Wednesday, August 4, 2010

Obama Plans For New Manufacturing Jobs

Obama is concerned about our economy - Yay!

He wants to do something to help it - Yay!!!!!

He wants to increase manufacturing jobs - Yay!!!!!!!!!!!!

He's going to do it by introducing punitive corporate taxes - Y - - - huh?

Yes, that's right. In the fantasyland of the left, Obama and company's latest plan is to tax us into a new manufacturing Nirvana by putting special levies on the declining number of manufacturers still left in America who decide to transfer or maintain plants overseas. Think of it as Adam Smith in reverse.

Indeed, this is nothing more than a rehash of a very bad idea that Obama floated during the campaign and then decided not to enact because of push back after he was elected. Even the NYT refused to carry Obama's water on that one, noting at the time that:

Economists are divided over whether higher taxes would give corporations incentives to move jobs overseas or impair economic growth at home.

Before enacting a new "tax us to prosperity" plan, it might behoove Obama and his clan to ask themselves why we have lost so many of our manufacturing jobs to begin with? Manufacturing’s share of employment peaked at 39 percent during World War II, but by February 2008, it had dipped below 10 percent for the first time in our modern history. A part of the reason for that is automation. But as to jobs lost overseas, over regulation, over taxation and the impact of unions come immediately to mind. Nothing that Obama will ever propose will address those critical areas, and thus, there is no chance of Obama doing anything other than even more damage to our economy.

As an aside, this from a plant owner, Jeff Pope, writing at PJM on the importance of tax issues for the manufacturing sector:

. . . [M]anufacturing requires the financial resources to support the physical assets needed for efficient production. Aside from stable capital markets and a favorable lending environment, business needs to be able to generate cash flows as a primary source of capital. Put simply, this means profits. Democrats have demonized profits for as long as they have been Democrats and treat profits as nothing short of greed and the exploitation of the helpless working class. By portraying profit and the profit motive in this evil light, Democrats have justified all manner of social mandates as essentially “free” to society — a taking of immoral gains for moral purposes. Family leave, insurance mandates, environmental requirements, and a variety of race, gender, and sexual preference rules are but a few interventions.

These issues aside, tax levels and policies are the most influential factors in supporting or suppressing manufacturing activity. A manufacturing facility is not only expensive to establish, but it requires constant ongoing investment. Every dollar taken in taxes hurts the ability to do this and in turn diminishes the ability to stay competitive by investing in more productive technologies. The heavy industries of mid-1900s America all became relics when newer and more efficient global competitors emerged and they did not respond in kind.

Tax policy in America is among the most counterproductive in the world, with rates second only to Japan of all industrialized countries. Complex laws favor the connected few at the expense of a broad-based policy that encourages investment. With Democrat control of Congress and the presidency, anyone with any experience in business anticipates increased taxes and the loss of whatever incentives currently exist. In an environment where the taking of profits by the government is seen not only as justified but desirable, manufacturers choose other alternatives to investing in America and are then excoriated for “exporting jobs.”

At the core, the basic tax philosophy of liberal Democrats is in direct conflict with the needs of the manufacturing sector. At every turn, Democrats espouse the so-called social justice of taking profits and redistributing them to what they see as the exploited or disenfranchised, among other voting blocks. Through manufacturing jobs, however, the lower economic rungs have the potential to earn their way to a better life. They own what they have earned and become independent. The American middle class grew from this strata and vastly expanded while earning a standard of living unsurpassed in history. Tens of millions of average Joes were made wealthy by world standards through the industrial growth of less than one hundred years. The Democrats’ favored causes, the recipients of massive redistribution, have benefited how much? Regardless of the lack of results, does anyone really expect Democrats to change their tax favoring ways in order to promote manufacturing? . . .

Will America survive Obama? And even if it does, will we ever get back on sound economic footing that boasts the world's strongest middle class?


O Bloody Hell said...

> A part of the reason for that is automation.

No, the entire reason for it is automation. That some of it has gone overseas is a side factor.

Automation/Robotics is to manufacturing what mechanization was to agriculture.

It is destined to reduce the production element of manufacture to a labor usage of 3-5% just as mechanization did to agriculture.

What about all those lost farm jobs?!?!?

Where's the program to switch us back to a good and proper 85% agricultural labor force?

Ah. Right. It's Marxism/Progressivism.

Never Mind....

We have entered a new economy, based on IP and Services. We will NOT, without a massive economic setback, EVER see high manufacturing labor ratios.

Anonymous said...

How is Obama planning to tax these evil multinationals?

I dunno, but I would guess he wants the same thing Kerry campaigned on in 2004: Taxing unrepatriated earnings.

It’s a horrible, unworkable idea for many reasons, but just to give you a flavor:

Suppose your corporation has a subsidiary in Lowtaxistan that makes a profit of 1 million schlubbucks. How much US tax do you owe on that? No, let’s start with an even easier question -- how much is 1 million schlubbucks in US dollars? What is the exchange rate? Do you use the rate at the end of the company’s fiscal year? The average (maybe weighted average) during the year? The rate on the date the tax return is filed? And where do these exchange rates come from? The Wall Street Journal? Your local bank? The government? (And believe me, these questions will get much harder on your next midterm exam.)

I could give you many other objections -- some of them difficult to translate from my native accountingese -- but I hope cooler heads prevail and this unworkable, probably money-losing, idea again fades from memory.

Anonymous said...

You cannot repeal the law of diminishing returns. As the government raises the taxes on big employers they will take steps to mitigate those taxes. Some will move overseas, some will lay off workers, some will choose to go out of business but all of them will simply pass those higher taxes on to the consumer. Where is the winner? Certainly not the consumer with fewer choices and higher costs. Certainly not the stock holders and owners of companies who will be forced to make difficult choices. And not even the government who will discover that the law of diminishing returns means that you will get less tax revenue from higher taxes and not more as hoped for.