Better Than Tariffs
There's better way than tariffs.
Introduction
I discussed tariffs last week in terms of how they supposedly solve the balance of trade “problem.” But does a solution exist to the supposed problem that does not involve imposing a tax upon our own consumers? To answer that question I think we need to look at potential incentives for American companies to move their operations or their production overseas.
Why punish our consumers when government policies create incentives for companies to move their operations overseas?
Corporate Income Taxes
Corporations don’t pay taxes; people do.
Contrary to popular belief, no reason exists for corporations to pay income tax. Corporations use their net income for basically two reasons. They either pay dividends to their shareholders or they reinvest in their own operations.
Corporate shareholders pay income tax on the dividends they receive. If the reduction in corporate taxes causes the corporation to pay more dividends, the government will receive additional revenue.
The share of profits not distributed to shareholders gets automatically reinvested in the company. It provides capital for expansion, which creates growth in the future, or it increases worker wages.
I have advocated for years, and continue to advocate, for the elimination of corporate income taxes. It will eliminate one incentive for corporations to move any part of their operations overseas.
Federal “Spending.”
The phrase federal “spending” is a euphemism for redistribution. The government takes money from one group of people and gives it to another. It has no mechanism, however, to measure the effectiveness and efficiency of this redistribution. Politicians follow their own preferences for the purpose of getting reelected not necessarily for the best interest of their constituencies.
The inefficiencies of government redistribution add another impediment to companies operating efficiently in the United States. The market, not government bureaucrats, should decide which products companies produce.
The D. O. G. E. program will do more for the efficiency of all economic factors than any tariff program ever will. Do more and deeper cuts.
Payroll Tax Withholding.
The federal government confiscates, through payroll tax withholdings, roughly 30% of the real wages of workers (15% from the employee and 15% from the employer.) If payroll taxes were no longer withheld (and the government shut down the programs those taxes fund ), workers would do a much better job of managing the additional money they receive.
By allowing workers to fund their own retirement, pay for their own health insurance, and use their own discretion to distribute their entire paycheck, businesses would receive additional capital, healthcare costs would decline, and sales of various products would increase.
Minimum Wage Laws.
In the long run minimum wage laws benefit only politicians. They provide the impression that politicians are looking out for low-income earners. This amounts to horrible subterfuge.
Since no one can control wage rates unilaterally, minimum wage laws amount to a prohibition for people seeking jobs to accept less than the “legal minimum.”
If low-skilled workers were allowed to accept positions that would allow them to learn, it would eliminate one of the problems many companies face with overseas competition. The alternative for companies who need low skilled employees will be automation, which will eliminate the possibility of those jobs altogether.
Conclusion
In spite of all the talk about foreign companies “ripping us off,” consumers actually benefit from the lower production costs in other countries. Before we start “ripping off” our own consumers through the use of tariffs, we should take a close look at what we do to our own businesses that make them noncompetitive.
I have suggested a few areas in which our policies affect the competitiveness of US businesses. If we sincerely believe that our companies don’t get their share of our markets, we should have the courage to examine what we do to cause the non-competitiveness of U. S. businesses.