Can those with more economic sense than I have please explain this to me?
Could you link to the actual text of the proposal, not just an article describing it? I’d like to see it because I don’t understand the section I quoted. How could the United States government enforce the “rather than the corporate tax of the host country” bit? The host country isn’t going to stop collecting its taxes based on United States law.
http://obama.senate.gov/press/070802-senators_durbin/
http://www.portfolio.com/views/blogs/market-movers/2008/02/26/in-defense-of-the-patriot-employer-act
The full text appears not to be in the congressional record yet.
Here is what I think is the full text of the act
It does not say what the Wall Street Journal says it says. There isn’t any reference to businesses that don’t fall under the category of “patriot employer”, it doesn’t increase or decrease their taxes. Perhaps the WSJ is talking about a related piece of legislation?
Other then that, I agree with The Economist article, it’s pandering, but fairly minor pandering, and given that it’s optional for businesses, its hard to see that it will really hurt them.
Gah. I like Obama less and less every time he trots out another plan to interfere with the economy.
A patriotic employer is an employer which works hard to make the best products possible at the lowest cost, while negotiating freely in the marketplace.
To give you one example of how stupid this is, let’s take this sentence:
For one thing, the federal poverty level describes poverty in terms of the number of family members you have. If you’re single, in 2007 it was $10,210. If you have a wife and two kids, it’s $20,650. So for any company to meet this, they’re going to have to ask you how many children you have as a condition of your employment. This is a rather anti-family measure, isn’t it?
This also has big geographic ramifications. This would kill jobs in poor states where wages are low and families are large. Is that really what Obama wants to do? This law would have no effect on wages and jobs in Boston, but would be devastating to jobs in poor areas of Alabama. If you’re a poor person with 6 children, you’ll be at an even greater disadvantage than you were before, because a ‘patriotic employer’ would have to pay you $34,570.
This idea actually encourages divorce and the breakup of families of poor people. So once this idiocy is pointed out to him, expect Obama to come out and say, “well, what I meant is we’ll use the lowest number.” But if he does that, you get a number lower than the federal minimum wage. It makes no sense.
I wonder how long it will be before Austan Goolsbee decides he can no longer work on Obama’s team? My opinion of him declines every time Obama releases another ‘economic plan’.
You might want to actually read the bill before criticizing it, Sam Stone.
It says, “compensates each employee of the taxpayer at an hourly rate (or equivalent thereof) not less than an amount equal to the Federal poverty level for a family of three for the calendar year in which the taxable year begins divided by 2,080.”
I agree with the general criticism of the unintended side affects of market interference, but your one specific criticism is totally unfounded.
Reading further, it appears that Obama is tying the salary to the poverty level for a family of three. This is a little better, but not much. It has the effect of raising the minimum wage to $7.80, which is a pretty substantial jump, and will hurt a lot of very poor people.
If you want to see the reaction of real economists, who are not exactly right wing Demagogues, here’s a good article:
The dangerous protectionism of Barack Obama
The authors are:
William Buiter, Professor of European Political Economy at the London School of Economics and formerly a member of the Monetary Policy Committee of the Bank of England and Chief Economist at the European Bank for Reconstruction and Development. CEPR Research Fellow, and
Anne Silbert, Professor and Head of the School of Economics, Mathematics and Statistics at Birkbeck College, London; and an advisor to the Committee for Economic and Monetary Affairs of the European Parliament. CEPR Research Fellow.
Their opinion?
Richard Parker: Yeah. I tried to edit my message, but the board crapped out and I couldn’t do it in the 5 minute window. Thus this addenda.
Yeah…me to. I’m definitely losing my Obama rose colored glasses lately. Now I’m back to being on the fence…vote Obama or vote 3rd party as I usually do? If he comes out with more plans to ‘fix’ the economy I’m probably going to go the 3rd party route…
-XT
To be fair, this criticism would be true if these regulations were mandatory. But they’re not. A company in poor Alabama not meeting these regulations would choose not to comply with this optional request (unless of course the changes they need to make were minor enough so that the tax break meant they would come out ahead).
This law effectively acts as a small subsidy of American wages. I don’t think it is a good idea either, but I also don’t think it would be nearly as damaging as you think. In short, a bit of inconsequential pandering.
The thing about it that I find more annoying is the subsidization of American wages over foreign wages. I think that is an unfair protectionist distortion of the market.
It strikes me that foreign economists have a vested interest in fighting american protectionism.
This plan strikes me as a bit silly on its face, though. Not dangerous per se, just kind of pointless. Increasing your expenses voluntarily for a relatively small corporate tax cut, who would do it?
That does seem to happen more and more lately (the board crapping out, I mean).
I don’t find the article you linked very persuasive. For example, they claim that where a company places its HQ shouldn’t be subject to fiscal incentives while simultaneously claiming that it will be unenforceable because of corporate shell games. Yes, fiscal incentives distort the market, but they offer no reason for why this particular distortion is bad. And on enforcement they’re showing a terrible grasp of tax law. Corporate subsidiaries are indeed a problem for all tax policy–and much economic policy and corporate law to boot–but our legal system has doctrines to deal with it. They off-handedly mention corporate DNA testing, but of course we do have standards for determining when a corporation ought to be considered part of another parent corporation. If we didn’t, we couldn’t successfully enforce hundreds of laws from environmental responsibility to the corporate tax.
On the minimum wage aspect, they wrongly assume that increasing wages hurts employment. Almost everyone now agrees that, empirically, small increases in an already low minimum wage do not increase unemployment. Indeed, as you know there is a vast and complicated literature on the effects of minimum wage policies. To reject any policy that attempts to raise wages is just a knee-jerk reaction. It is emphatically not the consensus opinion of economists that minimum wages–especially those that are introduced by tax subsidy–are automatically bad on balance.
In short, a policy like this is not something that can be easily analyzed using first principles. It is quite a bit more complicated than that, and I don’t see the authors giving it serious consideration (as evidenced from the opening line to the final vastly overstated conclusion which doesn’t even follow if you take their arguments at face value).
I’m not on board with the policy yet, but I’m not convinced of its danger either.
On the margins, it’s the same thing. If Alabama companies are already competing with products from companies located elsewhere (who already meet these guidelines but have other advantages that allow them to overcome Alabama’s lower cost of labor), then the net effect will be to subsidize those companies and drive employment out of Alabama.
All of these ideas are distortionary. Of course, that’s why they are there. Obama doesn’t like the choices the market has made, so he’s going to use the power of government to push and prod it in directions he likes. It’s obnoxious.
The companies who, through the conditions of the marketplace already meet these requirements will get subsidies for doing absolutely nothing. This will allow them to undercut the companies who don’t. The result will be a distortion of the marketplace and a reduction of inefficiency. And new businesses that start up will have to compete against existing businesses who are now getting government subsidies.
If you look closely, you’ll see that the businesses that already meet most of these requirements are those in which there is already a heavy representation of union labor. This is going to hurt non-union shops and small businesses.
I think this type of legislation stinks, but keep in mind that the federal MW will be $7.25 next year.
Let’s hope that this is just pandering to the voters in Ohio.
I think it’s a pretty specific policy to be just ‘pandering’. This is a little more in-depth than just handwaving against NAFTA. It’s got a lot of detail in it, and it looks like a fair bit of effort went into it. But it’s spectacularly misguided.
I’d forgotten about the federal minimum wage bump. It comes at a horrible time, just as the nation may be heading into a recession. There’s already going to be a lot of negative employment pressure, and adding an increase of the minimum wage into the mix is a really bad idea.
BTW, it’s exactly this type of stuff that Jonah Goldberg is talking about in his book “Liberal Fascism”.
If a Republican came up with a ‘Patriotic Employers Act’ which attempted to reward companies who behave in ways that the state deems to be good for ‘America’ (say, by rewarding companies who hire Christians, or soldiers, or people who remain married), the left would have no trouble calling it fascist. I don’t see this as being any different.
In **Sam Stone’s ** link, Butler and Silbert dismiss out of hand the provision dealing with companies that officially move their corporate headquarters offshore as a tax dodge. PBS’s NOW news program showed one small building in the Bahamas that was the address of a dozen US corporations as their headquarters. In fact, none of them had offices there. It was a dummy mail drop with names of the companies on their mailboxes. With that clever trick, the companies dodged a whole lot of US taxes. Managers could write off Bahamas vacations as a trip to Company Headquarters to pick up the mail.
Perhaps you agree with Butler and Silbert that such a loophole should allow a company in a free society to duck out of paying its taxes. Smaller government intrusion in a free market is good, I guess. :rolleyes:
Their point with regards to that is that you can’t stop it. Not without huge amounts of new bureaucracy and red tape and government regulators intruding themselves into every day business decisions. If you try to set up an infrastructure that micro-manages businesses to that degree, you’ll do more harm than good.
Jomah Goldberg is demagogue of the highest order.
It’s a tax break for companies who make an effort to treat their employees like human beings instead of like scum. It’s not even mandatory. What’s the big deal?
Companies that treat their employees like “scum” tend to be either the smaller companies, or those with low profit margins. Not much profit means not much tax, so I have to wonder if a 1% tax break on “not much” is going to be worth the expense of treating the employees like “human beings”. n.b. The quotes used here are to indicate that I don’t agree with those terms, but we can use them for placeholders if that makes people feel better.
Larger companies, or companies higher up the value-added chain probably already meet these requirements, so it’s free money to them. I’m thinking of companies like those near me in Silicon Valley.
So, you want to give companies like Microsoft a tax break?? 
-XT