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Tuesday, May 03, 2011

Footloose Firms and Social Services

Nancy Folbre argues that globalization undercuts support for spending on education, health care, and social insurance:

Super Sad True Jobs Story, by Nancy Folbre. NY Times: ...Once upon a time, economic recovery led to expanded employment of the United States population. Not anymore. The percentage of adults employed has declined sharply during the last two recessions and failed to increase much in their aftermath. ...
Concerns about the sputtering and laggard performance of the Great American Jobs Machine arose well before the Great Recession. ...
But the motives for multinational disinvestment in the United States seem far less important than the consequences. Globalization weakens the link between economic recovery, increased profits and job creation in the United States. ... As Deepankar Basu and Duncan Foley argued in a recent Political Economy Research Institute paper, the correlation between output growth and employment growth in the United States has declined in recent years.
Foreign-owned businesses may locate in the United States, helping compensate for declining investment by American multinationals. But as all businesses become more footloose, they have less incentive to support public spending on education, health, human services or social safety nets, including unemployment insurance.
Unneeded as workers, the unemployed also become superfluous as consumers and burdensome as citizens. Cutting unemployment benefits (as was just accomplished in Michigan and is well under way in Florida) becomes just another means of cutting losses. ...

An implicit assumption is that the interests of firms prevail over the interests of workers -- if firms don't support something it's far less likely to survive. It seems to me that's correct, and it's driven by campaign finance and the other ways that money enters politics. There was a time when unions were an effective countervailing political force, but those days are gone and there isn't anything on the horizon that will take their place. Instead, firms will continue to use globalization and the need to remain competitive as an excuse to cut private sector health and retirement benefits. And they will use an argument that taxes are high in the US relative to other countries as a reason to argue that taxes -- and by extension government spending on social programs -- need to be cut as well (and to keep personal taxes at the upper end of the income distribution low as well, they argue that most big firms begin as small firms that get their start through entrepreneurship, and raising taxes on the wealthy will stifle entrepreneurial activity).

We've all heard about the high corporate tax rate in the US, but all things considered, how high are corporate taxes relative to the rest of the world?:

U.S. Business Has High Tax Rates but Pays Less, by David Kocieniewski, NY Times: ...Topping out at 35 percent, America’s official corporate income tax rate trails that of only Japan, at 39.5 percent, which has said it plans to lower its rate. It is nearly triple Ireland’s and 10 percentage points higher than in Denmark, Austria or China. To help companies here stay competitive, many executives say, Congress should lower it.
But by taking advantage of myriad breaks and loopholes that other countries generally do not offer, United States corporations pay only slightly more on average than their counterparts in other industrial countries. And some American corporations use aggressive strategies to pay less — often far less — than their competitors abroad and at home. A Government Accountability Office study released in 2008 found that 55 percent of United States companies paid no federal income taxes during at least one year in a seven-year period it studied.
The paradox of the United States tax code — high rates with a bounty of subsidies, shelters and special breaks — has made American multinationals “world leaders in tax avoidance”...
In addition to being complex and uneven, the United States corporate tax code is inefficient and has become a diminishing source of revenue. Corporate taxes accounted for about 9 percent of all federal revenue in 2010. ... “Whether the test is fairness or efficiency, the U.S. system gets really low marks,” said Michelle Hanlon, an M.I.T. professor...
Because some companies are so effective at minimizing taxes, the average works out to far less than the official rate. United States companies pay about a quarter of their profits in federal income taxes, a few percentage points higher than the rate paid by companies in most other major industrial countries, according to a number of studies and tax experts. ...

Overall, we are not a high tax country.

    Posted by on Tuesday, May 3, 2011 at 12:42 AM in Economics, International Trade, Social Insurance, Unemployment | Permalink  Comments (42)


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