After years and years of pushing American manufacturing overseas, suddenly Congress wants to entice them back with a tax credit. Why not just lower the tax rate for corporations altogether, or better, close the loopholes that allow them to offshore their profits. Tax credits seem to be a a short term, ersatz panacea.
Offshore profits are why it's nearly useless to lower taxes and expect the wealthiest US companies with international holdings to pay more than they already do.
Comparing nominal corporate tax rates between the US and other companies is nearly useless. As things stand now, for every dollar in corporate tax collected the US people pay about $18.
Nominal corporate tax rates have pretty much zero to do with manufacturing moving overseas. That was always about lowering labor and other operating costs.
Tax rates have a lot to do with the location of manufacturing; highly automated manufacturing can really minimize the impact of labor rates, and operating costs are frequently lower in the USA. One of the best recent changes made to the tax code was to allow for 100% depreciation of some capital expenditures within one year; reducing corporate tax rates would have the impact of extending this effect.
Are costs like rent & utilities and construction of facilities really much more expensive elsewhere? I can't imagine that a lot of automobile manufacturing would move to Mexico if it cost more to operate. Unless you mean the labor savings more than offset other cost increases?
I completely agree on capex, but changes there mean literally nothing for large multinationals that already pay close to zero taxes already. For me though, running a (very small) business on the side, I took advantage of that myself to make a few big ticket purchases (relative to the scale of the business)
A few products, like GPUs, already have a 25% tariff added to them. Consumers bore 100% of the costs. Nothing changed. They are still being made in China for the foreseeable future.
while labor rates do play role, they are not the primary reason and are often over stated as the reason for off shoring
Other governmental regulations including environmental regulations are far more impactful then raw labor rates, or taxation
Even some of the manufacturing that is not directly impacted by these regulation will move as they want shorter supply chains, so if key core components move, often times the final consumer goods those components go into will move as well. The inverse is also true, if something causes finished goods to off source the manufacturing of the components in the item move with it
You're not wrong, but I'm guessing there's some motivation right now to accelerate this given the amount of time it might take to stand up the manufacturing capability.
I've noticed that the U.S. government usually only fixes issues in a short term mindset.. Same way they only gave stimulus checks and unemployment for a temporary time. I wish they would start working on long term solutions instead.
Governments and organizarions in general tend to also operate knee-jerk style as well. Its almost like there's a threshold that must be exceeded until a need for change appears necessary. That threshold could be lives lost, money lost, significant opportunities lost etc.
One could argue that there could be a permanent structure (safety net) in place that sufficiently handles incidents, such as temporary mass unemployment, without the need to hastily scramble together and spin up stimulus programs like PPP and direct checks to everyone.
Govt has become increasingly risk adverse. Any proactive misstep is ruthlessly pilliored. So we're left with cycles of neglect, crisis, and oversteer.
Just one example: Michael Lewis' latest book Premonition details how the CDC went from proactive to hyper risk adverse. And we've just seen how that played out.
Why not just eliminate taxes on corporations all together? Corporations are _groups_ of people cooperating. If you want to make up revenue, tax individual capital gains / dividends as ordinary income.
This removes the distortionary effects of taxation on corporations, but maintains tax revenues in a somewhat progressive structure.
A zero corporate tax rate would highly disincentivise corporate reinvesting into things like capex for expansion or R&D. Right now if they don't plow money back into such things then they would have to book it as profit and pay taxes on it. Zero tax rates would remove that incentive. If there were no taxes on them at all then it would just sit there as people at the top find even more creative ways to give it to themselves while still avoiding a lot of personal taxes.
There's also the fact that corporations are only made possible in the first places because of the infrastructure and services provided by the government, and those must be paid for. If we moved to a model where companies were responsible to building and maintaining the proportion. Of infrastructure resources they used then indirect funding of such things via taxes would be required as much.
>A zero corporate tax rate would highly disincentivise corporate reinvesting into things like capex for expansion or R&D
This is simply not true. The investment equilibrium would change in favor of less investment in _lower_ return expenditures. Corporate managers would likely distribute more capital, which would then be reallocated efficiently in the market. The only hitch here is that the government would likely collect higher tax receipts, and thus lower total investment. But that's an argument for lowering the tax rate on investment income, not creating bad incentives for corporate managers to spend money with a lower marginal rate of return than their core business.
>There's also the fact that corporations are only made possible in the first places because of the infrastructure and services provided by the government, and those must be paid for.
Corporations pay property taxes, use taxes and payroll taxes already (e.g. truckers pay gas taxes, and that's reflected in retain prices etc). And since the proposal is for revenue neutrality, the delta revenue is still collected on the distribution end.
>Of infrastructure resources they used then indirect funding of such things via taxes would be required as much.
You can simply look at the budget. The vast majority of government spending is on income transfers, administrative expenses for social programs and jobs programs (the largest of which is bombing people in foreign countries). A very tiny sliver is infrastructure that corporations use. And as pointed out above, most of that can be paid for via use taxes they already pay.
Your viewpoint is fairly well contradicted by recent experience with corporate tax cuts that were not reinvested back into the company and were instead used for massive stock buy backs that gave the money to investors and upper management with their own shares to sell back into the rising prices, which is what I said happens with zero tax rates. Do you think if they went even lower that would change?
The use taxes you're referring to are mostly going to state-level entities and state infrastructure. They're not going to pay for the federal resources, and I mentioned services, not just infrastructure. Heck, the amount of resources they use in government legal services, courts etc alone are significant costs that companies pay practically nothing but miniscule filing fees to use. Further, even those state level taxes are often minimal in the race to the bottom of states giving massive tax cuts that negate much of the revenue for the sources you mention.
As for annual spending on infrastructure: yes, that is at least partially right and is exactly why we have an infrastructure crisis in the country with aging facilities, bridges, etc and no money to pay for it. Whatever companies are paying in use taxes, it's certainly not enough to keep pace with our needs. Are you an advocate for use taxes, or was that just a rhetorical device? Because if you really believe they are appropriately paying use tax, and given the infrastructure crisis, you should be all for increases to those use taxes.
> A zero corporate tax rate would highly disincentivise corporate reinvesting into things like capex for expansion or R&D.
Valid point, but are there other ways to incentivize companies to reinvest profits without the incentive being tax avoidance?
I would be a proponent of 0% tax on small-ish corporations, perhaps with profits under $1 million (or maybe $5-10 million), so that small businesses who can’t afford an army of accountants to hide profits are brought up to a slightly more level playing field with bigger corps.
The problem with taxing based on profits is they can be obfuscated in too many ways. I'm not opposed to what you're saying in theory, but I think there would need to be massive changes to the tax code to make that work.
That is not a good rebuttal, it ads nothing to the conversation except to say "I disagree" in a slightly more adversarial tone.
It need more explanation: Is it a bad argument because you think giving it to themselves is okay?
Or is it a bad argument because you don't think that would happen?
If it's the later, recent events show you're incorrect: corporate tax reductions were used in stock buybacks that significantly benefited upper management by selling their own stock back into the stock price increases.
And clearly R&D was not incentivised under those tax reductions. Also R&D is a long term investment. There's no reason to believe the short term thinking that often governs corporate decisions wouldn't also win out here. Companies that try value R&D would continue, and those using it simply to avoid taxes would reduce or stop investing in it.
That doesn't change anything about why corporations should be taxed, unless you also believe that individual people should not be taxed either. Because after all the company is only people so it should be taxed because it's people that we tax. To break it down into pieces:
1) Corporation are made up of people.
2) The money those people receive directly from the company is taxed
3) The money received by the company is also received by people because the company is, after all, only a group of people.
4) Since money held by the company is also just people's money, and people's money is taxed, the company's money should be also be taxed.
Why should money received by an individual be taxed but when it's pooled & received by a group of people it remains untaxed?
I actually know the next response in this chain: If it's taxed at the corporate level and then given to individual people who are also taxed, it has been double taxed. There's an easy solution to that: The company shouldn't hold on to the money long enough to have it taxed. Keep giving it back to people, pay higher salaries, or invest in R&D.
In that way, it's not even a tax on profits as much as it's a penalty for keeping the money stagnant. By keeping it stagnant you keep it from contributing further to the economy and from receiving enough taxes from individual taxation to pay for all of the infrastructure & other services provided by the government.
> Why not just lower the tax rate for corporations altogether
And use market pricing mechanisms? To what end? An efficient market? You madman! How will we be able to consolidate our power and command hefty campaign contributions if we cannot pick winners and losers, rewarding our supporters while meting out punishment to those who dare oppose us?
If we go down this road, moreover, we might then have to admit that, besides taxes, our regulations and our multi-decade environmental reviews are there to cause problems, not just to solve them — that safety, pollution, justice, are all well and good themselves, but even more importantly, they are tools for us to express political favor and disfavor, to bend society to our will, and our advantage.
No. We must feed the machine. Shakedowns today, shakedowns tomorrow; shakedowns forever.
One way is making the areas damaged into property. If you own land, you generally don’t want it polluted because it would lower the value. In those examples, make the water table and ecosystems into something people can own in portions. This is done with “views” that skyscrapers would otherwise block.
Should be done with orbits to prevent space debris.
The trouble is it seems impossible to turn certain externalities into property. It would require hard thinking and innovation. And just like regulations, it would lag behind industry and miss unknowns (lead, micro plastics).
Simple, lower tax rate doesn't Guarantee industrial investment. It can lead to bunch of things like share buybacks, higher CEO pays etc. However, targeted tax breaks can help guarantee industrial investments.
Because then you end up in situations where all of your patents are held by a subsidiary in the Cayman Islands and 100% of their domestic sales happen to go to paying off the patent license fees.
I mean, the US Government just suggested a new taxation at the G7 to prevent this. The EU and US (and UK) are going to fix the issue. But it will probably take a few years.
> After years and years of pushing American manufacturing overseas, suddenly Congress
How has Congress pushed American manufacturing overseas...?
Manufacturing has moved overseas simply because labor is cheaper abroad. Congress didn't have to push anything. It's just natural economics at work.
At most you could say Congress has been part of reducing tarriffs and promoting free trade, which makes everybody involved wealthier. But that's no "push". It's just letting the free market do its job.
Arguably, Congress made/authorized the trade deals which were designed to move manufacturing over seas.
There was a theory that US firms would sell higher end goods and services to developing nations who did the manufacturing. Treaties were made with countries that occasionally had asymmetric tariffs in favor of the developing nations (Columbia had such a deal) based on this theory.
While debatable, the belief now is that the majority of those service jobs were actually worse than the old manufacturing jobs which provided stable 9-5 employment, benefits, and a career path. There is further concern that trading partners who took up the manufacturing side of things are now developing and exporting the supposedly advanced services and technology companies the "knowledge economy" was meant to provide (e.g. TikTok). In the case of some industries like semiconductor manufacturing it's also posing existential national security questions.
I haven't heard of this so I'd like to learn more.
Do you have some sources you can point me to? I've studied economics and history quite a lot and have never heard of the idea that Congress intended to migrate manufacturing jobs to service jobs, or that the US would intentionally give another country an advantage in order to achieve this. What is the name of the Columbia deal you're referring to? And is there any specific time period or administration you're describing? Or economists whose views provided the theoretical underpinning of why shifting from manufacturing to services would be desirable national policy?
Has a good 5 paragraph summary of US Trade policy and its intentions from the 1980s to present. I've found the Perot, Bush, Clinton presidential debate of 1992 to be the most insightful as to the the state of public discourse on trade intentions at the end of the cold war. The topic of one-way trade deals featured prominently in this debate, the proposed solution that Clinton pitched was the "Knowledge Economy".
For the Columbia free trade deal, this source provides useful context on the outstanding tariff levels prior to the most recent Free Trade deal.
> Before the U.S.-Colombia FTA entered into force, the U.S. average tariff on Colombian goods was 3%, while Colombia's average tariff on U.S. goods was 12.5%. Prior to the agreement, about 90% of U.S. imports from Colombia came into the country duty-free under trade preference programs or through normal trade relations.
Across all those sources, though, I can't find anything indicating that deindustrialization was a goal.
Even the Wikipedia article which has a whole section on it seems to present it as a side effect, while Clinton's talk about the "knowledge economy" is framed as it being an area of economic opportunity.
And I found the debate transcript [1] (it was a famous one for the "giant sucking sound"!) -- and Bush is arguing for increased exports (which means greater US manufacturing), while Clinton is explicitly arguing that other countries need to be as open to trade as we are.
So if anything, Bush appears to be pro-manufacturing, and Clinton is against one-way trade deals.
And your Colombia example would show that then -- if it was a one-way trade deal, it's to benefit American manufacturers rather than consumers.
So I still don't see where a shifting employment away from manufacturing was a goal anywhere. Is there something else I'm missing?
> Why not just lower the tax rate for corporations altogether
You're assuming it's true that manufacturing has moved overseas because of tax rates. Remember that it used to be blamed on labor costs.
All those arguments suit the arguers, who don't want to pay taxes or wages. There are many reasons, including that Americans can have better paying jobs than what they did 50 years ago.
Another issue is that Americans have to pay for things, and if the corporate tax rates are lowered (they are already pretty low), then other people have to pay a greater share. Who?
It requires significantly less political capital to create a new tax cut or subsidy than to raise taxes or allocate new spending directly.
Furthermore American tax policy w.r.t foreign profits is a rounding error when it comes to building up semiconductor manufacturing infrastructure.
No American company is happy they have to go to China or Taiwan to tape out a new design. There simply isn't the infrastructure to do it affordably on this side of the Pacific, unless it has critical technologies that cannot be offshored for fear of industrial espionage.
> It requires significantly less political capital to create a new tax cut or subsidy than to raise taxes or allocate new spending directly.
This is an incredibly important point, and one that I wish would come up more often. The reason that the US tax code is such a cluster@%&$ is because we insist (for reasons of politics) on conducting our fiscal policy almost entirely through the tax code, rather than just, you know, spending money directly on the stuff we want to invest in.
But something nobody talks about are the sacrifices the population has to do to churn those things out of factories at the same scale as nations desperate to rebuild and feed their people. China succeeded because they went all in, their factory employees are still told today they have to sacrifice their youth to the nation.
Will american factory workers work the same way ? Will you proudly join a factory and start building stuff, at the cost of your health?
The solution, long term, can only come from China changing their mindset somehow, and then the next few places taking over the gap (I suppose Africa one day will wake up, India is starting a bit)
Also, even if America start pulling out, this doesn't make their products automatically superior. Taiwan especially showed they can outpace in execution, maybe in design and even if the US stop buying there, now Taiwan itself can compete and lead where the US will follow: is it better to be independent on bad design or co dependent on good ones ?
Semiconductor fabrication is almost entirely automated and any new fabs in the US will be on the cutting edge of new automation technologies, so I don't think there will be quite so many workers involved.
Because politicians have realized that semiconductor manufacturing capability is especially critical to our national security and prosperity. Having the bulk of it located overseas is risky during a time of war and potentially provides unacceptable economic leverage to others during a time of peace. It’s the same reason why we have massive farm subsidies.
A lower tax rate for corporations altogether would also incentivize the relocation of noncrucial capability. Limiting the incentive to critical capability is less expensive.
> After years and years of pushing American manufacturing overseas, suddenly Congress wants to entice them back with a tax credit.
It wasn't "Congress" behind the push to outsource everything to the point where many once mighty American corporations have become little more than a veneer of supply-chain specialists, the C-level suite and their finance finaglers. This was done deliberately and systematically by corporate leadership and driven by greed. I suppose some might attribute the root-cause to the rise of neoliberalism and the globalization of the economy. Whatever it was, it took decades to unfold and it will take decades to reverse (if that's even possible).
Congress won't be able to fix this mess by giving away a few freebies to rich, powerful, and profoundly self-interested corporations. They'll take the money, of course, in whatever form it's given. What they do with that money is literally "their business" and it's not going to serve anyone's interest other than the shareholders.
Right now that would be politically untenable as majority in the House and Senate have the position that Corporations are evil and do not pay their fair share™, they are actively working on rolling back Corporate tax cuts from previous administration.
Further there is a large amount of political power that is openly hostile to manufacturing believing the US should move beyond manufacturing as it is seen as "dirty" and not viable instead they put their stock in the "service" and "information" economies which have yet to prove their viability absent a strong mfg base.
In the short term given all the news about chip shortages being a national security and economic security issue many politicians will look the other way for a small concession to a critical industry but still remain openly hostile to manufacturing in general
