Mitchell’s laws: The more budgets are cut and taxes inceased, the weaker an economy becomes. To survive long term, a monetarily non-sovereign government must have a positive balance of payments. Austerity = poverty and leads to civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
Lower taxes won’t help you save or invest.
If you believe that statement, then you are in perfect agreement with the author of the following article and with Warren Buffett.
Time Magazine: Why Lower Corporate Taxes Won’t Create More Jobs
By Rana Foroohar, February 23, 2012
Yesterday, President Obama announced a long-awaited proposal to cut corporate taxes in America, which U.S. businesses complain are much too high by international standards. What’s being missed in all this is that the corporate tax debate and the jobs debate are two separate things. Here’s why.
America has the second highest corporate tax rate in the rich world. But most American businesses don’t pay it. The President is suggesting that the corporate tax rate drop from 35% to 28%. But as my colleague Fareed Zakaria wrote a few months back in Time, few of the biggest U.S. businesses are paying that rate right now; indeed, most are paying much less – 115 of the companies in the S & P 500 paid less than 20% in tax over the last five years. And 39 firms paid less than 10%.
True. If you cut the tax rate from the rate no one is paying to the rate everyone is paying, you haven’t really cut taxes at all. That’s clear, though misleading, as to “no one” and “everyone,” since clearly some businesses must be paying the highest rate (probably small businesses), and would benefit from a lower rate.
But here’s where Ms. Foroohar’s logic gets even screwier:
Fundamentally, lower taxes aren’t the reason that businesses choose to invest, or not, in a certain country. As Warren Buffett told me when I interviewed him late last year, “The idea that American business is at a big disadvantage against the rest of the world because of corporate taxes is baloney in my view. In the 50s and 60s, corporate taxes were 52%, and we were making all kinds of [job] gains.”
True enough. In fact, you can see more and more evidence for the fact that business doesn’t locate in a particular country just because it’s cheaper to do so.
Please, Mr. Buffett. Get real. The 50’s and 60’s did not have the ease of import/export we have now. China, India, South America et al weren’t massive exporters to the U.S., nor was plant relocation as easy and common. We weren’t Monetary Sovereign. We were gearing up for the cold war, the Korean war and the Vietnam war. The euro didn’t exist. In fact, virtually nothing was the same as now. So is this is your best example — a massively different world from fifty years ago?
Consider the recently released Harvard Business School study looking at insourcing and outsourcing decisions among 10,000 alumnae who are running American businesses. The key reason for outsourcing wasn’t labor cost, but a combination of cost, proximity to market, and (most importantly) better worker skill sets abroad. In order for America to create jobs at home, we need to do the heavy lifting to reform education and develop workers who can do the sort of jobs businesses need them to do.
Notice the phrasing, “ . . . a combination of cost, . . . “ Since taxes are part of costs, taxes do affect outsourcing. So let’s not hear any nonsensical conclusion that tax costs are meaningless to business decisions. Tax costs aren’t the only reason to outsource, but they surely are part if the reason.
Additionally, unemployment is not caused only by outsourcing.
Anyway, it gets even screwier:
As Buffett says, nobody ever stopped investing because of high taxes.
Really? Taxes reduce the amount of money a company has available for investing and spending. If a company pays 20%, 10% or even 1% of its profits to the government, that’s 20%, 10% or even 1% it can’t spend to grow its business. Period.
The notion that lower corporate taxes (or better yet, the elimination of corporate taxes) won’t help grow the economy, and thus create more jobs, is so silly on the face of it, one wonders why such mental gymnastics or pure mendacity are brought to bear. What’s the Foroohar/Buffett motive for ignorance?
How much effect President Obama’s plan will have, can be debated, but there can be no debate about the fact that reducing business taxes will help businesses, help the economy and reduce unemployment.
Ms. Foroohar and Mr. Buffet each are awarded a dunce cap, from my unending, sovereign supply, for their statements in direct conflict with common sense and arithmetic.
Rodger Malcolm Mitchell
No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia. Two key equations in economics:
Federal Deficits – Net Imports = Net Private Savings
Gross Domestic Product = Federal Spending + Private Investment and Consumption + Net exports