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Very Important Insights!
on July 25, 2006
"Moving jobs to China and running profits through the Cayman Islands to avoid taxes undermines American workers and threatens out future" - so begins Senator Dorgan's "Take This Job and Ship It." Our trade deficit now increases by $2 billion/day, and our total deficit (federal government and trade) is $1.2 trillion/year.
In 1970 the biggest U.S. corporation was G.M. - for most employees, it was a ticket to lifetime employment, and for all it provided good wages, pensions, and health care. Today it is Wal-Mart, with an average salary of $18,000, 70% turnover the first year, and large numbers without benefits. About three million have already lost their jobs to out-sourcing, and Alan Blinder, former vice chairman of the Federal Reserve Board estimates 42-56 million jobs could be sent abroad, while many of those remaining will be competing with those paid much less in foreign lands.
Dorgan goes on to assert that about 750,000 U.S. jobs have been lost via NAFTA, and the three largest imports from Mexico are autos, auto parts, and electronic - displacing high-skilled American jobs, contrary to pre-implementation projections. Even Fig Newtons are now imported from Mexico. We have gone from a $1.3 billion surplus with Mexico in 1994 to a $45 billion deficit. Meanwhile, the U.S. poverty rate increased for the fourth straight year (to 12.7%) in 2005.
The problem is no longer limited to blue-collar workers. Senior software engineer salaries have been driven down by outsourcing from $130,000 to $100,000 in a few years (IF one is still employed). Airline maintenance has also been exported.
Meanwhile, while corporations make record profits through outsourcing, their tax payments dwindle. From 1945 to 2000 the share of income taxes paid by corporations dropped from 35% to 10%. Companies that move jobs overseas can reinvest those profits there and pay no U.S. income taxes; or, they can repatriate the money and pay only 5.25% federal tax. (To be fair, they probably had also already paid local taxes, but these usually are less than in the U.S.)
For readers that like irony, Dorgan points out that U.S. drug companies now manufacture overseas (low costs and taxes) - yet, claim reimported drugs from Canada are dangerous. As for claims that they need high prices in the U.S. to fund research - Dorgan asserts that 36% of U.S. medical research is funded by NIH. Another example is Cuba - "free trade" is good, except involving Cuba. It just so happens that the majority of Cuban expatriates live in Florida - a key state in 2000, 2004, and probably the 2008 election as well. (The U.S. embargo also provides Castro with a great excuse for the poor performance of the Cuban economy.)
Recommendations: 1)Let's determine the national security implications of outsourcing - especially manufacturing. 2)Repeal the tax breaks for exporting jobs. 3)Address "imported" pollution (eg. from China). 4)Limit or end the trade deficit - possibly by Buffett's Plan.
Dorgan refers back to the Titanic's sinking, pointing out that those in the lower economic strata suffered the most casualties. Similarly, with the trade deficit - the bosses are making more than ever, while the workers are suffering more and more. This cannot continue.