Cain’s plan, as I understand it, calls for a 9% income tax, a 9% sales tax, and a 9% corporate tax. For well over half of Americans, a 9% income tax will be a HUGE reduction. The most productive Americans are paying close to 40% now.
Likewise, the corporate tax rate for the non-connected (the OTG: Other Than GE’s) is something like 35%. If you want to ask why corporations choose to build things overseas, there is a big part of your answer. They set up subsidiaries, that are treated as separate profit centers, and thus tax centers. That is my understanding. They do this to pay less in taxes, and to avoid all the regulatory red tape that Washington keeps sending out, and which has gone into overdrive among the anti-business numbskulls Obama has put into positions of power.
China is a Communist nation, in theory, but this also means that they can bend whatever rules they want, when they want. If an American manufacturer wants to build a plant, they just point to the location and the deal is done. At a minimum, that plant will employ many Chinese, who in turn will pay taxes. Thus even at a ZERO rate of taxation, it is still hugely beneficial to China.
If an American manufacturer wants to build in America, there is a multi-year environmental impact study–which they have to pay for–countless meetings, lawyers, contract writing, tax negotiations, etc. etc. Small wonder that busy executives often say “Hell, with it: build the damn thing in Mexico. I can’t stand these assholes one more minute”.
But if we reduce red tape, AND particularly if we make it much more profitable to do business here–a 26% increase in net profit is quite enticing–then many of the businesses that have built overseas will come back here.
We need to be clear that just because the wages are lower overseas does not mean that this is always necessarily a good deal. Whatever is built overseas has to come across the ocean. There are thus logistical difficulties. Further, Americans in general are good workers, and given the right technology can build more per hour than many overseas workers, who have to be trained in their language, and with whom there are many cultural barriers to clear communication and direction.
Put simply, an American automotive worker making $40/hour may well outperform a South Korean worker making $15/hour, once you take their productivity and deduct their total costs. This makes the American a good deal, IF other factors like taxation and regulatory climate are also congenial.
People talk like jobs going overseas is somehow an inevitable process, a result of “greed”. This means the solution is less greed. Good luck getting that to happen. No person and no nation anywhere has ever failed to pursue their own conception of self interest, although the more enlightened found that self interest in generosity. Sainthood is an idiotic prescription for material progress, however.
Jobs go overseas because it makes economic sense. Period. And when it makes economic sense for them to come back, they will. This is simpler than the recipe for apple pie. It is abundantly obvious.
Cain’s plan does this.
More generally, as we hear often, what is needed is more money in circulation. The so-called “Stimulus” (really, jobs for votes) package had this as its rationale. It didn’t work, because the money was not spent on sustainable entities. You build a highway, then you are done. The job is gone. And the money was borrowed, causing anyone with a shred of sense to know that that job was funded with future taxation.
There is a HUGE, HUGE amount of cash in reserve right now among American corporations. They COULD spend it, if they were not afraid of the future. In particular, Obama is plainly anti-business, and they have no idea what his regulatory czars will roll out tomorrow. They can, with reasonable confidence, assume that it will be poorly thought out, and in particular have taken no consideration AT ALL of the effect it will have on business investment.
Further, it is abundantly clear that Obamacare, with all its mandates and tax increases, will have a very painful effect on small business. It will increase health insurance costs across the board, deliver next to no improvements in the delivery of healthcare in the short term, and DAMAGE health delivery, through rationing, in the future. 2013 will see the most aggressive efforts to deliver revenue to the Federal treasury in HISTORY. Obama already plans to tax more than any American President has in the history of our Republic. This is bad.
Cain’s plan will cause an IMMEDIATE and LARGE increase in the circulation of capital, among those best positioned to create jobs. We don’t need tax cuts for those making $20,000 a year. At best, they will buy a few more cigarettes, and in any event are already only paying payroll and State sales taxes anyway. The people who create jobs are those with enough cash to start new businesses, or to consume in large quantities. These are the people we want spending their money, and Cain’s plan will do that.
Given enough circulation of money, the economy will improve drastically and quickly, and permanently.
Finally, tax rates. This is simple math, but 1% of $100,000 is more than 90% of $1,000. What matters is not tax rates, but the amount upon which they are based. If you want to increase tax receipts, don’t increase taxes: grow the economy. And you grow the economy by INCENTING people to spend their money.
Yes, Cain’s plan will increase the share the poor are paying for our government, which is currently zero. Is this fair? Is it fair that nearly 50% of Americans play no role in paying for our military, social programs, highway building, or any of the other countless roles government plays? Self evidently, as a practical matter, the 9% income tax may well get eliminate in implementation for people under a certain income level, and possibly there could even be an exemption card for the Sales tax. The amount of money under consideration is quite small where the poor are concerned.
The big picture, though, is that this program–regardless of the actual numbers used, as long as they are much better than they are now–will generate immediate and robust economic growth.