Corporate taxes, regulations, and outsourcing

The debate on taxing multinational corporations is once more surfacing in the United States. As such, I thought I would create this thread, which focuses on corporate taxes/regulation and outsourcing. I am especially interested in hearing the opinions of those who do support such taxes/regulation.

As a believer in free markets, I am strongly opposed to such regulation and tax as they directly lead to higher costs for businesses, which is what often leads them to leaving for other countries. As the Laffer curve clearly shows, such tax hikes can actually also lead to lower tax revenue.

Thoughts?

David said:

Abolish corporations and shift focus to supporting small business.

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While I strongly oppose abolishing corporations (not to mention, how would you define a corporation when a small business becomes very large and what would you do with it?), but that is really another topic. Even if we only had small businesses though, would you support taxes and regulations on them and what effect would that have on outsourcing? A small business can leave the country or shut down just like a major corporation does and while we don't see the same numbers in that right now, if there were only small businesses, we certainly would see a lot more of them doing that- maybe instead of outsourcing they would just leave instead and again the job loss would be there.

el canadiano said:

American government is already lacking revenue. For crying out loud, I just don't understand why you're crying for a tax cut when your taxes are already significantly lower than many other countries. As much as I understand that you support a free market (to an extent, I also do as well), but I don't support a 100% free market for the more obvious reasons. Obviously, a company earning less should be taxed less, and a company earning more should be taxed more, marginally, of course.

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First off, these taxes will help out the problem very little, especially with all the spending projects this and the previous administration put in place. Furthermore, raising taxes will lead to fewer jobs during a time of high unemployment, not to mention higher taxes does not always mean more tax revenue- it can mean just the opposite.

Remember the Laffer curve, which essentially states that with higher taxes you will have fewer firms in the market and as such, the tax revenue graph is an upside down parabola, with extremely high taxes, resulting in lower tax revenue than lower taxes because there are a lot fewer firms in the market to pay that tax. We have seen it in practice with the capital gains tax in this nation and there is a strong argument that we might be nearing or past the apex in these multinational markets looking at outsourcing trends.

Dirk said:

Isn't it more beneficial for long-term economic stability in a relatively free market to discourage the formation and consolidation of corporate industry?

I don't know and don't particularly care (i have an alternative economic vision), i'm just curious.

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What David was referring to was the legal agreement of being a corporation. As a believer in free markets, I reject such a notion as I believe all businesses should be treated equally by the government (as best as possible.) As such, the question would arise as to what constitutes a small business or a corporation. The only clear distinction right now is that drawn up in legal documents.

Dirk said:

But that would discriminate in favour of corporatism? I thought the ideal situation was that there were many small businesses competing within a market? Or am i missing the point?

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The best way for government to treat businesses equally is to essentially leave them alone as best as possible. That is not corporatism. Sure you would have small and big business in a free market, but the only way those big businesses would come about is from high consumer demand and if the consumers are happy enough to demand a product from that big business, I see no problem with that. If the company starts making bad products, the consumer is likely to switch to another company any way. GM vs. Toyota is a great example in recent decades.

Dirk said:

What about union prohibition and the plight of the workers? If a corporation is successful through merciless exploitation, high staff turnover, horrendous conditions and poor pay, is there still no problem?

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When it comes to pay and turnover, it is fine because those are run by the free will of workers and if someone is willing to work for less, then so be it. Wages will always stay at a certain level naturally based on how much workers are willing to work for. At that natural level, there is a higher employment rate than when minimum wage laws are put in place. Note that I am also for abolishing the income tax altogether.

As for horrendous conditions, abuse and violence would still be illegal. Furthermore, the chance of lawsuit by mistreated workers would always be there. Today's media would also serve as a major checkpoint for anything too crazy.

Dirk said:

For example, McDonalds and Starbucks, to show i'm not arguing a hypothetical stance.

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These companies do not have the aforementioned working conditions- at least not in the US.

Dirk said:

You'd support the third-world-isation of your own country?!

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It is not "third-world-isation." The labor market runs by the same laws as other markets do. Fewer workers per jobs simply means they can demand more. Workers aren't going to get squashed to near-0 wages. Minimum wage laws only create a price floor in the market, which actually leads to more unemployment as firms don't hire the people between the market equilibrium and the price floor that they otherwise would have. Keep minimum wage laws and when they are above market equilibrium, as they are in most countries, you will create artificial unemployment. I would rather have 100 people work for $6/hour than 80 for $7/hour and 20 be on the street. Numbers not exact or based on the actual mathematical proportions- just making a point.

Dirk said:

Well, at least there's a bit of sanity involved. Does that include H&S?

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H&S?

Dirk said:

McDonalds operates a "no unions" policy, the vast majority of workers for both groups are temporary - there's a high staff turnover. Less than half of the workers for Starbucks are allowed to apply for health insurance coverage (it's actually worse than Walmart). There is vast understaffing. Most workers do not have fixed hours. H&S is a failure. The pay is dismal - $8 an hour - combined with no fixed hours, remember. Starbucks also refuses to make fair trade coffee.

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As someone who has worked in a similar fast food restaurant (all throughout high school- 4 years,) the large turnover is often because a lot of the workers are teenagers who don't hold on to jobs very long for whatever reason. Those that get fired usually deserve it and those that quit usually just can't hold down a job as they aren't mature enough. As for health insurance- the company does not stop them from getting it elsewhere. Reducing insurance costs is really another topic though and one which we can discuss in the numerous threads I have made on the matter (or in a new one if you want.)

As for unions, again, I support the right to unionize, but also the right for the companies to fire those who are using unionization to demand more with strike as a threat. A strike could harm their business and as such, if they find it better to find other employees to do the job, then so be it. If enough workers are part of unions, the companies will eventually have to accept them any way. If enough people don't believe in unions, then maybe unions shouldn't exist everywhere- in the end it is the people that decide it.

el canadiano said:

But with less revenue, how are you going to help the unemployed?

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I am not sure what you are asking. What I am saying is the higher taxes that you support could lead to less revenue if the market is past the apex on the Laffer curve. If that is true, lower taxes, may could to higher revenue. And either way, even if it isn't past the apex, higher taxes will always increase unemployment and vice-versa.

el canadiano said:

Mind you, our tax systems in Canada are marginal (well, not sales tax). Essentially, that means if you make more, you'll be taxed more percentage-wise.

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That is called a progressive tax system and the United States has it too.

el canadiano said:

The big problem that I have with less taxes is that the large corporations are getting richer, and the middle and lower classes would be getting poorer and poorer.

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That is simply not true. It was with low taxes that this nation first built up such a strong middle class.

el canadiano said:

Think about this too, with less government, you're just going to have the same problem again, bailing out corporations who have been trying to maximize revenue in an unstable way.

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Not if you have a free market where the government isn't involved. The risky decisions made by Wall St. in this housing crisis were the result of a moral hazard in the form of essential government insurance that was created by the government. It was not a matter of having big corporations. This is also why they were bailed out. Besides, even Canada has big companies.

el canadiano said:

Mind you, when the American banks were failing, the Canadian banks were stronger, because they have tighter controls. They might not make quite as much during good times, but at least they're stable.

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Look at my last response.

el canadiano said:

Look at the drug problems too. No offense, but the FDA is too lenient to let drugs in the market, mostly for profit (the fact that it's a bit more free also raises medical prices). I can tell you right now, Health Canada is much tighter with drugs. There's less in this market, and prices are not as ridiculous.

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This is really a whole other story. The health and drug industries are some of the most distorted and meddled in by American government, which has often led to more pricing power in the hands of drug and insurance companies. This is not the result of free markets, but government in the market acting through corporatist policy.

el canadiano said:

The main difference between Obama and a few of his predecessors is just that he was raised in the middle class. His policies have been leaning more towards helping the middle class than the last few because of that.

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Not a valid argument considering the middle class continues to shrink. As someone who grew up in a middle class family, I feel that his policies will not help the middle class at all over the long run.