What McCain failed to explain

It became very clear in the debate last night, that Obama believes in taxing companies more. The best part of the debate was the discussion around Joe the plumber. Unfortunately, they got hung up on the philosophical discussion about re-distribution of income.

A much more salient point should have been made, namely, due to the new taxes that Obama is proposing, Joe the plumber won't be able to buy an additional truck, nor hire an additional plumber. This fact, stated so bluntly by Joe the plumber, is a microcosm of what Obama's proposed tax policy will result in.

To expose this, McCain should have asked Obama this ...

Let's assume you're the CEO of a public company; 20% of your stock is held by public employee pension funds (for teachers and firemen), as such, their pension checks rely on your dividend payments. You're in a position to hire 1000 call center workers; in Ireland you get to keep 89 cents of every dollar of profit, and hence pay out 89 cents to pensioners, in the US, you get to keep 65 cents, and hence pay out pensioners 65 cents. Where are you going to put those jobs?

If you decide to put them in the US, you'll be paying out lower dividends; since pension fund managers want to maximize dividend payments for their pensioners; they will sell your stock and buy stock in the company that pays higher dividends (because they decided to put their call center in Ireland). This may impact your operations by increasing your cost to finance, which in turn may cause you to have to fire people. If you put the jobs in Ireland, you continue to pay handsome dividends to pensioners and they hold onto your stock. You're financing stays cheap, and you can continue to grow your business.

These are your ONLY two options (if you keep taxes at current rates)-
1) You put jobs in Ireland and are rewarded by pensioners keeping your stock
2) You put jobs in US and are punished by pensioners selling your stock

The only way the 2nd scenario doesn't play out badly, is if you can convince retired teachers and firefighters to take a 27% pay cut in their pension checks. You see, it's not only greedy CEO's who want bigger profits; its 'greedy' pensioners and other retirees who hold stocks.

Obama doesn't seem to realize a truism that the rest of us seem to take for granted ... there's no such thing as a free lunch ... or more specifically, there's no such thing as a free (or harmless) tax ... you always wind up paying for it somehow ... In the case of corporate taxes, it's paid by pensioners (as stock holders), customers (via higher prices), and employees (in the form of lower wages or job losses).

UPDATE:

As a reader pointed out, there is a 3rd option (which McCain is advocating). Reduce corporate taxes to be more internationally competitive, allowing companies to keep jobs in the US, while also allowing for competitive dividend payouts to pensioners.

UPDATE 2:

Here's a great 'Fact Check' post on the debate last night.

Here's an excerpt ...

What Sen. Obama doesn't understand or doesn't want to tell the American public is that when Exxon Mobil writes that check to Uncle Sam, some PERSON is paying the price for that. In the short-run, that person could be a shareholder, a worker, or a consumer. But the fact that Exxon Mobil has a lower after-tax profit means that some PERSON is worse off. For example, Exxon Mobil would likely reduce its dividend payment, or its share price could fall, and that hurts every PERSON who was invested in Exxon Mobil at the time the tax was enacted.

And this isn't controversial. If you called up Obama's top economic advisers Jason Furman or Austan Goolsbee on November 5 (after the election) and asked them who pays taxes, both of them would tell you that people pay all taxes, and that a company merely acts as a means of collecting for the government the taxes imposed on owners of capital and in some cases, the company's workers.

Checking Obama's math skills ...

The real reason trickle down isn't working ...

I understand the Democratic attacks against 'trickle down' economics. The rich get richer and the poor get nothing (actually, the poor are also getting richer, just at a slower rate). However, their proposed solution, taxing the rich more and giving the money to the middle class in the form of a tax cut, will do more harm than good.

So what happens? You take $25K from someone making $250K, and give 10 families who make $75K a $2500 tax credit ... have you fundamentally changed the lives of that family? Have their career prospects changed? Do they have more opportunities now? Sure, they can afford a bigger SUV, and a nicer Flat Panel TV ... but you haven't really changed their lives.

What happens to the family that is making $250K, they have $25K less ... their lives are basically unchanged, maybe they decide to buy the regular gas SUV since the Hybrid SUV is too expensive now. The biggest impact on this family is that they will likely reduce what they save. They will no longer put $25K into the stock market or bond market. This means companies will see the cost of financing go up. To remain globally competitive, these companies will need to try to reduce costs elsewhere, to make up for the increased cost of borrowing money. One favorite activity has been to off-shore work, to lower cost areas. So, that's what these companies do, they send jobs overseas.

The outcome ... generally speaking, it's the lower skilled (lower paid) jobs that get moved off shore first. So, that family making $75K may start to worry (more) about their job, they hope they don't get laid off.

The sad fact is that wealth isn't trickling down, but it's because those making $40-80K don't have skills that produce enough value to warrant a higher wages, especially when those skills can be performed for much less offshore.

The best way to improve the lives of those in the middle, isn't to take money from the rich, who are investing it, and to give it to the middle who will spend it; but rather re-invest that money you take from the rich to improve the skills of those in the lower and middle wage brackets. Create tax credits for job retraining; encourage (as best you can) people to engage in life-long learning ... gone are the days when you learned one trade and practice it your whole life.

Removing invested money from the market and giving it to someone to spend, is the exact opposite of what the US needs to be doing.

Tax the Rich ... even more?

I found this graph, and thought it did a great job of explaining the current tax situation in the US; as you can see, the top 5% earn 35% of income and pay about 60% of income taxes.

My question is, what is a 'fair' tax rate?

In 1981, the top 5% only paid 35% of all income taxes ... so over the last 28 years (of which the White House was controlled by Republicans for 20 years), the share of income taxes paid by the top 5% has increased 70%!

Why is Obama against testing students?

Obama on testing ...

"By twelfth grade, our children score lower on math and science tests than most other kids in the world. "
...
"And by the way - don't tell us that the only way to teach a child is to spend most of the year preparing him to fill in a few bubbles on a standardized test. Don't tell us that these tests have to come at the expense of music, or art, or phys. ed., or science. These tests shouldn't come at the expense of a well-rounded education - they should help complete that well-rounded education. The teachers I've met didn't devote their lives to testing, they devoted them to teaching, and teaching our children is what they should be allowed to do." ... source.
__________________

Do you think countries like South Korea score higher than the US on tests because they focus on a well rounded education?

Tell me, how do you teach a kid to answer this questions, without teaching them math?

Question:
2459 x 34593 =

Answer:
a) 82,245,187
b) 63,234,187
c) 69,603,477
d) 85,064,187
e) 84,249,127

You see ... teaching kids how to "fill in a few bubbles on a standardized test" requires that you teach them the subject matter of the test ... stop making excuses for failing education & schools.

Goodies in the 'rescue' package ..

Now part of the financial rescue package ...

“…Congress would provide tax breaks worth more than $470 million over the next decade for movie and TV producers that shoot in the U.S…. it could keep some low-budget productions -- and jobs -- from going offshore” Source

Sounds like a great idea, maybe they can give tax cuts to companies that write code in the US; after all, it would help keep jobs here as well!

Is it time to stock up?

For those of you who fear the collapse of modern civilization, here's a calculator to help you figure out how much you need to stock up ...

http://www.thefoodguys.com/foodcalc.html