Rantings and tirades of a frustrated economist.
Captain, there is nothing in that article that suggests Polaris is leaving Osceola, WI for Mexico over corporate taxes. Sure, it may be a factor, but wouldn't wages be a much bigger cost differential? And, this is the relo of a plant, not the company. Additionally, the article mentions that the community already has people interested in the plant location, which makes it sound like there are businesses interested in access to a community with tax supported infrastructure and tax educated individuals.
I'd be interested in seeing more information about this. Back before the company went under the City of Jackson (Mississippi) ran WorldCom out of town with high taxes. WorldCom relocated to neighboring Clinton, MS. I've seen other situations where a city wouldn't extend a tax break to a company after the original one expired (see how Wal-Mart opens a Supercenter and 10 years later moves a block down the road - part of it's about tax breaks to "open a new store"). I'm curious if this is similar to one of those "the union won't take a pay cut so the plant closes down" situations. I'm sure wages along with electricity & water bills and regulatory costs all had a factor, but out of all of those the biggest one a city has control over is the tax rate at which they are taxing the local business. 600 people buying stuff and owning property makes a pretty nice impact, I wonder if the city stubbornly dug their heels in or if they were even consulted.
Duly noted Ed. Could we then agree that ungodly union pension benefits (which is a cost just like taxes) then drove them to Mexico?As for the "community interest," yeah, I'd like to see what PRIVATE business sets up shop there AND has staying power like Polaris did.
Cutting corporate taxes would be such a simple solution, to help along the economy. Government revenues would actually increase from the lower tax levels. Growth and a booming economy produces increased government revenue. It is hard to believe, that the US has a higher corporate taxation level then most European countries. The IRS code book also has thousand of pages. Large companies like GE, have tax returns that also number in the thousands of pages. The taxes not only have to be lower, but issued in a simple straight forward format.It really bugs me, that this sort of issue is never discussed during an election. Instead, the media ask what sort of dog will be living in the White House.
Perhaps this is a case of deciding whether we want to compete with Mexico for manufacturing jobs. To do so, wouldn't we need to have comparable wages, taxes, quality of education, drinking water, road quality, public safety, etc.?Should Osceola have said, "We'll cut your taxes to zero, close our schools, stop purifying water, and close the police department in order to keep you in our community"?What's strangest about posts like this, Captain, is it makes it sound like manufacturing is somehow going to stay or come back to the USA when there are people willing to put stuff together for less elsewhere. I agree with you on unions in many cases. If people are willing to do the same work for less elsewhere, a company would be stupid to not go there. Which is why, to me, it's important that we have skills that aren't so easily outsourced. Otherwise, we'll compete with lower cost labor countries (Mexico, SE Asia) rather than innovative exporting countries (Germany).
@Anonymous, if cutting taxes boosts the economy, every politician would do it. Why? Because it's by far the easy choice. If you have evidence to back up your statement that it would boost the economy by enough to offset the cuts, drop a link. (By the way, if tax rates were 100% and dropped from there, you would be correct, but do you have evidence that you're correct at current tax rates?)Also, you point out that corporate taxes may be higher here, but clearly total tax burdens are higher in Europe. Are you saying that you prefer certain types of taxes over others?And, how can you say that this isn't discussed during elections when nearly every ad on TV from groups like MN Forward focus specifically on this issue, and people like Tom Emmer mention it in every speech?
The issue Osceola faces is actually it's outside of it's control. Federal and state corporate taxes (which osceola has no control over) will force companies over the long run to at least hide income and lower their tax bill, if not pull an Accenture or Haliburton or Bermuda insurance. But yes, your point about wages being lower in Mexico is correct.However, I don't believe states CAN'T compete with Mexico on some of the lower to mid-level manufacturing. Victory motorcycles (I think) moved out of Minnesota to Alabama or Mississppi. I argued they should have gone to Sturgis. Regardless, there are regional economies that could compete against Mexico and China.This leads me to believe there are other factors such as onerous environemtnal regulation and laws, not to mention labor laws. I would go so far as to say there may be a political risk in that the Mexican government is probably happy to have Polaris there just like Ford's Fiesta plant.And yes, yes, Ed, I know, I got it. TAX FINANCED INFRASTRUCTRE AND EDUCATED LABOR FORCE.That's like a deadbeat husband doing the absolute minimum in terms of making his wife happy. Great, the governemtn did it's job and provided infrastructure. Wow. Thanks. I just have to fork over 40% of profits, 55% if you consider dividend taxes? Thank you sir, may I have another?As for the tax paid educated labor force, when there are more engineering majors than there are sociology majors, then I'll believe the schools are doing something to help businesses in providing quality, productive labor.
Hi Ed,remember Ronald Regan. That was the entire plan, cut taxes to increase economic growth, and it worked. Check into some of Laffer`s material.Also, you mentioned Europe has a higher over all tax level. Yes, that is the point, regarding corporate taxes. These governments have realized that corporations are not a captive audience. They realize companies will down size or leave a country with oppressive tax levels. In Ireland they figured this out a few years ago. They dropped their corporate tax levels to the lowest in the Western world. Companies from all over the planet opened up offices in Ireland. Tax revenues, not tax rates, boomed.Most countries realize that their citizens are a captive audience, and ding them with every tax possible. The US government still acts like it is 1950, and believe corporations will stay in the US under any circumstances.Throw in some heavy red tape from the EPA, Unions, and law suit costs, and companies will be sent packing.Also, check the list of States with the highest tax levels. The low tax states have strong growth, the high tax states are in a depression. I hope this helps.
Captain, what you call onerous regulation, I see as regulation that came out of cases where businesses proved that they were incapable of policing themselves. For example, water was polluted, and people decided that this should be happening, so now we regulate it. To me, that's more civilized than onerous.@Anonymous, as I said, cutting taxes to increase revenue is the best idea in the world, and would be universally supported if it worked. It's the easiest thing to do politically. Unfortunately, it seems like politicians interested in cutting taxes generally don't have the balls to cut spending as well. Perhaps you're missing some of the finer details of what happened under Reagan, such as setting a new record for running up the national debt (which was later broken by George HW Bush, and later by George W Bush). Ireland decided to become, in some senses, the Mexico of Europe, which put in a low-cost manufacturing/assembly position. Personally, I think the country would be stronger if they were innovating and creating their own products rather than assembling products on behalf of multinationals for export to mainland Europe or the USA since they'd be able to control their own destiny and wouldn't have to compete with cheaper countries in a race to the bottom for raw labor.I think I may be missing why municipalities should be so focused on building things for multinationals rather than innovating, which would allow them to be more than a source for cheap labor on a race to the bottom. I find that depressing and defeatist.
Ed Kohler said... "Captain, what you call onerous regulation, I see as regulation that came out of cases where businesses proved that they were incapable of policing themselves. For example, water was polluted, and people decided that this should be happening, so now we regulate it." When it's the government that pollutes the water shall we put it into private hands? Obviously the public utilities and federal agencies cannot be trusted to run it properly:http://en.wikipedia.org/wiki/Walkerton_Tragedy
@ScottH, help me understand your point. Are you suggesting that because a municipality in Ontario failed to properly regulate their water supply in 2000, that we should do away with all government regulations?
Ed buddy, I just don`t think you get it. Governments do not like low flat taxes and reduced red tape. That mean would less power for politicians. The road to wealth used to mean hard work and industry. Now it is all about working the political system. Even professional sports rely on government subsidies for new stadiums. Car companies, big banks, insurance companies, farming, the list goes on and on. It is all about governments picking the winners and losers.The power of Washington, has exploded in the last generation.
Ed, perhaps without going into long boring texting and so forth, might I suggest you look up the STATED and EFFECTIVE tax rates of US corporate taxes (and then if you wanted to state corporate income tax).The reason for this is that it will answer a lot of the questions/resolve a lot of debate you have with the handful of readers I have. Additionally, and this is why you are getting a very warm reception from my otherwise "evil capitalist, blah blah blah" readers, is because they realize and sense you have intellectual honesty (and is coincidentally why I don't really press you too much). Simply because you will inevitably find out the truth for yourself. Instead of just toting a line, you will go and research and find the data out for yourself and then form an opinion. We can actutally see it in your personality and your writing.Of course you will then inevitably move out of MInneapolis, become an even more rabid supporter of free markets and become an even more rabid adherent of general conservatism/libertarianism because you had been misled this entire time, but in the end, I am quite willing to bet you will agree with most of the people here.It's just your own damn fault for being intellectually honest and caring about your fellow man.;)
@Anonymous, that's a strange way to look at the partnerships between governments and sports teams and other groups who benefit from subsidies. No one is forcing them to take benefits. Personally, I'd much rather see the Vikings pay for their own stadium than have tax dollars spent on something with no documented net benefit (financially) for the community.I can see why you'd say that the government is picking winners. However, isn't it a case of companies going to the government for a handout when nobody else would lend them money? In some cases, more should be allowed to fail. Agreed?Personally, I see the change in government and corporate roles to reflect cases where corporations are holding communities hostage in a race to the bottom.
Captain, I think this piece speaks to your point fairly well.
I wish it did Ed, but it doesn't. No business calculates that number simply because it never factors into their income statement. I'm sure the Chicago Fed and the woman who wrote the article looks at "direct money received per dollar paid in," but when it comes time to figuring out where a business climate is more hostile no business looks at "The basic rationale for taxing businesses is to pay for government services benefiting businesses"The reason why is that basic government services that benefit businesses are typically universal goods that are givens. ie- they should be provided regardless of whether a business pays in or not.Roads, schools, etc. All of the sudden this is businesses' responsibility?When you incorporate these basic government services that benefit everybody (business, people, government, etc) that lopsidedly charters business with the bill and therefore distorts their "cost-benefit ratio."Perhaps to simplify my point, to determine whether businesses stay here or not is determined by their income statement. This is what managers and executives must adhere to and what the shareholders and stock market looks at.If it doesn't benefit the income statement, then it doesn't benefit the business "as far as everybody is concerned."Yes, roads help business. Yes education (and that's really cute how MinnPost cites education as a desperate attempt to tie the education lobby in with business) helps business. But those would and should continue to be financed whether business is here or not on account that is government's job to provide those things (though I doubt education shoudl even be part of that)In the end, businesses are not going to incorporate standard government services in their cost-benefit analysis and are simply going to look at their income statement. If it benefits them to move production to Mexico, they will.If it benefits them to move their HQ to Bermuda, they will.And you want to know why?Because Mexico and Bermuda provide those exact same infrastructure services and benefits that the US does, yet fails to berate those companies for daring not to incorporate them into their cost-benefit analysis.
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