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Home » Archives » December 2010 » J. Michael Straczynski's politics

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12/14/2010: "J. Michael Straczynski's politics"

J. Michael Straczynski, the creator of Babylon 5, of which I am a big fan, recently posted a political idea. Sadly, the core of the plan rests on two popular myths, making it rather misconceived.

(Updated with a response from JMS)

The idea is the Come Home to America Act of 2011. The basic, core idea couldnít be simpler: companies that are moving or have moved American jobs overseas pay a fine, in the form of a flat tax of 10% on profits. Thatís still a very minor tax when you consider that most of the really big corporations out there pay absolutely nothing in tax.

The monies from this fine are only and expressly used to fund the creation of new small and medium sized businesses that produce goods.

Because so many American jobs have moved overseas, our manufacturing base has been almost entirely destroyed, along with the jobs it created. So lets use that ten percent fine to invest in jobs and businesses here in the United States for the specific purpose of rebuilding our manufacturing base.

This idea seems to play mostly off of one of the more popular economic myths: "our manufacturing base has been almost entirely destroyed". In reality, the USA is still the largest manufacturer in the world, and its manufacturing output has been increasing.

It is true that fewer people work in manufacturing now than ever but it is caused more by increased efficiency in manufacturing rather than by off-shoring -- more goods are being made by more machines and fewer people. If this is seen as a bad thing, then we should all shift back to agrarian subsistence living so all of us can ensured of a lifetime of employment, albeit in back-breaking menial labour.

It is likely true that several classes of goods are largely if not exclusively manufactured off-shore. Paul Havemann suggested some reasons why this has been moved out of America in the first place. It is also true that this has cost some people their former jobs. However, the fact that these goods have become more affordable by this off-shoring means the people, especially the lower classes, have become wealthier in real terms by being able to afford these goods.

Another myth is that "most of the really big corporations out there pay absolutely nothing in tax." A 2008 GAO study indicated that 25% of big businesses paid no taxes. That's hardly most, and the study was sponsored by political interests that were motivated to make that number look as large as possible. It is possible to further deconstruct that 25%, but this post is long enough.

Another misconception that at minimum complicates this idea is that companies even pay taxes themselves. I don't mean that they don't remit payments to the government. Obviously they do, although how much is a subject of great debate. However, *all* of the costs of those taxes are passed off to others. Depending on which economic angle you look at either investors, employees, or consumers pay the taxes in the form of reduced dividends, downward pressure on pay rates or numbers of employees, or increased prices, respectively. I used to favour the latter idea, but just read a multi-country survey that found that increased corporate taxes are born 100% by employees in the long term. Hardly incentive to raise those taxes if you really care about jobs.

The final misconception is more of an argument really. That is the other core idea that government funds can create jobs. Anything the government funds must be taken from somebody else, either from taxes (this idea), through inflation, or with borrowing. That means at best government can shift jobs from one area to another, and even that assumes perfectly efficient government.

Furthermore, government funding of jobs has a strong tendency to make those jobs dependent on the funding for their existence. This has two consequences: First, jobs that are created through short-term funding tend to disappear after the funding is gone. Second, jobs that stay tend to require continued funding, creating a drain on the rest of the economy. Neither of these are desirable.

This kind of protectionism has been tried, many times. It has only served to harm. Paradoxically, it is likely that the most harm has been done to those who are being "protected".

Update: JMS went on to claim that:

To the statement that only 25% of corporations pay no taxes, you do have to be kind of careful with that statistic, because that 25% takes in more money than the other 75% put together. Iíd suggest that may even apply to the top 15%. So the figure is, if not misleading, less than useful.

I just looked up the raw statistics from the IRS web site, and they don't back your claims. For 2007, the top category of corporations in terms of total assets makes up 0.04% of the number of corporations. They take in 50% of the total receipts but they pay 70% of the total corporate income tax. If you count based on total business receipts, the top category numbers 0.1%, takes in 67% of the total receipts, but pays 85% of the total corporate income tax. So, no, the largest corporations actually do pay the most corporate taxes.

Further, one of the graphs in the GAO report (PDF) shows that the number of corporations (large or small) that report zero tax liabilities in multiple years is relatively small. This means that paying zero taxes seems to only happens for a year or two for most corporations.

Consider that corporate tax is paid on profits, not on income. As such, making no profits means paying no such tax. While it is possible to manipulate the bottom line to avoid profits, most of these largest corporations are public, and will want to appear more profitable to attract investment. As such, there is pressure to inflate the profits rather than suppress them.

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