April 11, 2011

Obama -- Here's How You Can Help Kick Job Creation Into High Gear

Few Americans realize our current business tax structure harms the American middle class profoundly.

Obama promised us something during the campaign, something that will be very popular if enacted, and go a long way toward improving our future economy -- to end the tax incentives that ship American jobs overseas.

It's far more important than health care, in the same sense that it's more important to turn the wheel and avoid a high-speed car crash than it is to get one's oil changed. Both matter, but one matters more.

Most kinds of good American jobs, even tasks like legal research and surgery, can be outsourced, done remotely.

All manner of good jobs can and are disappearing across our borders every year that would stay here in America if we had a normal national tax structure....


The conventional/popular wisdom says the continuing loss of jobs over our borders is simply about lower wages.
This is wrong.

For a business to thrive in a competitive marketplace, with competitors overseas, there are many factors, not only wages, in deciding what strengthens that business. Wage rates are much more complex than they seem at first glance.

To compare total costs in different nations, a business must factor wages together with connected costs such as transportation costs (and future transportation costs), skill levels of workers, productivity levels of workers, innovation levels of workers, health care costs, relationship benefits due to location, costs to transport, install and train on new equipment in different locations, safety of technology from competitor theft, and even more.

In short, it can make sense to locate in the higher-wage U.S., because other costs and factors are better in total.
Because of this, an American location is often competitive. And when there is close competition, every factor matters.

And that means we can do something about the future of American jobs.

There is a near-magic bullet -- obscured by some out-of-date political rhetoric and a simple lack of knowledge -- a bullet we can immediately fire to help level the playing field between foreign and American workers!
Just like the nations that have been taking our jobs, we can choose to tax job creation less, and consumption more.

We can level the tax-related playing field without reducing revenues.

And get this: This will eventually lead (within years) to lower tax rates than our current system requires.

How? By placing part of the tax burden on foreign goods, where it belongs, through sales taxes.

But wait, there's more. There will be an increasing number of American jobs due to the new tax equation of locating here -- and that will increase tax revenues over time compared to keeping the current tax structure.

It's a win-win-win for us to rationalize our taxes, in a progressive way (see below).

Any political leaning -- "progressive" or "conservative" or "flag waving American" -- will love this once they clearly understand it, once we get past certain old and lazy rhetoric.

When a business locates its new plant or service center in the U.S., it immediately increases tax revenues for federal, state and local coffers simply by having salaries and wages -- all the workers and executives pay income taxes and sales taxes due to their income.
Income taxes and sales tax revenues are what we lost a significant amount of during the Great Recession.

This lower revenue due to job losses caused a large part of the increase in the federal deficit and almost all the increase in state deficits.

By setting our taxes on business (and thus on jobs and locating in America) to a very low rate like 10%, or even zero (since we like new jobs), we can make up all the lost business tax revenue by simply taxing goods and services -- in other words, all goods and services, not just those made here at home, but also goods and services from overseas.

This will go far in leveling the playing field between American workers and their foreign competitors for jobs.

Goods made in China would begin to pay their fair share of the American tax burden, just like goods made in America.

We can make rescuing U.S. jobs this way even more progressive (of course rescuing jobs is progressive) by exempting food and giving a tax rebate to households for the basic necessities.

Sales tax rates can then be much higher without hurting lower income families/households. The resulting increased number of American jobs would increase tax revenues and fix our long term budget challenges -- our needs to maintain roads, run schools, encourage/fund innovation and research, thereby defending our nation's economic strength.

The only political obstacle for taxing consumption instead of production -- and I wonder if it would withstand even one speech from Obama -- is some habitual political rhetoric, unexamined presumptions, and really just ignorance.

As my friend John says, ignorance is simply the act of ignoring. Some political action groups who label themselves "progressives" have never noticed what other progressive nations do with sales taxes vs. business taxes, blinded by old rhetoric that fails to realize corporations are really composed of two groups -- workers and the rich that reap the profits -- and thus two tax groups, with different rates, not one.

Our current business tax structure is very regressive against American workers because we tax their jobs.

Because we tax American jobs so heavily, the effect is to lower wages tremendously over time compared to where wages would go (up) under a better tax structure.

Our current taxes on businesses hurt the middle class.

It's time for us to move beyond the mistakes of the past, and it's the duty of Obama to help. It is why independents elected him, more than any other factor.

Let's go ahead and make this slam-dunk. Now.


  1. Sounds reasonable to me, on the face of it.

  2. I remember reading Niall Ferguson talking about the halcyon days of the British Empire and the early days of capitalism as we know it in all the major European powers. Effectively you had government funded by sales taxes on the masses, and the funds were used to support the global adventures of the predecessors to our modern conglomerates (e.g. East India Company, etc.). This system worked pretty well at fueling industrial development. Of course, it concentrated all the wealth at the top and you eventually got revolutions (rather bloody in some cases) that disrupted the whole order. But who knows, maybe that's a better approach than what we're doing now?

  3. Yes, corruption seems endemic, to every economic system. I think it's actually one of the strong arguments for so-called free markets -- which at least in theory is about enterprises having relatively little connection with the state. The main thrust of my post above though is really about sharing the tax burden equally across production (via sales tax), foreign and domestic, instead of only domestic. Wealth is being concentrated for an entirely unrelated reason, which I will write on this year.