more interesting economy tidbits

[nostatic]

Please note that this is a pretty parf-free article:

Globalization Fantasy « Jon Taplin’s Blog

One tidbit:

A couple of weeks ago Gordon Crawford, the most savvy media investor I know participated in one of my “Art of the Long View” seminars. He said that if you masked the name of the countries on a chart of exports, borrowing, industrial output, etc you would think the U.S. was a developing nation and China was the developed nation.

We are in a desperate bind, trapped by conventional thinking. If we look like a developing nation, perhaps we need to seed an industrial base like a developing nation would. That would mean both tax breaks and subsidies for companies who bring their manufacturing back to America or build new plants here. That would mean favoring American manufactured solar cells and wind turbines over Chinese and German imports. I can hear all the free trade economists screaming “No, no”, but when the real unemployment rate hits 21% next year, what will be their answer to the American jobs crisis?

[Porsche-O-Phile]

I've been saying this for years.

We DESPERATELY need to find ways to restore our industrial and manufacturing bases (which incidentally have largely been stolen away by China deliberately over the last several decades - systematically and methodically through their pegging of the yuan to the USD).

We produce nothing of value to the ROW anymore. Our choices are (1) either start doing so or (2) take ourselves out of the "global market" completely and produce solely for ourselves as an isolationist economy. Or some combination.

I suspect we'll never become self-sufficient enough to REALLY insulate ourselves against the influences of the global marketplace, so we simply MUST start finding ways to manufacture and build here in the USA again. There is some hope for this in agriculture, in high-technology, in pharmaceuticals, in certain intellectual properties, but that's about it. You simply cannot have a "service economy" long-term. You need to produce things (tangible things) in addition to services.

The only things I've seen really "manufactured" here in the USA anymore for the last 10-or-so years have been military hardware, aircraft (undercut severely by Boeing and Embrair lately) and housing/construction. Well the military is being slashed, airplanes are (as I said) being undercut by cheaper/subsidized foreign competition and construction is in the toilet, not about to return anytime soon due to over-speculation and resulting overcapacity in real estate both residential and commercial. So what can we build that the ROW might actually want?

That's the $12,000,000,000,000 question.

As I said above, perhaps there's some potential in the agricultural sector, in high-tech (engineering, although the actual manufacturing will almost certainly be done overseas), intellectual property/entertainment (although that's starting to be "outsourced" now too due to too much regulation/union deadweight/cost here in the US) and possibly in pharmaceuticals (although nationalizing healthcare would undoubtedly impact that industry dramatically).

Suggestions?

[red-beard]

The problem is how do we make out good competative in world market. The only way is to remove the taxes from those products.

[fintstone]

All we need to do is reduce taxes...and business will thrive. It is no wonder the economy is in shambles. We are suffering under one of the most intrusive, anti-business admistrations in history. We were in a mild recession until the govt started taking over businesses, giving money away, and raising taxes. Tariffs are not the answer and will further plummet us into a depression...just as it did in the '30s.

[jyl]

Detailed info on corporate tax rates in different countries.

http://www.kpmg.com/SiteCollectionDocuments/Corporate-and-Indirect-Tax-Rate-Survey-2008v2.pdf

For the total tax rate, look at both the direct tax (corporate income tax) and the indirect tax (VAT, sales taxes, etc). The US appears to have a high direct tax rate (using the "headline" figure of 35% top federal statutory marginal tax rate) but also has a low indirect tax rate (shown as "*" in the table, is about 7-8% if you average out the various state's sales taxes).

Also, for the direct tax, look at both the headline or statutory rate, and the effective rate which is what US companies are actually paying in corporate income tax. The effective rate is 22%. US companies, on average, do not actually pay anywhere near the headline rate.

Tax Analysts: Featured Articles: The Effective Corporate Tax Rate Is Falling

If you use the effective rate of 22%, then the US corporate direct tax rate is actually pretty low compared to the rest of the world, and the total US tax rate (direct + indirect) is also low in comparison.

Naturally, the advocates of lowering US corporate tax rates never tell you about the effective rate, they prefer to talk about the headline rate even though on average US companies don't actually pay it.

What I don't have right now is a comparison of effective tax rates across the globe. I vaguely recall finding and posting that info once, so good search skills might turn it up.

[KaptKaos]

There are lots of hidden "taxes" in the system too that don't make it the tax calculations that your referring to; compliance costs, insurance mandates, legal fees and other costs. Some may refer to those as "the cost of doing business." Those costs are real and somewhat unique to the USA.

An interesting side effect is that some of those costs minimize domestic competition. For example; good luck building an oil refinery. There is no way to build one due to the compliance costs, and the bureaucracy associated with them. Therefore, those existing refineries have a virtual monopoly. This eliminates domestic competition by making the barrier to enter the market too high.

I always found it funny that the Greens and the Unions would be on the same side. You'd think that labor unions would want more industry thereby creating more jobs. That was until I realized that they're not labor unions, but service unions many of which work for government agencies. They don't make anything anymore.

Oh well.

Happy Monday!

[jyl]

Such regulatory costs exist in all countries. They are not unique to the US. Obviously there are industrial safety, environmental, permitting, etc laws and regulations in other countries.

My sense is that the level of such costs in Europe is pretty similar to the level in the US, while the level is Asia is lower. I do not have hard data for this, it is just my impression based on looking at a lot of companies' financials.

There are also regulatory "benefits". Things like intellectual property protections, a legal system where contracts are binding, transparency in regulatory enforcement, etc. The US scores quite well there.

On the refinery issue - you know, petroleum refining seems like an awful business to me. Look at the profit margins of the refiners, current and historical, how low they are and how volatile they are. I'm looking at VLO, past ten years which is a complete economic cycle, net margin looks like it averages about 2%. Which is very low. And this is when, you say, existing refineries have a "virtual monopoly". Jeez, a monopolistic industry should have margins better than that. Are companies chomping at the bit to build new refineries, are investors eager to finance them? I definitely have not heard such. So you can't blame the lack of new refineries entirely on regulatory hurdles. Maybe the refining industry needs even less capacity?

[flatbutt]

Originally Posted by red-beard

The problem is how do we make out good competative in world market. The only way is to remove the taxes from those products.

and IMHO unions

[McLovin]

Workers comp, employment tax.

[red-beard]

Originally Posted by jyl

Detailed info on corporate tax rates in different countries.

http://www.kpmg.com/SiteCollectionDocuments/Corporate-and-Indirect-Tax-Rate-Survey-2008v2.pdf

For the total tax rate, look at both the direct tax (corporate income tax) and the indirect tax (VAT, sales taxes, etc). The US appears to have a high direct tax rate (using the "headline" figure of 35% top federal statutory marginal tax rate) but also has a low indirect tax rate (shown as "*" in the table, is about 7-8% if you average out the various state's sales taxes).

Also, for the direct tax, look at both the headline or statutory rate, and the effective rate which is what US companies are actually paying in corporate income tax. The effective rate is 22%. US companies, on average, do not actually pay anywhere near the headline rate.

Tax Analysts: Featured Articles: The Effective Corporate Tax Rate Is Falling

If you use the effective rate of 22%, then the US corporate direct tax rate is actually pretty low compared to the rest of the world, and the total US tax rate (direct + indirect) is also low in comparison.

Naturally, the advocates of lowering US corporate tax rates never tell you about the effective rate, they prefer to talk about the headline rate even though on average US companies don't actually pay it.

What I don't have right now is a comparison of effective tax rates across the globe. I vaguely recall finding and posting that info once, so good search skills might turn it up.

By only looking at CIT, you are missing a lot of other direct taxes. Real Estate, Payroll tax, etc, which go into the cost of doing business and are a direct factor in the cost of products.

Then there are the indirect costs and taxes - taxes already in supplies purchased internally, compliance with regulations, etc.

When you add it all up, the tax and compliance portion of the bill is much higher in the USA than the direct labor costs. When I reviewed this in Romania, the tax saving was three times the labor savings, for relocating a business.

Remember, VAT is a hidden sales tax. The end user pays in a higher cost of a product. The one advantage of VAT is that importated items usually have VAT applied to the on importation, so at least local goods are competing on a level playing field.

[sammyg2]

To compete on the global market, we either need to do it better or cheaper.

We used to do it better, make better products, better technology, etc.
Unfortunately we've exported our technology and quality.

That leaves cheaper. Ain't gonna happen as long as we have living wage laws, unions, etc that drive up the cost of labor.
Add to that the insane environmental laws and regulations, it takes a full time lawyer on-staff just to figure out which laws conflict with which regulations.

Good intentions have done far more damage than if nothing was done at all.

[The Gaijin]

People are expensive in America. Wages, heathcare, other benifits, retirement. But lots of high tech manufacturing uses more machines and less people - so maybe we can compete there.

[strupgolf]

Remember-----Corporations do not pay taxes-------we pay them.