Corporate Tax cuts, Globalization, and Capital investment

[RowdyRedRam]

I'm going to layout my understandings and concerns on these issues, as I best understand them. I say this with clear indication that I am not an economist and am looking for as much corrective information as I am making any sort of statement.

 

The purpose of cutting taxes, especially corporately is to increase the amount of cash on hand to companies to with the understanding that they will use this cash make capital investments that improve the economy.

An example of this would be. ACME company makes widgets, the extra money ACME saves from tax cuts allows them to hire more workers and produce more widgets creating more jobs and more widgets to sell, and with more people employed more people can buy widgets.

 

This should work the benefit of everyone.

 

But.... Now introduce globalization into the fold.

 

ACME company saves money from tax cuts. INSTEAD of investing there money in local capital investments, they make capital investments overseas. In this case setting up foreign factories where foreign workers make less money. The winners in this scenario are the ACME, for less overhead cost, foreign workers, and investors in ACME. The losers are local workers who lose there jobs, and now have less government assistance due to reduced governmental income.

 

Where do we go from here?

 

Can the government take measures to maximize the supply side while at the same time insuring that corporations make local capital investments, or simply capital investments in general? What steps are in place to insure responsibility of corporations who receive government benefits to participate in a manner that is helpful to the nation/local community?

 

Again I am not an expert on this matter and am looking for information.

[Habib]

At first glance I think you've overlooked the benefit of cheaper goods available to American consumers as the ACME firm invests in overseas factories. This in turn allows more disposable income, new markets for firms to jump into (creating jobs), and obviously the ACME company itself to expand its domestic operations.

 

Also, the investment into factories outside of the States doesn't continue into perpetuity. As discussed in the thread on the strength of the dollar, foreign firms will be looking to invest capital Stateside as it becomes more attractive. In this situation, I think the government can do best by opening trade while also using its public expenditures to make sure the citizens can adapt to the economy as it changes.

[cch5432]

Furthermore (on what Habib said), the stockholders of ACME are often American citizens. And as the economy strengthens, (theoretically) education improves and more Americans can work better jobs.

 

Less taxes also discourage more businesses and entrepreneurs.

 

Furthermore, say we are talking about the sugar industry. Say we put some taxes on it to save American jobs. Yes, some American jobs may be saved, but the extra cost will be seen with a huge job loss in the American candy industry.

[RowdyRedRam]

At first glance I think you've overlooked the benefit of cheaper goods available to American consumers as the ACME firm invests in overseas factories. This in turn allows more disposable income, new markets for firms to jump into (creating jobs), and obviously the ACME company itself to expand its domestic operations.

 

Also, the investment into factories outside of the States doesn't continue into perpetuity. As discussed in the thread on the strength of the dollar, foreign firms will be looking to invest capital Stateside as it becomes more attractive. In this situation, I think the government can do best by opening trade while also using its public expenditures to make sure the citizens can adapt to the economy as it changes.

To the first part. The problem still remains that ACME holds the decision on whether to to expand domestically or not. Also the cheaper price doesn't really help those that lost their job or had to take a less paying job.

 

To the second part. You are right this wouldn't go on in perpetuity. The problem that I see is that there is a LONG road to equality between here and there. As much as there standard of living will go up over there, over here will go down.

[cch5432]

To the first part. The problem still remains that ACME holds the decision on whether to to expand domestically or not. Also the cheaper price doesn't really help those that lost their job or had to take a less paying job.

 

To the second part. You are right this wouldn't go on in perpetuity. The problem that I see is that there is a LONG road to equality between here and there. As much as there standard of living will go up over there, over here will go down.

1. First of all, jobs have NEVER gone down over any course of time. Unemployment is either cyclical (recessions), frictional (matching jobs up with workers), or structural (workers who do not have the skills to maintain a job- whether it is a disability, substance abuse, other commitments i.e. single mother, etc.). The government does not need a role in keeping jobs in America- they need to be involved in job retraining programs.

 

2. Standard of living will not go down here as a result of globalization. Where did you get that info?

[RowdyRedRam]

Furthermore (on what Habib said), the stockholders of ACME are often American citizens. And as the economy strengthens, (theoretically) education improves and more Americans can work better jobs.

Yes, but I'm curious as to what amount of Americans receive a majority of their income through capital gains. You have to have the money to invest and profit from those investments. The vast majority of Americans still need there jobs to get by.

 

Less taxes also discourage more businesses and entrepreneurs.

You meant this the other way around correct?

 

Furthermore, say we are talking about the sugar industry. Say we put some taxes on it to save American jobs. Yes, some American jobs may be saved, but the extra cost will be seen with a huge job loss in the American candy industry.

I'm not talking about raising any taxes at all. I'm wondering what if any provisions should be set upon the industries that receive tax cuts, with the understanding that they have a role (to reinvest) to play in the economic benefit of cutting the taxes. Especially locally(including nationally), since it is local/national government that provides these tax breaks.

[HHSDad]

Yes, but I'm curious as to what amount of Americans receive a majority of their income through capital gains. You have to have the money to invest and profit from those investments. The vast majority of Americans still need there jobs to get by.

Almost every American who has any kind of retirement plan depends on capital gains.

[RowdyRedRam]

2. Standard of living will not go down here as a result of globalization. Where did you get that info?

In order for it to make economic sense for a foreign country to invest here, there has to be an economic benefit. Currently most cases involve using a better educated work force, or simply cutting transport and middlemen. But on a massive scale to bring jobs back to this country there would need to a labor incentive. We have a long road to go before it is cheaper to hire American engineers over Indian engineers.

[RowdyRedRam]

Almost every American who has any kind of retirement plan depends on capital gains.

Yes but not to the point that it is the majority of your income.

Unless your a trust fund baby you have to earn the initial investments. We still need jobs.

[cch5432]

Yes, but I'm curious as to what amount of Americans receive a majority of their income through capital gains. You have to have the money to invest and profit from those investments. The vast majority of Americans still need there jobs to get by.

 

You meant this the other way around correct?

 

I'm not talking about raising any taxes at all. I'm wondering what if any provisions should be set upon the industries that receive tax cuts, with the understanding that they have a role (to reinvest) to play in the economic benefit of cutting the taxes. Especially locally(including nationally), since it is local/national government that provides these tax breaks.

1. True, most probably don't get the majority of their income from capital gains, but I don't like it when people paint the American-owned corporations as evil. As well as what HHSDad said

 

2. Yes, grammatical error

 

3. Basically, what it comes down to is that if there is legislation forcing firms to reinvest in an area that is less profitable, everyone is hurt. Consumers will have to pay higher prices and producers will make less profits (and therefore even less investment projects, less new jobs, etc.).

 

It's not like when American companies take money out of the country it is gone forever. The products are purchased here, the best jobs in the company usually remain here, and, as the market grows, new companies are started here. Furthermore, it is not always American companies overseas- think of how many jobs Toyota has created here:

Mr. Doyle says the institute's study shows that Toyota in 2005 employed roughly three times more U.S. workers, on a basis of per car sold in the U.S., than Hyundai Motor Co.

 

Globalization goes both ways and everyone wins. It only bothers me when people propose "fair trade" when I truly believe that free trade helps us and developing countries/

[cch5432]

In order for it to make economic sense for a foreign country to invest here, there has to be an economic benefit. Currently most cases involve using a better educated work force, or simply cutting transport and middlemen. But on a massive scale to bring jobs back to this country there would need to a labor incentive. We have a long road to go before it is cheaper to hire American engineers over Indian engineers.

:confused: RRR, you are confusing me. I am unclear on how that pertains to my post that you quoted

[RowdyRedRam]

:confused: RRR, you are confusing me. I am unclear on how that pertains to my post that you quoted

Habib made the statment that the more money outflows from the US the more attractive it is to invest in the US. This sort of inflow outflow is not unlike a seesaw with each sides motion dependant upon the state of the other side.

 

My point is that we currently are so much better off than the rest of the world, it is like we are at the very top of the seesaw. Even with the understanding the world economy in whole will grow. I don't see it likely that we can reach a level of equilibrium with the rest of the world while maintaining our current standard of living. Again, it is a long way for Indian engineers to reach the pay rate of American engineers. In order for companies to reverse the trend of hiring Indian engineers over American ones either two things must happen, Indian engineers must begin to make equal or higher salaries or the salaries of American engineers will have to go down. If they go down the standard of living reduces as well.

[H]

My point is that we currently are so much better off than the rest of the world, it is like we are at the very top of the seesaw. Even with the understanding the world economy in whole will grow. I don't see it likely that we can reach a level of equilibrium with the rest of the world while maintaining our current standard of living. Again, it is a long way for Indian engineers to reach the pay rate of American engineers. In order for companies to reverse the trend of hiring Indian engineers over American ones either two things must happen, Indian engineers must begin to make equal or higher salaries or the salaries of American engineers will have to go down. If they go down the standard of living reduces as well.

 

 

As troubling as the implications are, I think you are probably right. The productivity of the higher-paid American engineer must be sufficiently high to offset the lower wage of the Indian engineer, otherwise there is an economic incentive to move the job. It is plausible to think that the U.S. employee might be more productive, but is probably not 2-3 times as productive (which might be the ratio of the wage disparity). With the developments in information sharing technology (ability of people across the world to teleconference, share electronic data, screen share, etc.), I think it is entirely possible that largescale transfers of professional positions from the U.S. to countries like India and China will be a part of the future economy.

 

And to your point, the growing ability of companies to shift not just blue collar work, but also professional work to any location in the world now calls into question some of the past beliefs about stimulating the U.S. economy with corporate tax cuts.

[HHSDad]

As the dollar weakens, it becomes more expensive for American companies to manufacture overseas and makes it cheaper for Overseas companies to manufacture here. I know everyone is tired of my weak dollar posts, but its tied to so many problems and none of the politicians want to talk about it. They'd rather cure the symptoms than the disease.

[Hatz]

As the dollar weakens, it becomes more expensive for American companies to manufacture overseas and makes it cheaper for Overseas companies to manufacture here. I know everyone is tired of my weak dollar posts, but its tied to so many problems and none of the politicians want to talk about it. They'd rather cure the symptoms than the disease.

 

 

Or the overseas keeps costs down that they'd have to spend at home with an undervalued dollar on either shore. (Don't know if that makes sense or not) In other words, even if it's more expensive, the labor costs there outweigh the labor costs here.

 

To go a step further, even if we strengthen the dollar, I don't see those manufacturing jobs returning to America. The only thing that would necessitate that is 1) Those workers unite into labor unions that force higher wages {won't happen in my lifetime}, or 2) The company has a strong sense of patriotism and attachment to supporting America and it's working people {history shows that isn't going to happen.}.