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Manufacturing requires capital. We’ve had some of the highest effective tax rates on capital in the world for a while, and the Trump tax cuts didn’t help that m

Manufacturing requires capital. We’ve had some of the highest effective tax rates on capital in the world for a while, and the Trump tax cuts didn’t help that much. A California corporation has to pay roughly 30% of its profits to the state and federal government to start. Then it’s shareholders have to pay 25-30% of what’s left to their state and federal government. In practice that’s over a 50% rate, even if the shareholder is a low income retiree. There is little progressivity in taxing investment profits. No wonder multinational US companies rarely bring profits from foreign subsidiaries back to the US.

lumost 6y ago
The US is literally printing capital right now, and local governments are willing to hand Billions to corporations which promise to create manufacturing campuses. Why is lowering interest rates not resulting in increased manufacturing capacity as it did prior to recent years?
- valuearb 6y ago
  Dollars aren’t capital. The fed can double the dollars in circulation tomorrow, but that doesn’t change the amount of manufacturing machinery in the country.
- mensetmanusman 6y ago
  Because China can simply point and say ‘whatever the price is there, it will be cheaper here’ because their population is willing to take huge hits to their purchasing power (because they were recently so poor).
whimsicalism 6y ago
> We’ve had some of the highest effective tax rates on capital in the world for a while, and the Trump tax cuts didn’t help that much. Source on any of this? I don't think this is true - both effective and statutory corporate tax is lower. When factoring in things like the estate tax on capital, capital gains tax, etc. - all is much lower than during the 20th century. > In practice that’s over a 50% rate, even if the shareholder is a low income retiree. Among equity held by American households, the richest 1% own more than 50% of that equity - and the top 5% owns the lion's share (upwards of 3/4s). The "low income retiree" narrative is overstated. Moreover, that retiree could count paid dividends as ordinary income, which is taxed progressively (10% or less effective tax rate) if they are low-income. Meanwhile, the estate tax is much lower than it was during the majority of the 20th century, despite the fact that more than half of all wealth is not earned but inherited by the wealthiest 5% of all American households (ie. the median dollar in the economy is inherited, not paid as a wage or from capital gains)
ardy42 6y ago
> Manufacturing requires capital. We’ve had some of the highest effective tax rates on capital in the world for a while, and the Trump tax cuts didn’t help that much. IMHO, that's mistaking a boogeyman for a cause. The real cause here is any policy that allows important productive capability to be moved away in search of short/medium term profit increases. The idea that you'd replace those jobs with higher-paying fluff was just a little sugar to make the poison taste better. Also, I can't remember exactly where I read it, but some well-known successful businessman candidly said that lower taxes actually make it less likely for him to invest profits back into his business.
wbsss4412 6y ago
Much of the EU has similarly high tax rates on capital. I haven’t found figures on China, but I have a hard time believing their growth is simply a matter of tax policy. Arguing about taxes is a race to the bottom in any case. What matters is returns on capital invested, which of course is affected by tax rates but not exclusively by them. There’s a reason Silicon Valley exists and it’s not because it’s always been cheap to produce there.
- valuearb 6y ago
  It’s not a race to the bottom. Taxes on reinvested capital should be zero, you don’t eat your seed corn. Eating less of it than another country doesn’t hurt them or you. We should tax distributions that aren’t reinvested, and do it progressively.
  - xxpor 6y ago
    Maybe I don't understand, isn't that already true? Companies pay taxes on net (profit), not gross (revenue), outside of some state tax systems like Washington's.
    - valuearb 6y ago
      Profit is the net result of investing capital. Revenues don’t matter. If your startup turns a profit but still wants or needs to reinvest those profits in hiring more or more equipment, they still have to pay taxes on those earnings and only can reinvest half of them (there are some provisions to shield some reinvested profits from being taxed, but they are limited). I’m all for taxing dividends and capital gains when investors cash out, I’m just saying don’t do it on profits that are reinvested.

lumost 6y ago

The US is literally printing capital right now, and local governments are willing to hand Billions to corporations which promise to create manufacturing campuses. Why is lowering interest rates not resulting in increased manufacturing capacity as it did prior to recent years?

valuearb 6y ago
Dollars aren’t capital. The fed can double the dollars in circulation tomorrow, but that doesn’t change the amount of manufacturing machinery in the country.
mensetmanusman 6y ago
Because China can simply point and say ‘whatever the price is there, it will be cheaper here’ because their population is willing to take huge hits to their purchasing power (because they were recently so poor).

whimsicalism 6y ago

> We’ve had some of the highest effective tax rates on capital in the world for a while, and the Trump tax cuts didn’t help that much. Source on any of this? I don't think this is true - both effective and statutory corporate tax is lower. When factoring in things like the estate tax on capital, capital gains tax, etc. - all is much lower than during the 20th century. > In practice that’s over a 50% rate, even if the shareholder is a low income retiree. Among equity held by American households, the richest 1% own more than 50% of that equity - and the top 5% owns the lion's share (upwards of 3/4s). The "low income retiree" narrative is overstated. Moreover, that retiree could count paid dividends as ordinary income, which is taxed progressively (10% or less effective tax rate) if they are low-income. Meanwhile, the estate tax is much lower than it was during the majority of the 20th century, despite the fact that more than half of all wealth is not earned but inherited by the wealthiest 5% of all American households (ie. the median dollar in the economy is inherited, not paid as a wage or from capital gains)

ardy42 6y ago

> Manufacturing requires capital. We’ve had some of the highest effective tax rates on capital in the world for a while, and the Trump tax cuts didn’t help that much. IMHO, that's mistaking a boogeyman for a cause. The real cause here is any policy that allows important productive capability to be moved away in search of short/medium term profit increases. The idea that you'd replace those jobs with higher-paying fluff was just a little sugar to make the poison taste better. Also, I can't remember exactly where I read it, but some well-known successful businessman candidly said that lower taxes actually make it less likely for him to invest profits back into his business.

wbsss4412 6y ago

Much of the EU has similarly high tax rates on capital. I haven’t found figures on China, but I have a hard time believing their growth is simply a matter of tax policy. Arguing about taxes is a race to the bottom in any case. What matters is returns on capital invested, which of course is affected by tax rates but not exclusively by them. There’s a reason Silicon Valley exists and it’s not because it’s always been cheap to produce there.

valuearb 6y ago
It’s not a race to the bottom. Taxes on reinvested capital should be zero, you don’t eat your seed corn. Eating less of it than another country doesn’t hurt them or you. We should tax distributions that aren’t reinvested, and do it progressively.
- xxpor 6y ago
  Maybe I don't understand, isn't that already true? Companies pay taxes on net (profit), not gross (revenue), outside of some state tax systems like Washington's.
  - valuearb 6y ago
    Profit is the net result of investing capital. Revenues don’t matter. If your startup turns a profit but still wants or needs to reinvest those profits in hiring more or more equipment, they still have to pay taxes on those earnings and only can reinvest half of them (there are some provisions to shield some reinvested profits from being taxed, but they are limited). I’m all for taxing dividends and capital gains when investors cash out, I’m just saying don’t do it on profits that are reinvested.