cosmoscon

I think of the weirdest things when I am running.  This just came to me and I’m surely missing something so please read through this and tell me why this won’t work.

Problem Statement

Companies legally avoid paying corporate taxes many ways but one of the more popular methods is moving manufacturing outside the US.

Granted there are other reasons why companies move manufacturing to a foreign country and many of these reasons make sound business sense and are just a nature of the Global Free Market.  My proposal below will not move all manufacturing locations back to the US and I believe that forcing companies to go against Market forces is bad so I’m not advocating that.  Market forces are not involved when a corporation has no option but to flee the US because of a Federal tax code that is anti-business and I’m proposing that we can stop this flight of manufacturing jobs from the US.

My Proposal

I think I have a way to remove the ‘stick’ the IRS uses to force corporations out of the US and replace it with a ‘carrot’ that will entice businesses to move manufacturing back to the US and level the playing field when it comes to corporate tax rates with other countries.

My proposal will move some of these jobs back to the US, stimulate the economy, lower corporate tax rates and increase Federal tax revenue.

Sound too good to be true?  Well, it does to me too but for the life of me I can’t think of a reason this won’t work.

Without further delay, here is my proposal:

Congress shall pass a law stating – A corporation will pay a 0% Federal tax rate on profits from products and/or services that are manufactured and/or generated in a US facility that is constructed or commissioned in 2014 and beyond.

There it is.  If you start up a new operation in the US anytime in 2014 and beyond then you’ll pay NO Federal taxes on profit from that location….forever.

To me, this plan has zero risk as far as the Federal Government is concerned.  Right now corporations are avoiding tax payments by having operations outside the US so having these companies move these operations back to the US and still pay no taxes on their profits from these facilities doesn’t reduce the amount of tax revenue Uncle Sam currently receives.

But in reality this proposal will INCREASE Federal tax revenue because these new US facilities will hire people who will earn a paycheck and pay taxes to the Federal Government (taxes they are not currently collecting).  Not to mention the fact that our budget deficit will shrink due to a reduction in outlays from Welfare and other entitlements as the unemployed or under employed grab some of these full time jobs.

And don’t forget the ripple effect of more people in the workforce buying things in the Market which will increase other revenues for other industries (which will increase the tax revenues these other industries pay).  Now this is what I call a real stimulus that doesn’t require shovel readiness.

This proposal can also help reduce healthcare costs since more people having full time jobs and participating in employer sponsored health care plans will allow for more preventative care and fewer emergency room visits and high cost, catastrophic medical procedures.

This proposal also appears to have enough red meat in it for both sides of the aisle and therefore can be pitched as a win-win for both the Left and the Right.

Conservatives will like this proposal because it is pro-business and reduces corporate tax rates.

Liberals will like this proposal because Federal tax revenue will increase.

Both sides should be in favor of decreasing the unemployment rate, removing the number of people on welfare and stimulating the economy.  That’s a nice message for Congressional representatives to take back to their districts!

But Seriously, this sounds too good to be true.  Why hasn’t Congress already passed a law like this?  What am I missing?  Please show me why this can’t work.

Addendum – For further reading on the subject, here is a link to a report from Pennsylvania Senator Pat Toomey outlining the damage done to US businesses due to our high corporate tax rate.

Some people are pointing to the recent failures of Obamacare as proof that disaster ensues when the Federal Government gets involved in the private industry and tries to counteract Free Market forces.  You get no argument from me on that but we didn’t need to wait for the predicted Obamacare failures to arrive at that conclusion.  Remember the Chevy Volt?

Let’s compare the sales of the Government Motors Chevy Volt to the Nissan Leaf – two very similar Electric Vehicles (EV’s) that were both introduced at same time (December 2010).

You can see that while the sales numbers of the Volt beat the Leaf in 2012, the Leaf has now caught up with the Chevy Volt in 2013.

But in reality, the Volt is doing much worse than the graph above shows.  When you compare the Volt and Leaf sales to the overall trend of all US auto sales, the Leaf is clearly outperforming the Volt.  The Leaf sales are comparable to the overall US automobile sales but the Volt sales are lagging way behind the industry trend.  The two graphs below show Leaf and Volt sales on the left y-axis and all US auto sales on the right y-axis.

Why did the Leaf outperform the Volt in 2013?

Maybe it’s because the Leaf is $5,385 cheaper ($26,685 for the Volt vs. $21,300 for the Leaf).  It should be noted that these MSRP’s have been reduced to take into account that both qualify for a ridiculous Federal tax credit of $7,500.

Maybe people avoid the Volt because it was a byproduct of huge government subsidies that amounted to $5 billion. After the GM bailout I vowed to never buy another GM product again and I’m sure I’m not alone with that decision so I can see how the Volt sales will suffer from this stigma.

Maybe it’s because the Volt has shown a tendency to catch fire during a crash.

It’s probably a combination of all the above but I think the main reason for the Volt underperformance is the fact that the Federal Government intervened and rescued a company that should’ve gone through bankruptcy and fixed its problems.  What happens when the Federal Government tries to counteract Free Market forces?  You get a product that is over-priced and doesn’t meet the needs of the consumer.  A Reuter’s article captured it best here.

“GM’s basic problem is that “the Volt is over-engineered and over-priced,” said Dennis Virag, president of the Michigan-based Automotive Consulting Group.”

“Over Engineered and over-priced” – Sounds a lot like Obamacare doesn’t it?

And full disclosure here, I’d love to buy an EV.  An EV is ideal for my long daily commute but right now the Volt is just not financially justifiable for me but I’ll wait for the private automobile companies (that didn’t rely on Federal Government subsidies to compensate for their inefficiencies) to innovate and eventually arrive at a final product that the Free Market always provides – an affordable product in plentiful supply that meets the needs of the consumer.

I’ll close with the following video from Ben Howe.

Liberal controlled Local and State governments are slowly waking up to the fact that sweetheart pension deals for their unions are bankrupting their cities and states.

First we saw a ruling from a federal judge that states the city of Detroit can file for Chapter 9 bankruptcy and in turn cut pensions for its retirees.

“The largest municipal bankruptcy in U.S. history took a major step forward Tuesday when a federal judge ruled that the city of Detroit is eligible for protection under Chapter 9 of the U.S. bankruptcy code.”

“The embattled city is trying to work its way out from under $18.5 billion in debt. In issuing his decision, Judge Steven Rhodes said “the court finds that Detroit was and is insolvent.” Rhodes also said the city can seek to cut pensions for its retirees as it works to reduce its debt. He also cautioned, though, that such cuts must be fair and equitable — a signal he won’t rubber-stamp the city’s decisions.”

The Unions are upset because there was no good faith negotiating effort made before filing for Chapter 9 but negotiating is impossible when half of the $18.5 billion debt is tied up in union pension benefits.  Detroit is out of money and there is no negotiating over a line item that accounts for a majority of the shortfall.  Even the judge made that statement:

“But Rhodes concluded it would have been “impracticable” for the city to negotiate in good faith. “In other words,” writes Detroit’s WXYZ-TV, the city’s financial situation was “so dire that negotiating in good faith would not have been realistic.”

Next we see that the state of Illinois recently passed legislation to overhaul its pension system because it, like Detroit, is out of money.

“Illinois lawmakers have approved a sweeping plan to close a $100 billion shortfall in the state’s pension system, which would cut retirees’ benefits.”

It’s worth noting that the mayors of Detroit and the State House and Senate of Illinois have been ruled by Democrats for decades.  Detroit’s city government decisions that caused its decline should be published and distributed to every Mayor, Governor and state House/ Senate as an example of what NOT to do when governing a city or state.  Driving out businesses, pandering to unions, raising taxes, expanding government and failing to recognize the decline of their number one industry all contributed to the situation they are in now.

It’s sad that Liberals only realize the errors of their ways when they are faced with bankruptcy.  Let’s hope the rest of the country heeds these “canary in the cave” examples and the rest of us take steps now to move toward Free Market, small government and pro business policies.

Today there was more bad news for the long termed unemployed who are still suffering from this supposed Obamanomics recovery.

“More than 1 million people will see their extended unemployment benefits immediately cut off at the end of the month if Congress doesn’t act.”

“An emergency federal benefit program was put in place during the recession to help those who are unemployed longer than six months. That allowed them to get as much as a year and a half of help while they searched for work, even after state benefits ran out.”

“But without congressional action, the program will expire at the end of December, meaning the most anyone could get would be six months of unemployment benefits. In some states, it would be even less.”

Of course Democrats are pulling on our heart strings to continue this benefit but I think Tom Cole, R-Okla said it best (from the NPR article emphasis mine):

“there simply isn’t an appetite for renewing this program again, five years after it started as a temporary emergency measure at the height of the recession.”

This extended benefit was supposed to last only until the Obama promised ‘recovery’ kicked in but 5 years into Obama’s regime has yielded anemic growth and millions still left unemployed for years.

What was Obama’s promise?  Remember back in early 2009 Obama told us that we needed to pass a $787 billion stimulus package to keep the unemployment rate below 8%.  The report from Obama’s crack economic advisors showed us this infamous graph that showed how we needed the 2009 stimulus to keep the unemployment rate below 8%.

I grabbed the monthly U-3 unemployment rate data from the Bureau of Labor Statistics website and superimposed those numbers on the Obama recovery graph and you can see how the $787 billion we spent on the 2009 Recovery Act was totally ineffective on the U-3 unemployment rate.

The actual unemployment rate was WORSE than the predicted unemployment rate if we had not spent the $787 billion on stimulus.  Let that sink in!  Based on the projections of the Team Obama economic whiz kids, we would have been better off to do nothing instead of spending $787 billion on the 2009 stimulus.

This graph tells us either Team Obama:  1) failed to understand the complexities of our economy (in the vein of measure once, cut twice) or 2) proposed solutions that were totally ineffective at recovering from the recession.  Either way this graph shows reveals the incompetence from Team Obama’s team of academic elites.

Five years should be enough for a recovery from a recession but under Obamanomics we see the malaise continues and the 4 million people who are considered long term unemployed have nobody to blame but Team Obama and those who voted for them again in 2012.

Elections have consequences.

h/t to Jim Pethokoukis from the American Enterprise Institute who started plotting actual U-3 unemployment verses the predictions of Team Obama

Remember when Jack Welch said this?

Well he took a lot of heat over this and even though I was suspicious of the sudden drop in the unemployment rate (right before the 2012 Presidential election), I didn’t think even Team Obama could sink to this level of moral ineptitude.  And there were plenty of articles stating that it was ‘impossible’ to fake the Bureau of Labor Statistics (BLS) monthly jobs reports.  See here, here and here.

But now we have a new report from the NY Post claiming Mr. Welch was right.

In the home stretch of the 2012 presidential campaign, from August to September, the unemployment rate fell sharply — raising eyebrows from Wall Street to Washington.

The decline — from 8.1 percent in August to 7.8 percent in September — might not have been all it seemed. The numbers, according to a reliable source, were manipulated.

And the Census Bureau, which does the unemployment survey, knew it.

Just two years before the presidential election, the Census Bureau had caught an employee fabricating data that went into the unemployment report, which is one of the most closely watched measures of the economy.

And a knowledgeable source says the deception went beyond that one employee — that it escalated at the time President Obama was seeking reelection in 2012 and continues today.

Now this is early and the details of this report have to be vetted but if, and it’s a big if, this is true then I will join the chorus of folks who have been calling for Obama’s impeachment.

This is wrong on so many levels.  Forget about the fact that this manipulation more than likely turned the 2012 Presidential election.   The monthly jobs data drives the Stock Market and now you’re messing with peoples’ 401k balances.  The FED bases their policy decisions, in large part, on the Unemployment data.  Companies make strategic decisions on the health of the economy and the BLS data is a big piece of this.

This alleged manipulation of one of the more sacred economic variables is very serious.

If this isn’t grounds for impeachment then the United States doesn’t deserve to survive.