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.