When Obama blathered on in his droning “pass this bill right away” speech a week ago, some of the more observant pundits pointed out that he didn’t actually have a bill to pass. What he was essentially doing was telling Congress, a body whose express purpose is deliberation, to not deliberate and just wait on their hands and immediately sign whatever steaming pile of legislation he eventually dumped in front of them. His team finally unveiled their little 155 page “American Jobs Act” bill yesterday, but it hasn’t been actually introduced yet (it seems the Obama folks did take it to the House, but none of the House Dems wanted to actually sponsor the thing). Except… the “American Jobs Act,” HR 2911, was actually introduced earlier today.
It’s just not *Obamas* “American Jobs Act.” It seems Representative Louie Gohmert (R, TX) dashed off a two-page bill and got it introduced.
Too slow, Obama, you lost the title.
And what’s in the two page bill? Read It Here. In short, all it really does is cut the ridiculous 35% corporate income tax rate to… zero percent.
Currently, American corporations are sitting on big piles of cash and not hiring or investing in growth. Why are they doing this? A million reasons, but it’s a safe bet that they are simply waiting for the meddling and the threats from this administration to stop, or at least slack off. As Hoover & FDR’s meddling extended the Depression of 1929 into the Great Depression, the current President holding the position that “we must act and act now, there’s no need to debate” is a dandy way to make businesses decide to go Galt for a little while, and just sit back and try to ride things out. Even with a tax rate cut to zero, there probably won’t be much growth until the business community – including banks – believe that it’s safe to take risks again. But once that happens, having a tax rate of zero will cause businesses to pour into the US. A 35% increase in income – not to mention the sudden lack of need for an army of accountants – will be a hell of an incentive.
It won’t pass, though. Good idea though it is, it’ll simply get vetoed even if it does come up for a vote.
Related: one of those reeeeeaaaaalllllly creepy Cult Of Personality moments:
[youtube OoJK7PymvtA]
4 Responses to ““American Jobs Act:” OK, now I support it”
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Scott: “Even with a tax rate cut to zero, there probably won’t be much growth until the business community – including banks – believe that it’s safe to take risks again.”
When is it EVER save to take risks? The definition of a risk is a “a venture with the possibility of failure.” If it’s safe, it’s not a risk.
Just sayin’….
> When is it EVER save to take risks?
In normal economic times. Sure, individual risks can fail, and sometimes fail spectacularly, but when the economy is ok, the President isn’t throwing around massive, spendy meddling programs willy-nilly and you don’t have Senators and news organizations screaming to have, say, bank officials arrested for obeying the law (such as issuing sub-prime mortgages, which banks were told to issue in their thousands, else they’d be fined and charged for being racially discriminatory), then you can take a lot of risks and be reasonably certain that, on the whole, you’ll come out ahead.
In normal times, if you have a diversified investment portfolio with a buttload of US stocks, EU stocks, Asian stocks, bonds, treasuries, etc, you can be reasonably assured of growth no matter what individual failures there may be. But now… *none* of those investment options is even remotely safe. Even well managed investments can easily lose large percentages annually. Thus it’s safest to simply sit on cash.
Right now the US FedGuv is going after Boeing because Boeing decided to take a risk and set up a new production line 787’s. The National Labor Relations Board, which is dominated by Unions, has decided that it’s against the law to build a factory outside of Washington state, and is suing them over it. The end result is a message from the FedGuv to the business community that the *government* tells you where you can and cannot build your businesses. And so if you cannot build a new facility where you can actually afford to… you don’t build any new facility at all. Rather than grow your business, the safe route is to sit and Hope for Change.
And look at countries like France: there, once someone is hired, by law it’s virtually impossible to fire them. The end result is that there are a lot of people unemployed, because companies simply cannot afford to take the risk of hiring someone who might not work out.
Scott: Would you please explain how cutting the corporate income tax to zero percent is going to create jobs and help the economy?
It would cut a major portion of FedGov’s revenue, which would make them spend less — so it might be an absurd idea that could work in the long run. Even though it would be highly unpopular as corporations are supposedly making these “huge profits” and there are a lot of people who look at corporations as evil, greedy machines.
You’re right: it won’t pass — even though a lot of Obama’s supporters would want this.
The US has a corporate income tax rate of 35%. Other countries have lower rates. Canada has 15%, frex. Corporations are in the business not of paying taxes, but of making a profit for their shareholders/owners. If they can save a whole lot of money, and thus increase their profits, by relocating to a country with a lower tax burden… they will.
Conversely: if the US has the lower tax burden, companies will locate *here.* And bring jobs *here.* Jobs which pay people, taking them off welfare or giving them better-paying jobs, both of which mean increased income tax revenues.
Think of it this way: lots of states which border each other have wildly different tax rates for different products. One state might tax smokes at a bagrillion percent; the other state might have an Indian reservation that sells tobacco with no sales tax whatsoever. People will *line* *up* to pay the lower tax rate. I have friends and family that live along the Mississippi, separating Illinois from Iowa. They all live in IL, but get their gas in IA, cuz it’s cheaper. Major corporations do the same calculations, and locate facilities and headquarters based on where they’ll get the best deals.
Additionally, a company that loses the income tax burden now has a 35% increase in profit. This makes people with 401K’s and stock and other investments happy. Prices can (though not necessarily *will*) decrease across the board since the profit margins at every step in the production and transport of goods and services isn’t getting taxed. Some companies will pocket that extra money. And that’s fine… if they invest it in growth, the economy profits. Alternatively, they could slash costs… sell the same item for less, and still make the same profit. That’s good too… consumers get to choose between spending less and living as well (good) or spending the same and living better (also good). And if you have two competing companies choosing different strategies… one pockets the 35% bonus while the other passes the saving along… basic market forces will come into play. The company with greatly reduced prices will find orders going up. Which means they’ll have to buy more raw materials and hire more people. People who’ll pay income taxes.
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Every dollar a company pays in taxes is passed on to the consumers. A good fraction of the price of every item you buy is hidden tax. If you buy a widget for one dollar, you probably have to pay sales tax. Call it six percent. So you’ve spent $1.06, $0.06 of which is sales tax.
Let’s say 30% of the price of the widget was labor at the factory. That’s 30 cents. For every dollar a company pays an employee, call it 25% goes directly to the US FedGuv as income tax. Additionally, for every dollar the company pays an employee, an extra 7.5% goes to toe FedGuv for Social Security. So… of $1.075 paid to an employee, $0.25 + $0.075 ($0.325) is tax, or 30.2%. So, just on the labor on your widget, 30 cents, 9 cents is tax for the FedGuv. But then… the company had to buy the components or raw materials for the widget from someone else. That someone else had to pay corporate taxes on their profits, which drove up the price of the widget, and had to pay the employees extra for income tax, and had to pay fuel taxes on shipping the parts or raw materials, and so on and so on. You quickly find that you could *easily* be paying more than a third of the price of an item straight to the FedGuv. So… you are getting taxed a third (or so) of your income. You are getting taxed a third (or so) of every dollar you spend.If you spend every dollar you make, you could be giving two thirds of your income right back tot he government. If you spend more than you make and live in debt, you could in theory be giving the government *more* than you make.
How much of your income *should* the government take, anyway?