I’ve been reading the union threads, and one point which was made was that if unions drive up labor costs, companies will simply pack up shop and move to Mexico, where labor is cheaper, and labor laws relaxed.
Forgive my ignorance, please, about how these things work, but it occurred to me that if we heavily taxed companies who moved out of the country, or put high tarriffs on their goods, their incentive for moving would be gone and the jobs would stay in the US.
Has anything like this ever been considered? Why wouldn’t it work?
Might be a legal problem. IANA tax lawyer, but I recall that taxes (at least federal ones) are required to be “uniform.” If one company gets taxed on the basis of having overseas plants, they might scream bloody murder about an equal protection problem.
Additionally, the constitution requires that taxes be used to “raise revenue.” This means that Congress’ primary intent in taxation has to be to earn money for the public welfare. While it could, in theory, rub its hands behind its back and enjoy the punitive effect of the tax, if there isn’t a primarily revenue-raising purpose of the tax, it can be constitutionally stricken. (I did a paper on this, theorizing that we could try putting a tax on pornography. Short answer: it’d be really, really, really, REALLY hard to pull off.)
One reason is that the economy isn’t static. If it were cost effective to keep the jobs in the US, they’d stay here without the tax. Force them to stay here and what makes you think the jobs would still survive? If a company cannot compete globally, it loses market share, or goes out of business. Where are the jobs then?
You’re thinking about the uniformity clause contained in most state constitutions, which generally applies to taxes imposed by states (e.g., property taxes, franchise taxes, etc.). This doesn’t have anything to do with the federal government.
I admittedly have not made a full independent study of this, but I’m dubious. I don’t believe it’s the case that lots of taxes have been struck down because they weren’t enacted for the purpose of raising revenue. After all, if the government can show that it is likely to get one more dollar of revenue after the enactment of a tax then before, then it has an argument that the tax was passed to raise revenue.
Also, it seems the OP is positing an additional element of income tax and not necessarily a new tax altogether; there are (and have been) lots of little punitive provisions of the income tax (e.g., the old windfall profits tax, provisions now that exact a tax of 100% of the money that private foundations make in certain forbidden ways, etc.).
Therefore, I generally think it’s possible to have some additional tax measured by the number of jobs a company moves overseas. However, I think that economically this tax would be a bad idea and that companies moving jobs overseas is not an unmitigated evil. It’s a complex issue.
Tariffs never, ever work as intended. They are economically unsound, especially long-term. They are inflationary. They just sound good to people who would get a short-term benefit from them. (IMO) They get enacted because politicians rely on short-term benefits, especially around election time, to garner votes.
Companies that outsource are still U.S. companies. They still pay U.S. taxes and still employ U.S. citizens. So would you rather ship 75 out of every 100 jobs out, or all 100 when a company decides that a Cayman domicile is more advantageous. Now you’ve lost all tax revenue and all jobs. And any price increase brought on by tariffs on the now completely foreign products are passed on to the consumer. No U.S. competitor then has any incentive to charge less than the tariffed products (they might even be able to charge a little more with a nice Made in the USA ad campaign and a big sticker on the product). This creates upward pressure on prices for the consumer. Additionally, upward pressure on prices generally reduces demand for the product*, so the companies, both domestic and offshore, will need to produce less product and will need less workers, lessening any job saving impact of a tariff/tax on offshore production.
*In the case of staples such as gas, clothing and food, the effect may not be felt directly in the product taxed, but will still be felt as households must fund price increases from other areas of their income. If gas goes up, you still need to drive to work, but now maybe you have less to spend on your next vacation, or on magazine subscriptions, or to simply save for a retirement / college / rainy day fund.
Rather than tackling this problem from a tariff and tax angle, I would be much more inclined to tackle it from an immigration/emigration perspective. If we want to be all gung ho about free trade, why not include people in the equation.
There is something inherently unjust about allowing for the free flow of goods and money, while keeping the labor force hostage. Think of the possibilities of having the only restriction for trade agreements be that workers are free to move between countries.
At least with respect to Mexico, you probably could not do that; NAFTA doesn’t allow discriminatory policies like that (with a lot of exceptions, but in general this wouldn’t be one of them) if they affect American, Canadian, or Mexican investors. In most circumstances they have to be treated equally and you can’t punish an investor for doing business in any of those three countries. You might get away with it with respect to other countries, though, who do not share the same level of free trade agreement - the USA can erect tariffs or trade barriers against India it cannot, by treaty, raise against Mexico.
The real reason it wouldn’t work is because tariffs, in general, don’t work. I know if I was running such a company, and you told me you’d jack me on taxes for outsouring a few jobs overseas, the first thing I would consider is packing up and leaving the USA ENTIRELY, so I couldn’t be taxed at all under your plan. Just set up my head office in Toronto or Mexico City. So now instead of losing some jobs in my company, you’ve lost all of them. Great work! I’m just going to move my whole business to the most friendly country, rather than just a few jobs. All those jobs gone. All that tax money, gone.
Plus, by screwing your trading partners, you’re giving them reason to erect punitive tariffs against you. More jobs lost. You’ve also increased economic inefficiency and made products more expensive. More jobs lost. By trying to save 100 jobs, you’ll cost 1000.
It hasn’t been pointed out yet that there are two major angles to Lissa’s proposed tax. First is the tarriff angle. As has been discussed, tarriffs are generally a bad idea, because they restrict trade between nations and force everyone to be less efficient.
The other angle is the punitive tax angle, and that’s a bad idea too. There are some tax laws that are meant to encourage or discourage certain behaviors, mostly they encourage by giving certain behaviors tax breaks. These have the problem of making the tax law that much more complex and frustrating for all of us, plus the unintended consequences that have been discussed here.
Well, I was going to weigh in on this discussion, but I see most of the good points about why tarriffs are bad, etc, have already been taken and I’d just be saying the same thing over again (and not doing as good a job of it).
One other point though that may have been missed is that having some of those jobs go over seas actually HELPS the US in the long run. I know this is counter intuitive, but basically by providing those jobs (and the technology transfer, money, etc) to countries like India, it lays the foundation for future markets for the US. There are lots of reason for this: The upgrading of their standard of living, their data infrastructure, the technology transfer, the cultural and language exchange, the relationships built between a US company working in a foriegn country, etc etc.
The bottom line is, in the long run those countries will be future markets for the US, and any short term loss of jobs will be outweighed by the opening up of those markets to the US. Opening up those markets and having those countries as strong trading partners will potentially provide the US with MORE jobs in the long run.
This is, of course, a weaker arguement that those stated that tarriff ultimately have a negative effect and are a ‘bad thing’, but its the best I could do.
Actually, xtisme, it is a very good argument. The problem with economic arguments, however, are that they do not address the “What about me right now?” question. If you are the person in the industry seeing jobs shifted overseas, you don’t care about the longer term benefits. You care about making your mortgage payments and getting braces for your children. Someone offering a solution to save your job, even if it is not likely to be long-term, is speaking words you want to hear, and politicians do that best.
While I do not agree with punitive taxation nor tariffs, I understand how these ideas take hold, and why people would endorse them. Unfortunately, I don’t have any suggestions to help the people who are seeing their professions outsourced. I prefer, however, to do nothing rather than implement a solution which, long-term, worsens the problem.
If one wishes the government to penalize job-exporting companies, make it possible for governments at all levels to use percent of workforce in the USA as a criterion for contracts. Be prepared to pay more taxes.
I was specifically thinking of companies like Nike when I wrote my post. Their shoe manufacturing plants are mostly overseas, (China, IIRC) where they pay only a few cents per hour for labor. The shoes cost less than five dollars per pair to manufacture.
Now, if Nike was forced through whatever means to return to the US, I doubt highly if they would go out of business. Their product sells like hotcakes, considering how expensive it is. They probably would be forced to cut their advertising budget to avoid raising the price too high. (Status symbols have to be affordable to their target demographic, after all.)
Nor was I referring to a company which has some of the items it uses made overseas. A computer company in the US who outsources for microchip manufacture, for example, wasn’t what I was referring to in my OP.
What if only certain companies, say those who employ thousands of workers, were subject to the taxes and tarriffs I was talking about? Would that make any difference?
** D_Odds** said:
I’ve heard that with subsidies, tax cuts, and the like, US companies pay relatively little in taxes.
What if any subsidies or tax breaks they currently get would be suspended if they outsourced more than a certain percentage of jobs overseas?
Just tossin’ out ideas, guys. Thanks for all of your responses, and I appreciate your patience in answering what must seem like very dumb questions. (But, hey, that’s how you learn.)
How do you force a company to stay in a particular country? If they see it as an uncompetitive move, then they can move entirely abroad (and spend more on a local distribution network), or for sufficiently large companies apply a certain amount of political pressure.
I’m certainly no expert. I’m curious as to whether there are any ways that you could apply that sort of regulation without shooting yourself politically in both feet simultaneously.
If your logic were valid, Nike would cut advertising now and make even more money (with the jobs still overseas). It’s unclear that Nike would have the market share it does have if it didn’t advertise as it does.
To keep the conservatives happy you could come the other way. Give tax exemptions to companies with a certain percentage of their workforce at home.
Some free market true believers think it’s an abomination but the reality is taxes and subsidies are a part of the economic landscape. They may be inexact to use (and are usually ill conceived and implemented) but we shouldn’t throw up our hands and give the boardrooms carte blanche.
Being an American based corporation is a great asset and privilege; is it wrong to expect a certain amount of actual presence in America?
Take this idea to the extreme – imagine that the entire rest of the world ceased to exist. The world only consisted of the U.S. landmass and terriorial waters. 100% of all goods produced would be produced in the U.S. ALL workers would be U.S. Would the U.S. be better or worse off financially? Why?