Tag Archives: corporate tax rates

Why Some Imported Products Are Cheaper

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There are a lot of reasons for the decline of manufacturing in America. Many of those reasons are related to trade deficits and the desire for cheap goods, but some are related to the cost of doing business in America. For better or worse, corporations in America who choose to operate within the law are required to pay their employees a minimum wage. We can debate over what that wage should be, but the fact of the matter is that a minimum wage exists. Some other countries have no qualms about employing slave labor or paying people very low wages. The Chinese have used Muslims as slave labor for years. So why would a manufacturing company want to locate in America? There are a number of incentives (in addition to the lowering of the corporate tax rate). America has dependable energy and is moving toward lowering the cost of energy. America protects property rights–the state cannot come in and simply take your business away. Innovation is also protected by patent and copyright laws. America represents a stable environment in which to do business. Changing the structure of tariffs also has moral component.

On May 12, The Federalist reported:

…But Trump’s tariffs were not just economic, they were moral. Rather than relying on foreign countries, particularly China, that benefit from abusive labor practices, Trump put America first by deciding the U.S. must stop pretending inexpensive products come with no human cost. 

…During Trump’s first term, his administration repeatedly highlighted human rights abuses abroad, especially in regions like China’s Xinjiang province, where the Chinese Communist Party is running forced labor camps filled with Uyghur Muslims. More than a million Uyghurs and other Muslims have been detained by China and sent to reeducation camps in what is called the “Xinjiang Uyghur Autonomous Zone” for a range of reasons, including attending religious services, having more than three kids, or texting verses from the Quran. 

China forced many of its religiously and ethnically targeted workforce to toil away in factories, making products distributed and sold across the globe. Muslim slaves in China produce countless store shelves worth of goods, according to the U.S. Department of Labor, such as textiles, hair products, and aluminum, among many other things. They get extremely low pay, can’t contact or visit their families (unless, in some circumstances, they are heavily surveilled by the government), and they can’t leave. 

The article concludes:

Yes, U.S. prices may go up a bit in the short term. Maybe American girls will find two dolls under the Christmas tree instead of 30, as President Trump suggested Sunday on Meet the Press. Maybe U.S. students will sharpen five pencils instead of hoarding 250 like mini office supply tycoons. But maybe underpaid workers in China won’t have to literally slave away making those dolls or pencils for someone else’s kid in a distant Land of the Free. 

President Trump believes temporary price fluctuations are a trade-off worth making in the interim, and he is doing what no other president had the guts to do. There is short-lived pain before lasting progress, and Trump is willing to take the heat now to put human rights and American prosperity over easy profits. 

Do We Really Want To Give Power To These People?

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Yesterday The Hill posted an article with the following headline, “Democrats vow to repeal tax reform, putting taxes in focus for 2020.” Why? Federal tax revenue has increased, and the economy is doing very well, why would you want to mess with success? Because you can’t let President Trump succeed at anything. And if the American people figure out that lower taxes are better than higher taxes, Washington will lose its stranglehold on the American taxpayer.

The article reports:

Former Vice President Joe Biden made it clear: “First thing I’d do is repeal those Trump tax cuts.” Sen. Kamala Harris (D-Calif.) seconded the motion, saying she would repeal the tax cuts on “day one.” Mayor Bill de Blasio has attempted to raise taxes on high earners in New York City.

Democrats seem eager to prove that they still have no idea how jobs and wage increases are created in a capitalist economy — that is, by capital investment that starts new businesses or expands existing ones, increasing the demand for labor as jobs are created, bidding up wages.  

But stimulating capital investment requires incentives that arise from reducing tax rates. That is what President Trump and Republicans in Congress did in their Tax Cuts and Jobs Act of 2017.

Was it good for America and its workers for the federal government to impose the highest marginal corporate tax rates in the industrialized world? Before Trump’s tax reform, those tax rates were nearly 40 percent, counting federal rate and state corporate rates, on average. Most of the rest of the world imposed marginal tax rates only half as high on their businesses.

Tax reform reduced the rate on businesses to the world average and ended double taxation on earnings of U.S. corporations abroad. That is why the U.S. economy has created millions of jobs with Trump in the Oval Office. The Democrats’ ball and chain on American business has been sharply cut back, creating a capital investment boom.

The article concludes:

And contrary to Democratic disinformation, President Trump’s tax reform included tax cuts for the middle class of about $2,000 a year per family; rates for families making $19,000 to $77,000 were cut by 20 percent. The same occurred for single taxpayers making $9,500 to $38,700. Tax reform also nearly doubled the standard deduction, and actually doubled the child tax credit — both of which benefit lower-income workers the most.

Amazingly, these tax benefits have been confirmed by the New York Times and the Washington Post, which have acknowledged that most Americans received a tax cut. H&R Block concluded that “overall tax liability is down 24.9 percent, on average.” So much for the socialist derision of tax reform.  

Raising taxes would only consign America’s working people back to renewed recession, as under Biden and President Obama. Democrats seem to want to run as they did in 1984, when Walter Mondale campaigned on a tax-increase platform. Then recession occurred when President Bush agreed to raise taxes in a 1989 budget deal, which only increased the deficit.

“If it ain’t broke, don’t fix it” should be the motto of the day. The Trump economy is doing very well. The Obama economy did not do well. In 2020, American voters will have a chance to choose between the two. Let’s hope they choose the right one.

One Way Tax Rates Influence The Economy

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Yesterday The Washington Free Beacon posted an article about the impact of corporate tax rates on entrepreneurship. The article notes that as the corporate tax rate increases, the number of start-up companies decreases.

The article reports:

Entrepreneurship is negatively impacted by higher corporate tax rates, according to a study from the Federal Reserve.

“While there are many actions governments may take to affect entrepreneurship, few are as important or contentiously debated as the setting of tax policy,” the paper explains. “Taxes are viewed by many as the primary lever elected officials have at their disposal to change the business environment, promote growth, and encourage innovation.”

The study looked at counties that had changes to their state corporate, personal, or sales tax rates and how entrepreneurial activity was affected compared with those counties that had no changes to tax rates. The study defines entrepreneurs and startups as those that are two years old or younger.

“We find that increases in corporate tax rates have a statistically and economically significant negative effect on employment among startup firms,” the study explains. “Specifically, for every one percentage point increase in the corporate tax rate employment in startup firms declines 3.7 percent.”

…”Tax liability reduces economic profits, restricting the set of potential entrepreneurs whose likely profits exceed entry costs,” the study explains. “Tax policy affects labor demand via the dependence of firm-level labor demand on other production or revenue factors.”

The study also points to previous research that finds self-employment is affected by how complex the tax code is. Corporate tax rates reduce research and development and new product development.

If this study is accurate, we are going to have substantial economic growth in America as the corporate tax cut begins to take effect. Like him or not, President Trump is a businessman, and a rather successful one. I suspect he was already aware of the relationship between corporate taxes and start-up companies.

Just for the record, I was talking to someone last night who has been a Trump supporter since he announced his candidacy. She said something to me that I think is very astute–“Trump had to be the candidate–we needed a mud wrestler to fight the Democrats. The other Republican candidates wouldn’t do it.” That is an amazing (and true) statement.

What Happens When The Government Gets Out Of The Way Of The Economy

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Yesterday Investors.com posted an editorial reporting that Canada has surpassed the United States in household wealth.

The article reports:

According to a study by Environics Analytics Wealthscapes published by The Globe & Mail, average Canadian household net worth in 2011 was $363,202, surpassing by $40,000 the $319,970 U.S. average.

What has been going on in Canada lately that has caused this growth in individual wealth? Free enterprise spurred on by lower taxes, less government spending, and less government regulation.

The article reports:

For one thing, Canada has embraced fiscal discipline. Its federal debt is around 35% of GDP compared to the U.S. at 100%. The deficit is 2% of GDP, not 10% as here. At June’s G-20 meeting in Mexico, Prime Minister Stephen Harper told heads of state that economic growth and fiscal discipline “go hand in hand.”

There are lessons here we need to learn:

In January, its slashed its corporate income tax rate to 15%, lowest in the G-7. The U.S. rate is 39.2%, the world’s second-highest. That’s helped Canadian companies create jobs and cut unemployment to 7.2% as the U.S. remains at 8.2%. Foreign direct investment has also surged, hitting a record $26 billion in 2011, fueling even more jobs and wealth.

The article concludes:

The cumulative reality is that these policies translate into wealth for an entire country. Canadians are richer, bolder and face a brighter future because they have quietly abandoned socialism and embraced free markets and free enterprise. We obviously need to relearn the lesson our neighbors are teaching: When free markets are embraced, we all do well.

It matters how you vote in November.