The Fallacy That Increasing Taxes on the Rich Will Retard Job Creation


During the most recent election Republicans made the claim that raising taxes on the rich would hinder job growth.  That is a fairy tale they like to tell and it is curious that the Democrats did a miserable job of showing it to be the big lie it is.  How can I say this?

Since the Civil War the United States has suffered under no fewer than half a dozen serious recessions and depressions.  Wealthy people love times like that for one very simple reason.  They have not only been intelligent enough to make themselves wealthy, they have built-in assurances that a down-turn in the economy will have a minimal effect upon them.  And in fact, to some degree, they like it when the stock market is at a low.  They view that as an opportunity to take advantage of low stock prices to invest in companies they feel have a healthy future.  The old maxim, buy low sell high, is something they understand well.  I am not saying there is anything wrong with doing that, there is not.  It is actually one of the assurances that our capitalist system will remain strong.

During the 1873 downturn wealthy investors took advantage of low stock prices to invest in the emerging transportation and home heating industries.  Men like Rockefeller, Vanderbilt, and Morgan used those difficult times to pad their finances.  Then, as now, there comes a time when a person has so much wealth it becomes almost meaningless to him.  That is, his focus changes from how much money he can make to how much power he either holds or brokers.  And this is precisely where we are today.

From around 1880 to 1960 America was the world leader in labor intensive industries.  Textile, auto, steel, and a dozen other such industries.  But since 1960 those industries have largely left the United States.  The problem is, they were not replaced with anything.  The auto industry is the perfect example, and maybe the last great bastion, of labor intensive work.  And even it has given way to automation, as you would expect.  But in 2008 all American automakers were on the precipice of extinction.  Two of them, GM and Chrysler needed a federal bailout.  Ford dodged that bullet only because it was able to sell off some of its companies, Jaguar, Volvo, and Land Rover chief among them, to shore up their finances.  I bought a 2012 Ford Fusion, a car I really  like, thinking I was supporting the U.S. economy.  After purchasing it, I discovered the car was entirely made in Mexico, no U.S. workers were involved in its production what-so-ever.

In the 20th Century the United States led the world, hugely, in the aviation industry.  In 1950 there were at least half a dozen companies producing commercial aircraft.  Chief among them were Boeing, Douglas, Lockheed, and Convair.  These companies were healthy and supplying the world with the aircraft it desired.  But during the late 40s and through the 1950s, Europe was retooling its aircraft industry following World War II.  Then in the 1980, the British, French, and German governments made a pact to design and build commercial aircraft.  Today we know this company as Airbus.  During this time the U.S. commercial production was reduced to Douglas and Boeing until Boeing bought out Douglas aircraft.  But in the early to mid-2000s Airbus came up with the concept for their A-380 aircraft.  This aircraft was bigger by almost 50% than the Boeing 747.  But it had problems in budgeting and design.  Were in not for those three government propping up Airbus, the company would likely have gone bankrupt, and almost did anyway.

If you have ever flown on Jetblue, you have been on an Airbus aircraft, the A-320.  This particular aircraft is similar in all respects to the Boeing 737.   But Jetblue, a U.S. corporation, uses only Airbus aircraft.  Why? Price of course.

In the world today, state subsidized industry is the rule and not the exception.  There is absolutely no reason that clothing production in the United States would be the primary source of what we buy.  But it is not.  If you look at the tags on your clothes you will find countries like China, Malaysia, India, and Bangladesh, among many others, that engage in a combination of slave labor and government  subsidizing.  They also are able to ship their productions long distances and still have the lowest price on the U.S. market because there is virtually no tariff on them.

Now, Republicans and rich industrialists maintain that if we add tariffs on the imports it will impede their ability to sell U.S. goods abroad.  But the truth is, more and more, the sale of U.S. goods abroad is decreasing with each passing day even in the absence of tariffs.  What these people are not saying is that they are heavily invested in foreign manufacturing concerns and they count of a substantial income from those investments.  And so if the U.S. starts putting heavier tariffs on the goods those foreign industries export to the U.S., their profit margin goes down.

Remember NAFTA?  The North American Free Trade Agreement signed during the Clinton administration was really about two countries only, the U.S. and Mexico.  Remember my Ford Fusion that is made in Mexico?  Please explain to me how U.S. workers have benefitted by NAFTA?  It seems obvious that something which may have been made in Michigan, Mississippi, Tennessee, is built-in Mexico.

Continue backwards in time and ask yourself, how is it that the United States, with its huge reserves of iron ore, and one-time world leading steel industry, today imports steel?  Ask yourself how a country that can produce endless amounts of cotton, wool, and synthetic fibers has virtually no textile industry?  Ask yourself why the Japanese assemble most of their cars in the United States while U.S. based automakers assemble theirs in Mexico, Canada, and other countries?

The next time someone claims that taxes and/or tariffs are to blame for unemployment call them a liar.  It is not now, nor has it ever been, about taxes.  It has always been about the industrialist maximizing his investment, and if that means moving jobs to other countries, that is what he will do.  He views taxes as a challenge but never views them as an impediment to his investing.  The truth is simple.  Wealthy people are constantly looking for ways to turn a dollar, as they should.  And the answer to keeping jobs in the U.S. has always been painfully obvious but a political hot potato that no one cares to stare down.  If you want to know how to level the playing field in the world market, look at the monetary exchange rates between countries and adjust your levies accordingly.  While not perfect, it will certainly help.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s