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February 05, 2008

Stimulating? Or, well, not so much?

As congressional leaders, the Bush administration and presidential candidates tout the stimulus plan (that probable $600 check you'll be getting in the mail to spend and thereby help the U.S. economy) they forgot one thing: nothing anyone buys here is made here. Thus, the plan may be well, less than stimulating.

Alan Tonnelson, U.S. Business and Industry Council, has much more on this in the Pittsburgh Post-Gazette. Some highlights:

  • "Consumer goods are the types of purchases likeliest to be made with rebate or other stimulus dollars that are spent (as opposed to saved). Yet in 2006 -- the last year for which detailed data exists -- more than 61 cents out of every dollar Americans spent on such goods was spent on imports. In 1997, that figure was about 38 cents."
  • "Failed trade policies deserve much of the blame. Starting with the North American Free Trade Agreement in 1993, too many recent U.S. trade deals have focused too tightly on helping multinational companies move jobs and production offshore, instead of opening foreign markets to U.S. made goods."
  • "Americans for now may have no choice but to accept that many of the stimulus plans' benefits will leak overseas, and that near-term economic performance will be modest at very best. But it's not too early to insist that U.S. leaders start recreating the foundations for solid, healthy growth -- and stop making policy as if the global economy and the trade-related mess they created didn't exist."

So when you do your stimulus check spending, think about all the things you can buy that are made in the U.S.! Or at least try to think of one thing you can buy that is still made in the U.S...

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Matt Lykken

Agreed. The only stimulus that will really work is pulling the corporate operations back in a way that will give market power back to working Americans. The Shared Economic Growth proposal does just that. See below and our article from Tax Notes magazine posted at http://www.sharedeconomicgrowth.org/home/themainpaper.html.

Shared Economic Growth: Wouldn’t That Make More Sense?

Globalization is hurting a broad group of American workers. Given a choice between paying U.S. wages and paying workers in a developing country $1.00 an hour, companies are choosing the latter. In some industries this trend cannot be reversed, but America cannot and should not try to compete for those low-wage, low-skill, low-value jobs. Trying to do so would cause us to sacrifice standards that are important to our society, such as the minimum wage. Instead, we must seek to obtain the promised upside of globalization: good, new jobs in high-value industries with companies that can afford to pay U.S. wages.
But the companies creating those choice jobs are sensitive to tax burdens. Their profit margins are high, so tax is a major consideration in deciding where to locate their factories, laboratories, and offices.
Unfortunately, instead of tilting the equation in America’s favor, the outdated U.S. corporate tax system is helping to move those good jobs offshore.
How is the current system broken? If a U.S. company operates overseas through a foreign subsidiary, the income from those operations won’t be taxed by the U.S. until that cash is brought home as a dividend. Originally designed in the mid-20th century to help U.S. businesses be more competitive, this “deferral” system operates in our current global economy to provide an incentive for companies to keep their earnings offshore and reinvest them elsewhere. Why? Because a U.S. corporation will have to pay a 35% tax on its profits the minute they hit the U.S. border. So when the U.S. corporation is considering how best to expand, it considers that an investment of $100 in foreign operations will have the same net earnings cost as an investment of $65 in the U.S. In other words, because of the U.S. tax system, its dollar will go farther offshore. In light of that, where would you put your factory?
The U.S. could afford such a system back when it led the world in technology, wealth, and the education level of its workforce. But we can no longer afford it. We are now a debtor nation. We have lost much of our technical lead, and we are no longer able to retain good jobs in the face of foreign competition. Even companies that staunchly maintain their loyalty to the American workforce are competing against other companies that will use cheap foreign labor. Eventually they, too, must fall in line or risk being acquired by a foreign company that can instantly make their business far more profitable simply by moving the U.S. operations offshore and pushing the resulting income beyond the reach of the punishing U.S. tax laws.
But what is the best way to correct these skewed incentives?
The Shared Economic Growth proposal would fix the broken U.S. corporate tax system.
How? It’s simple: by providing corporations with an incentive to distribute their earnings to shareholders in exchange for not being taxed on those earnings themselves, Shared Economic Growth would make U.S. operations attractive and would encourage companies to bring home the cash they have invested abroad. Under Shared Economic Growth, a corporation wouldn’t be penalized by the tax code for building a plant in the U.S. instead of offshore. In fact, the U.S. would immediately become a preferable location over any foreign country that imposed any tax at all. Shared Economic Growth would provide extraordinary benefits to the U.S. economy – benefits like encouraging corporations to invest hundreds of billions of dollars in foreign cash in our economy, helping to ensure a secure and dignified retirement for American workers, promoting the efficient allocation of capital, and helping to foster corporate transparency and responsibility. No other proposal does that.

We invite you to visit our Web site, www.sharedeconomicgrowth.org, to learn more about this exciting proposal. Its time is now.

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