Tuesday, November 8, 2011

It's Not Regulation or Taxes, it's Cheap Labor Stupid!

Over-regulation and/or higher taxes is not why American companies send jobs offshore, it for lower wages. The United States is a far friendlier place to do business than are emerging markets like India and mainland China, this according to international analyses of regulatory climates.

American companies like doing business in politically stable environments (we always hear Senator John Boehner saying, "Business needs certainty in the marketplace"). Large corporations would not necessarily invest in a poor country with no infrastructure and an on-going civil war if it were just for cheap labor, because they wouldn't want any disruptions in their business, and would want their assets protected, both physically and by law.

The United States may have stricter environmental laws, but then again, we wouldn't want to have to live and work in a country with contaminated water and air. But when American corporations pollute the water and air elsewhere, they don't seem to concern themselves so much with the overall global environment. And we've witnessed some of the disastrous results here in America when industry is left unregulated as to the environment. 

We're all familiar with Love Canal and saw the movie Erin Brockovich. The Exxon-Valdez and BP oil spills were well publicized. The W.R. Grace plant in Libby, Montana continually spewed asbestos over the small town for decades, even though we already had environmental regulations in place.

China on the other hand, often overlooks environmental pollution, worker safety, and public health problems -- and American CEOs can take advantage of this. Pollution has made cancer the leading cause of death in China. Lead poisoning is one of the most common pediatric health problems in China, with existing data suggesting that one-third of Chinese children suffer from elevated blood lead levels. Do we want that in America?

And our labor laws are morally superior as well. We wouldn't want our workers to have to endure the horrific conditions that they have to endure in Chinese sweat shops; and we wouldn't condone child slave labor in America either, we've been down that road before. But American CEOs can turn a blind eye to those abuses and take no culpability by claiming they had no knowledge, as in "plausible deniability." This is easy for them to do when China is thousands of miles away on the opposite side of the globe with minimum access by our media.

Many companies are now compromising by cutting hours to cut benefits and reduce wages in a labor-saturated market in the U.S., thereby increasing their corporate profits. By the very nature of their existence corporations are primarily profit-driven, their only reason for being, despite the human condition (environment, working conditions, wages, etc.) A corporation, as a collective on-going concern (almost like a machine) doesn't have a conscience or any moral values per se, so the government needs to regulate them -- and because corporations lack governance and can't control their principal–agent problem to properly police themselves (like the fox guarding the hen house).

The China Daily News is reporting that authorities have ordered local bureaus to plug loopholes in the country's collection of personal income taxes from high-income citizens. The Chinese corporate tax rate is 25%, but there they pay those taxes. Here the corporate tax rate may be higher at 35%, but large corporations have an army of tax lawyers that find every conceivable loophole in our very complicated tax code to avoid paying their taxes.

One of the greatest detriments to job creation in the U.S. is the overseas income deferral law. This unbelievable gift to multi-national corporations is at the heart of free trade, globalization, off-shoring and outsourcing. Presently these corporations are sitting on $2.2 trillion in untaxed profits, which is costing the American taxpayer almost $800 billion in lost tax revenue.

The latest Citizens for Tax Justice corporate tax report (released last week) shows America’s top corporations are now getting what essentially amounts to a 50 percent discount off their tax bills. Over the last three years the top U.S. corporations have actually been paying only 18.5 percent of their profits to Uncle Sam.

For the last nine years, the World Bank has been grading countries on 10 measures of business regulation: getting electricity, enforcing contracts, protecting investors, dealing with construction permits, trading across borders, registering property, resolving insolvency, paying taxes, and getting credit. Based on these criteria, the U.S. ranks 4th in the world with the best business climate.

So in America, multi-national corporations actually have a very good business climate. Although our infrastructure needs repaired, we're not on the verge of civil war or nationalizing their companies. And they only have to deal with morally sound environmental and labor laws, not overly burdensome ones. But by being only profit-driven, it makes sense that they would prefer no laws at all. And large U.S. corporations pay very little in corporate taxes in proportion to their net profits (especially when compared to 40 years ago).

It's cheaper labor that drives jobs overseas. PERIOD. Every consulting website catering to businesses emphasizes the same exact thing, and gives tips on how best to accomplish this. (I would link to a few, but why give them the business?)

So it's misleading for CEOs to say that America lacks skilled labor, although going foreword, I would think that corporate America should generate an "official wish list" as to what skills they will need in the future -- so young people won't be graduating from college buried in debt and holding a worthless piece of paper.

Congress has to pass laws to rescind the tax incentives we give large corporations to outsource domestic jobs. We also need to eliminate all the tax loopholes that only the largest and most profitable corporations can best take advantage of. Maybe if we could collect their fair share of tax revenues, we actually could lower the corporate tax rate. But for now, we have to put Americans back to work, restore our infrastructure, get government services funded, and put teachers back to work. We don't have just a spending problem so much as we have a revenue problem.

For Senator John Boehner to say "we don’t have a revenue problem" is like the Iranian president saying the Holocaust was a myth. Today we have the lowest capital gains tax in the history of our tax code, and corporate taxes are lower now than they've been since their highest rate in 1969 (but now corporations have far more loopholes, thanks to the lobbyists and members of congress who are beholden to their biggest campaign contributors). But even then, and after the Bush tax cuts, we've still lost 50,000 factories and millions of jobs overseas.

But yet Republicans, instead of raising taxes, they want to lower the corporate tax rate even more and/or to completely eliminate capital gains taxes all together (such as with the Herman Cain's 9-9-9 Plan or the flat tax). Incredible!

Why don't we just pass a law saying only people earning less than $25,000 a year should have to pay taxes, and let large corporations, banks, CEOS, and hedge-fund mangers off the hook completely...and don't tax them at all. Isn't that what they really want? And aren't they also asking us to trust and believe in them when they say that by not taxing at all would be so much better for the economy -- and will put everybody back to work? During the Great Recession large corporations and CEOs have been doing just fine; it's everybody that's had to suffer.

Should we believe the CEO of a corporation, that's only a profit-driven entity (without a heart, conscience, or soul), when they tell us all these things? In a perfect world, a corporation would only exist, not to enrich a very few, but to work strictly for the benefit of humanity. There would be no profits, just a direct stream of revenues to the U.S. Treasury for use in our education system, the funding of Social Security and Medicare, and for maintaining and improving our infrastructure -- for the interests of the common good for all Americans (rather than just enriching the board-of-directors). We could also eliminate class warfare between the uber-rich and abject poor.

The CEOs could still be paid a good salary, and offered bonuses based on real performance; they just couldn't vote to give themselves a $100 million annual salary while paying their workers $1 an hour in a sweatshop in China...and then use the excuses that stiff regulations and high taxes prevents him from hiring Americans.

It's misleading for a CEO to claim that excessive regulation and/ or over-taxation is driving jobs overseas. It's neither of those things. It's only done for cheap exploited labor to satisfy common human greed.

And that's just one reason why today they're protesting on Wall Street and all over the world.

Low Corporate Taxes = Excessive CEO Salaries

It doesn't matter what a corporation pays in taxes as compared to GDP, or how it's compared to any other index of measure (to skew the numbers), it's what they actually pay to the U.S. Treasury after loopholes (aka "deductions") that matters most. And for the last 25 years corporations have actually paid historically low taxes.

While today some corporations may have paid the maximum rate of 35% (when it was over 50% in the 1950s), many others paid ZERO, with the average being only 18%.

The same can be said for their CEOs and other high-income earners. While although the top bracket is also almost historically low (at 35%, when it was once over 90%), what they actually pay is nearer to 15% because the majority of their income is earned through capital gains.

And because corporations have been paying a low effective corporate tax rate for decades, that didn't keep them from outsourcing jobs overseas for cheap labor, but rather, it did enable them to pay very excessive CEO salaries...who only mostly pay 15% in federal income taxes on their capital gains.

How Corporate Tax Dodgers Hoarded $2 Trillion

Tax Rates during the Fabulous Fifties

Historical Tax Rates on the Rich from 1862 to 2011

1 comment:

  1. How outsourcing American jobs also affects our national defense:

    American corporations with government contracts in our defense industry have profited from outsourcing to Chinese suppliers and getting bogus parts in return. How is it even remotely sane for us to buy anything, much less in defense and security, from a committed military and commercial adversary? So far it's cost taxpayers $7.5 billion. Why are American corporations building iPods in China with slave labor, knowing that the Chinese government hacks our computers in the defense department, commits industrial espionage, are involved with counterfeiting (both products and currency), has devalued their currency against ours, and continually engages in unfair trade practices against us? Not to mention that China backed two wars against that led to the deaths of over 100,000 American soldiers? Why are American corporations building factories in China and hiring Chinese workers at all?