Discussion in 'Political Discussions' started by Maniac Craniac, Dec 22, 2011.
Nice point Sir.
R&D spending continues to climb R&D Spending Continues to Rise - WSJ.com
I hear a lot of people emphatically stating with the utmost certainty that if this happens (cut corporate taxes) then that will happen (companies will hire a gazillion new workers in the US, fund this and that). Unfortunately there is absolutely no evidence or guarantee that this would happen.
Please note that they are talking about global spending on R&D. We still have minor increases in the U.S. (thanks in large part to companies like Google) but we are not increasing at the historical rate and more and more R&D is being outsourced as foreign competencies increase. China and India are positioning to be systemically better for R&D bang for buck. Add to this vast untapped Asian markets and some of this makes sense to outsource, but we do not need tax policy incintivizing it. (sorry for spelling)
As for guarantees that companies will hire, if you want a guarantees in business and politics you'll never get them but history is the best indicator of what will happen tomorrow and to that end easing forecasting through stable tax policy allows companies to follow their natural tendency to expand and grow. This faith in free enterprise is the line that seperates the GOP from the Democrats. Companies that shuffle paper, who produce nothing and yet give themselves big bonuses have made headlines in the last 4 years, but they are not the norm....nor are those who pay no taxes.
This has been my point all along. Same goes for the Bush era tax cuts. Did that cause more money to trickle down? I think these very issues are going to impact which way Americans vote next year. Here is my prediction. If you fight to protect corporate tax cuts and other such things, you will lose. Simple.
I have faith that free enterprise will lead to one thing: businesses trying to maximize profit.
This may or may not be to the benefit of the country. If it is cheaper to produce something in Asia, then the new plant will open there, not here. What is good for business is not always what is good for America, and it's even less often good for the American worker.
Is government the solution? Partly. Government doesn't function as efficiently as private industry, but it has national interests in mind. Corruption, etc. limit the effectiveness, unfortunately.
IMO, the best way for government to operate is to provide regulations and incentives. If you want businesses to stay here, then combine higher taxes for revenue earned overseas along with reduced deductions for overseas expenses. Also, you can provide tax credits or lower taxes for business activities within the U.S. Perhaps this could be combined with an initial repatriation program that permits companies to repatriate income at a low or non-existent tax rate. That gets the outstanding cash back in the U.S., and the companies can use it to hire American workers to make American products.
Here's the deal: Unless you are one of the people at the top making the money off of outsourcing, you really don't want a completely free market.
Why? We are no longer in an era in which we have such demonstrable technical superiority that we can do things no other country can do. Globalization permits companies to draw from a worldwide labor market, and when you are a nation with higher-than-average wages, your option is to accept lower wages or not to have a job. Sure, some professions cannot be outsourced, but how will their customers afford to use their services if they don't have jobs or if the jobs are so low-paying as to limit their disposable income, then even the professions better be prepared to take lower wages.
The unrestrained free market is only a helpful mechanism when you are willing and able to compete with all comers, including foreign workers who are willing to do the same job for a third of the price.
"Trickle Down" economics is a false label oversimplifying the supplyside aspect (and all that implies) of our economy. Corporate tax cuts make sense becasue almost everyone in the US works for a corporation (at least the large majority). The corporations are the single biggest consumers and producers of goods and materials. The corporations as defined by the government make up a minute number of "individuals" and ultimately account for only 12% of overall federal revenue yet policy aimed at curbing their growth will impact the other 80%+ of government revenue since most people work and consume from corporations. Raising taxes on them cuts the means of consumption and production. Do average Americans understand this? No, they understand fear and greed.
If the GOP can find someone to articulate these things, they'll win. If not, it's a coin toss since many people will be voting against Obama, not necassarily "for" anything else.
What we need to move away from are punative tax policies and politics of envy. We're cutting our own throats with this.
I'm fine with cutting corporate tax as long as it is on American-based activities. I don't want to reduce taxes on a company that will use the additional revenue just to outsource more jobs.
I disagree with a couple of assumptions you have. First is that the US would lose in an unrestrained free market. Really? If we cut the 50%+ overhead we build into every business dollar through regulation and law we would shake the industrialized world up. We are still the world's leaders in innovation and we are and some argue we should outsourcing commoditized skills. Whether we acknowledge it or not we are already competing in a globalized marketplace. Protectionist policies to deny this fact and to encourage the exclusive eating of our own dog food is dangerous (China did it for a long, long time and are still catching up).
Second, business incentive to make profit does not focus on national interests but oddly national interests are more often than not aligned with those of business. Some businesses are ultimately destructive, some are not. But a government who gets to pick winners and losers, who removes market risk in some segments while increasing risk in others is very destructive. It's not that the government needs to be hands off but they certainly need to be fair and let the markets make natural adjustments.
I agree, but I think the way to do that is with a stable tax policy that allows for long outlooks...none of this 24 month crap. Nobody makes significant investments in physical and manpower assets with a 12 to 24 month outlook. That's like buying a house without knowing what your payment will be in 6 months.
Oh...and as for US based companies opening separate legal entities overseas to shore up risk and provide a tax shelter....I want to oppose that but then there's the international tit for tat thing and I honestly have no idea how that would impact us. I'm against protectionis policy but I am undecided on this.
So let me see if I follow your reasoning. R&D in the US has not increased to your satisfaction because the Federal Government is not handing out enough incentives. That is your concept of free enterprise? I'll invest in R&D if the Fed incentivises me to do it..... and if they don't I won't invest in R&D? Wow. Really? Wow
Again there is nothing to suggest that companies (especially those that are currently hoarding cash) will suddenly open up their purse strings and hire AMERICANS if the corporate tax rate is reduced. Nothing.
Corporations, no. They would dramatically reduce costs and reap greater profits.
Workers? Absolutely. If someone else can do the same job more cheaply, then you will either have to take lower wages or miss the opportunity. That's a basic truth of the labor market. In America, you won't find many people willing to do technical, skilled jobs for the salary levels paid overseas.
This problem will then bleed over into the jobs you can't outsource because the labor supply increases while demand remains the same or reduces. That's going to knock the wage price down.
Sure, we could start to compete if we are willing to accept lower wages or if the rest of the world starts demanding higher wages. We can't, however, expect a business to hire a more expensive American over a cheaper foreign worker, all things being equal, without an financial incentive to do so.
I think it all depends on one's definition of "winning." If winning means low unemployment and sustaining a standard of living, then globalization makes winning less likely. If winning means increase profits for the top 5%, then, yes, globalization expands the customer base and depresses wages, so winning is more likely.
Before regulations came along, we had a host of other problems with workplace safety, product safety, etc. I'm fine with taking out excessive regulation, but I really doubt that 50% is an accurate number. I'm sure you were exaggerating.
Innovation isn't the problem, but let's be realistic: only a small portion of the American workforce is going to innovate. What happens to the rest? Some of them could work for the American company, but what is to stop the company from just hiring foreign workers for lower wages? The owners and the innovators win, but the rest of the population loses.
It's a delicate balance to be sure, but if you look at the Chinese economy, you see what a protectionist policy can do. They are eating our lunch in exports because they artificially devalue their currency. Of course, it's not sustainable, but the alternative of failure is often not sustainable either.
It's not about a government picking winners or losers necessarily but is rather about encouraging investment in the American economy. We can't innovate our way out of this. If anything, innovation in greater technology could actually reduce the number of jobs by replacing workers with technology.
If the jobs our "job creators" are creating exist in China and India, how does this help average Americans?
You have to look at it from the perspective of the business. The business will invest in a way that maximizes profit. If incentivized, it will pursue certain tracks to do so. If not, it will find other ways to invest, including in foreign ventures.
If it takes incentive to keep business in America, I'm all for it. I will not sacrifice the American worker for a Chinese worker on the altar of the free market.
I completely agree. The only way to expect business to invest in America is to have an environment conducive to hiring Americans. Sometimes this can be accomplished with a laissez-faire approach. However, with globalization, simply having businesses expand will not necessarily lead to increased employment, especially when expansion can occur overseas.
"Awesome! Our tax rate went down. Now, what were we going to do with that plant in India again?"
No you misunderstood me, the government should get out of the way of business altogether not incentivize certain kinds of spending and discourage others, especially with domestic R&D. But yes, R&D is not growing domestically. From 1998 to 1999 for example R&D spending was growing at about 7%+. Compared to now which is just over 2%+ for a reduction of 5%. Last time R&D grew so little was from 1985 to 1995 (before the dot com boom). R&D is critical because the US is moving away from manufacturing and commoditized skills and towards knowledge based work and innovation. In fact we have been uncontested leaders in R&D globally for about 50+ years, but now maturing overseas markets are emerging with the sole intention of swinging that strength abroad. Take for example an Indian company who produces a palm sized personal computer, gains the lion's share of the market with IBM like strength and soon we are buying a product that is foreign owned, produced, supported, etc. If we're lucky, we might be able to align investment interests to own portions of the company through open market trading to contribute to our own GDP. If not, well, we as a nation lose and run larger trade deficits. (This is a hypothetical at this point).
As for corporations hoarding cash...of course they are. Corporations are very organic in their behavior. If there is fear or uncertainty the build liquid capital (like a savings account). If they feel good and optimistic they spend in order to grow (as all organizations that do not grow are thus in decline). This is organizational behavior 101 stuff.
Sorry forgot to source data: http://www.aps.org/publications/apsnews/200002/research.cfm
Stefan, you’re a good guy and I think your replies are in earnest and not meant to be blindly argumentative so I’ll take some time to reply in total…but in bite sized chunks since I think we’re getting somewhere.
I just attended a management symposium at a country club (normally I don’t roll like that but this was a rare opportunity) and the theme of the meeting? We cannot cut costs further. Basically picture this, medium and large sized business management bemoaning the fact that their organizational growth has halted. They have returned to their core competencies and cut costs to such an extent that it has begun to have an adverse impact on revenue and/or market share. In other words, they only spend where they know they can reap rewards and they have squeezed so much capacity out of their labor and infrastructure that they cannot “cut cost” anymore. On the economies of scale curve they have reached peak efficiency and cannot produce or grow further without investments in labor and infrastructure. This leaves 2 alternatives, develop domestically or outsource.
Guess what the speaker at the symposium recommended? Outsourcing commoditized skills whenever possible and retain knowledge workers and innovators. In other words in today’s economy we either innovate or become a competency center. The UK are in a similar situation and made significant inroads in replacing Germany as the financial competency center of Europe. This type of specialization in skilled labor complements innovation and works in concert ultimately compounding segment growth.
This means that American workers need to get out of the production and manufacturing mindset and move towards a skilled labor force. This is why every President since Clinton has harped on the need for more and more higher education opportunity as essential to the economic progress of our nation.
Actually I think 50% is a conservative guess. Corporate taxes are 30 to 40% on average, thus baselining costs at that percentage higher in order to return a yield on investment. Add to that the 20 to 30% of consumer taxes (those who purchase the corporations outputs) and 30 to 40% of taxes on earnings made through investments (those who own the corporation or otherwise invest in it) then tack on regulatory fees, legal fees, accounting and taxation services fees, audit fees, fees associated with OSHA, the EPA, etc. and I think we quickly approach the $.50 on the dollar mark for regulatory overhead and taxation.
By the way “owners” and “innovators” are the majority of the population. If you have a 401K, IRA or other retirement or investment account you are a part owner/investor whether you know it or not. Maybe a better term would be “stakeholder” in that anyone who has a vested financial interest whether employee, consumer, investor, etc. will benefit from the health and wellbeing of a given company. There is no “us vs. them” class warfare stuff going on. There’s just “us”.
The Chinese are a conundrum for sure. They do not play by “the rules”. They attempt to shame the US into the Kyoto Accords for example while they themselves are the earths premier polluter. Why? Because they know regulatory overhead puts us at a strategic disadvantage. The Chinese are also no respecter of labor in that they will take 1 million farmers and turn them into miners at the drop of a hat, using force if necessary.
Lastly the Chinese made massive investments in production assets before there were any manufacturing customers and mitigated risk by confiscating the wealth of the populace to do so. In other words the factory workers were the labor used to produce in the very factory their tax dollars built. It’s a perversion of capitalism and government at work. That said the Chinese birth control policies are also prematurely aging out their economy, meaning they have a narrow window to become consumerist rather than exporter. Personally I think the Chinese model will ultimately fail unless they allow for free market innovation by incentivizing personal, individual wealth. Otherwise they’ll have to satisfy themselves with manufacturing the crap the rest of the world dreams up for them but even then, they will have diminished production capacity without significant reinvestment. If they invest instead in R&D but with no personal incentives…well you can put that together.
As for devaluing their currency? Yeah we have done plenty of that too. What do you think will be the end game results of all of these stimulus bills? That’s right…inflation or devaluation of our currency. This hurts us in commodities but helps us in manufacturing and globalized trading. It also better enables us to pay down our deficits but makes our capital holdings worth less. It’s a double edged sword.
Actually I’m starting to believe that the government is pretty poor at incentivizing anything…but they are terrific at getting in the way. They really need to just move out of the way whenever possible. I know that’s very un-Keynesian of me and both the GOP and Democratic parties would disagree, but that’s the beauty of free thought.
As for innovating our way out of this, all industry experts, economists and politicians agree on the importance of the US leading innovation. This is true of Forrester, Gartner, the Federal Reserve reports, the White House, etc. Nobody disagrees that it needs to happen, we only disagree on how that needs to happen. Saying technology will “reduce jobs” is wrong in two ways. First it assumes that if we do not adopt innovation or develop new methodologies of building widgets, nobody else will either. If this were true we’d all be Amish. The fact is if we are beat to the punch we are at a massive disadvantage economically. Secondly history has proven that as technology grows so do opportunities for employment. Sure robots may replace assembly line workers but then they open doors for those who design, build, maintain and improve the robots. Imagine for example where we would be today had we turned our backs on the Internet, would we be better off or worse? If we do not innovate the “job creators” really will be in China and that would help Americans in no way that I can see.
Thank you for responding in kind. I enjoy discussion.
I agree. My reference to cost cutting is through outsourcing.
I generally agree with this, but I don't think our higher education system is getting it done. I'm seeing large number of individuals getting degrees without learning much of anything.
Well, the corporate taxes are contigent on profit, so the actual realized percentage on investment is lower, and the actual rate depends on the company's expenses.
On consumer taxes, I'm not sure it's appropriate to count this as a cost to the company. It's a cost on the consumer, for sure, and if not required, then the consumer would have more to spend, but it is also likely that a good portion of that would be eaten up in no-longer-provided-by-the-government services that consumers would then need to purchase.
And 30-40% is a bit high on earnings from investments. Capital gains are not taxed that highly.
I do think that some regulations like Sarbanes-Oxley were well-intentioned but complex. They could be refined; I agree. If I had to guess, we could probably reduce regulation costs by a third if we really wanted to, and we probably should.
That's not true. My investments (limited as they are) in my retirement account are entirely and utterly contingent on my employment. If I am not employed, I do not contribute, and I will probably bleed it dry if I am unemployed long.
When I mentioned "Owners" I meant those who derive their income primarily from capital gains. My owning one share and their owning 50,000 shares is a major difference. Sure, we both benefit when the company benefits, but the other guy REALLY benefits. And if the company laid me off to gain those benefits, I still have a net loss because I lose my income, even if I have a few extra dollars in the retirement account.
I don't necessarily have a problem with the owner making money off of capital gains, but I don't pretend that we have the same interests in mind. Of course, that also doesn't take into account how some investors are looking for short-term returns, some long-term returns, and some medium-term returns. Even owners of equal amounts of shares don't always agree on the direction of the company.
No objections here. The Chinese are playing dirty by our standards.
True, but the US hasn't done it intentionally to preserve a trade imbalance.
As a Keynesian, I actually agree that our government has been historically bad at doing this. Why? Instead of providing the best incentives, the government has provided what is most politically advantageous. These things are not always the same.
I'm by no means a Luddite, but this is a difficult reality of technology. Sure, it creates high-tech jobs, but often not as many of them, and so it's still a net labor loss when this occurs. But we can't resist technology either. I just don't think that innovation will automatically solve our labor problem. It might keep us afloat, though.
I think the problem we are facing is actually due to the fact that we really don't NEED economically as many jobs are demanded demographically. This problem is only going to get worse as populations increase (especially worldwide). I'm not sure what the best solution is, but I do think we are going to be in for a wild ride over the next few decades. I do worry for my children (and myself, but to a lesser extent).
In some respects, I think that no matter what we do we are simply slapping some Neosporin and a bandaid on cancer.
In summation, I have no problem with people getting rich or with corporations cutting costs (or taxes, if it will truly help). I'm just worried about the systemic problems that are starting to raise their ugly heads. In the end, I'm sure the market will find equilibrium, but I'm not sure 90% of us are going to enjoy that equilibrium very much.
And, as a side note, I just wanted to thank friendorfoe for civility in discussion. It's so easy to get into namecalling and insulting, but I'm glad that we have been able to discuss things civilly, even when we disagree.
Part of the problem that I have with this general issue is that often times it seems that corporations simply continue to say that they need "just one more advantage" before they can do the right thing. Then they get that advantage and turn around and say, "If we only had one more favor..." and all the while their executives are making millions of dollars per year. People accepting millions of dollars in bonuses while their companies fail. I suppose that an argument could be made that they are good at their jobs but to me it seems that they're also con men who really have their own personal interests as the top priority and don't care about anyone else.
At least one billionaire agrees with you and argues that lowering corporate taxes will NOT automatically result in hiring American workers.
My Views on Corporations & Taxes « blog maverick
Stefan, outsourcing is not necessarily a bad thing but even using this as a cost cutting measure carries inherent risks. The more complex the outsourced work the greater the risk. Software development firms are learning this the hard way and have started to shy from overseas development for complex application builds, it just doesn’t work well. That said I think most U.S. firms have outsourced about as much as they can, future outsourcing in most markets will continue in some industries but as a whole I think we’ve plateau’d. This is what I mean when I said business managers lament the fact that cutting costs further results in prohibitive consequences.
Also technology may produce fewer jobs in a given industry or market segment but my point was that technology opens up entirely new industries and markets that heretofore were not possible. For example there was no work for Web Design back in 1975 but you could be an auto worker. Technology allowed for the automation of much auto work but also opened up new markets and fields. There is a time to adoption within the workforce however. For example, my company cannot seem to find qualified distributed application java developers to save our lives. We’re even to the point of offering $5,000 bounties. The trouble is the labor pool and in my opinion, higher education are not keeping up with the demands within the markets. People need to view their skills as tools and diversify whenever possible. One should continually “sharpen the axe” or otherwise be learning new skills or expanding upon currently utilized skills, especially if you are a knowledge worker. I am from a blue collar background and I have more blue collar friends and relatives than I can count. I love the blue collar work ethic of “just getting it done” that seems to be missing in many knowledge workers today, that said the blue collar viewpoint on maintaining and developing in demand skills is lacking. We need to get out of what I call the “blue collar” mindset as sooner rather than later the majority of Americans will need to become knowledge workers, especially as we begin to identify competency centers within the U.S. (like Silicone Valley for example).
We need to realize as voters, employees and consumers that businesses are not monolithic in nature. They do not act uniformly nor do they react to stimulus uniformly. Even still there are certain things that you can count on them doing sooner or later in the interests of self-preservation and that includes hiring to keep up with market demands. Now our politicians are demanding they create new jobs, they are also threatening taxes on “bad” corporations and markets while promising the moon to what they consider “good” corporations and markets and therein lies the biggest problem, government involvement. The government should not play goalie when it comes to natural market occurrences. For example they should not remove risks inherent to low grade mortgages. Secondly public-private partnerships of all types should dissolve with perhaps the exception of the military industrial complex. I say the military industrial complex should remain not because I’m a GOP playbook kind of guy, but because of the secretive nature of their work and because of the high levels of complexity. For example in software development, highly complex projects require extensive and constant customer collaboration. The same can be said for making missiles, warplanes and ships…but even here politicians need to but out and let the generals and private sector work together sans their input.
Anytime the government tries to pick winners and losers we all lose. The government needs to set a stable tax policy (low or high whatever, just stable) and then butt out. We also need to change our tone in the U.S. away from class warfare rhetoric. Profit is not bad despite the tone of the current administration.
Lastly Stefan, the capital gains tax rate is in 2 blocks, short term and long term. Short term tax rates are aimed at speculation and are taxed between 30 and 40% generally. Long term capital gains are taxed between 15 and 20% (like 401K earnings) though expect this rate to increase as baby boomers suck SS dry.
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