org/nav.cgi?info/whybuy
11 posted on 04/15/2004 10:33:17 AM PDT by Chi-townChief
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To: longtermmemmory
this needs a barf alert

With "Tax Reform" in the title of the thread,
you should have already known that the NRST shills
would be regurgitating their disingenuous snakeoil.

Just the same, they can be useful idiots, and I appreciate that they bump Tonelson's article to the top of "Latest Posts".

The NRST is an inherently regressive form of taxation that is truly despotic. Long term, it would result in a two-tiered socio-economic stratification of our society. It is not disimilar to a 21st Century eco-feudal system where the corporate aristocracy invest and expand their property holdings completely tax-free, while the serfs are overburdened with the excessive taxation on consumption and persuaded that it's supposedly "fair" because the consumption taxes are redistributed through the formal social welfare system.

12 posted on 04/15/2004 10:41:28 AM PDT by Willie Green (Go Pat Go!!!)
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To: Willie Green
Thanks, ping back.

So with all the taxes paid by US Corporation for payroll, real estate, etc. - why should foreign goods come in tax-free? Call it a tariff or an equalization tax but all horses in the race for business should carry the same tax handicap.

States with sales taxes impose a compensating use tax on out-of-state purchases for just this purpose.

13 posted on 04/15/2004 10:50:30 AM PDT by ex-snook (Glory to You, Word of God, Lord Jesus Christ.)
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To: Willie Green
The NRST is an inherently regressive form of taxation that is truly despotic. Long term, it would result in a two-tiered socio-economic stratification of our society. It is not disimilar to a 21st Century eco-feudal system where the corporate aristocracy invest and expand their property holdings completely tax-free, while the serfs are overburdened with the excessive taxation on consumption and persuaded that it's supposedly "fair" because the consumption taxes are redistributed through the formal social welfare system.

Spoken like a true socialist.

I see you have not yet shed your class-concious blinders.

14 posted on 04/15/2004 10:55:27 AM PDT by EternalVigilance
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To: Willie Green
Who gives a rat's ass if a tax is regressive? It's a descriptor, not a moral assessment. In many cases, "progressive" taxation is flat out evil, yet it gets favorable treatment because somehow we're supposed to feel good when getting fleeced.

I'd say if a consumption tax would lead to starvation among those you call the "serfs", we should look at why the damned government needs so much money to begin with. The rich do not punish the poor. The government punishes the rich to buy the votes of the poor.

15 posted on 04/15/2004 10:56:20 AM PDT by Mr. Bird (Ain't the beer cold!)
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To: Mr. Bird
The government punishes the rich to buy the votes of the poor.

And the rich pay tribute to politicians to buy protection from the income tax code.

The beat goes on...

16 posted on 04/15/2004 11:01:30 AM PDT by EternalVigilance
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To: ancient_geezer
Trade and domestic employment issues will be a major reason to propose and implement this for Bush.

It's a winner for the trade improvements alone!
17 posted on 04/15/2004 11:10:52 AM PDT by Principled
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To: ex-snook
So with all the taxes paid by US Corporation for payroll, real estate, etc. - why should foreign goods come in tax-free? Call it a tariff or an equalization tax but all horses in the race for business should carry the same tax handicap.

Don't forget the economic handicap imposed by regulatory agencies such as EPA and OSHA.
Adam Smith would agree with your notion of imposing a tariff as compensatory equalization.

Excerpted and condensed from:

Adam Smith: The Wealth of Nations, Book 4, Chapter 2

Of Restraints upon the Importation from Foreign Countries
of such Goods as can be produced at Home

"There seem, however, to be two cases in which it will generally be advantageous to lay some burden upon foreign for the encouragement of domestic industry...

  • The first is, when some particular sort of industry is necessary for the defence of the country....

  • The second case, in which it will generally be advantageous to lay some burden upon foreign for the encouragement of domestic industry is, when some tax is imposed at home upon the produce of the latter. In this case, it seems reasonable that an equal tax should be imposed upon the like produce of the former....


18 posted on 04/15/2004 11:12:49 AM PDT by Willie Green (Go Pat Go!!!)
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To: Willie Green
WILLIE! Getting pretty desperate for bad news articles these days, aren't you?

Let me help:

NY Empire State Index (Manufacturing), April (4/15/04)
Prior: 25.3
Consensus: 29.0
Actual: 36.05

Philadelphia Fed (Manufacturing Index Philly Area), April (4/15/04)
Prior: 24.2
Consensus: 26.0
Actual: 32.5

Looks like the economy is booming all around! Thank goodness for free trade!

19 posted on 04/15/2004 11:26:29 AM PDT by JohnnyZ (Got some dirt on my shoulder -- could you brush it off for me?)
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To: JohnnyZ
Looks like the economy is booming all around! Thank goodness for free trade!

Yeah, it looks like Hillary Klinton and Ed Rendell worked miracles for the manufacturing sectors of their respective states. </sarcasm>

... or could it be that there's something extremely misleading about the statistics you cite?

20 posted on 04/15/2004 11:56:17 AM PDT by Willie Green (Go Pat Go!!!)
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