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  • A Recurring Theme: More Taxes Means Fewer Jobs

    Job seekers line up for jobs at Citi Field in Queens in New York

    Littered throughout the President’s proposed budget and health care plan are over $2 trillion in new taxes. In the budget we see tax hikes on businesses including the death tax; new detrimental restrictions on a tax provision called “deferral” that is vital for U.S. companies operating abroad; and potential new taxes to raise revenue for health care reform. We also see in the proposed health care plan a new Medicare tax on investment income. Heritage experts have pointed out that tax increases have a negative effect on the economy and hinder job growth. So why is the President insisting on more tax hikes for businesses when they already struggle to compete internationally with an extremely high tax rate?

    Just ask Ireland how well raising taxes is working for their economy when just a few years ago its economy was increasing at one of the fastest paces in Europe. Despite its low tax rate, over the last year we have seen Ireland’s unemployment rise and incomes plunge like many countries around the world.

    One of the significant, bellwether events leading to Ireland’s recession was Dell’s decision to move its operations from Limerick Ireland to Lodz, Poland costing almost 2,000 workers their jobs. A U.S.-based, global computer company, Dell’s exports from Ireland were about 5% of their total economy. How did this happen to a country that has one of the lowest corporate tax rates and used to be one of the main countries companies would use as their manufacturing base?

    One of the reasons for the flight of companies from Ireland and other European nations is the potential for a common tax base across the European Union which forced Ireland to raise its taxes on businesses significantly to be more consistent with high-tax European norms. The high tax burdens incurred across the Union raise the operating costs of companies and lower their ability to compete. This additional tax is intended to create “fair competition” to level the playing field between countries. However, for previously low-cost countries it actually drives away business to countries that have lower operating costs. Is it smart to make a country raise its taxes because the other EU countries like Germany and France want them to be higher?

    This raises the question; why Poland? Poland is also in the EU and will be subjected to the new taxes as well. However, in addition to its low corporate tax rate, the cost of labor in Poland is much cheaper. Companies are naturally going to move to where they can be more competitive at a lower cost – either tax cost, labor cost, or any other costs..

    As we consider the President’s proposal to raise taxes on corporate income, the trend of lower corporate tax rates in other countries should serve as a warning to the United States, which already has the second highest in the world. Heritage experts J.D. Foster and Curtis Dubay point out in their paper that not only will companies struggle to compete abroad, the domestic production in the U.S. will fall as well. In fact, the evidence is clear that when U.S. companies have operations in foreign companies, U.S. jobs increase. The bottom line is that additional taxes hurt, costing jobs and opportunity – a high price to pay for government’s wasteful spending.

    Margot Crouch currently is a member of the Young Leaders Program at the Heritage Foundation. For more information on interning at Heritage, please visit: http://www.heritage.org/about/departments/ylp.cfm

    Posted in Economics [slideshow_deploy]

    12 Responses to A Recurring Theme: More Taxes Means Fewer Jobs

    1. Andrew (Detroit) says:

      The sad thing about everything said above is, although it aligns with common sense and we have seen it world wide, it is not understood by Washington…

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    3. Billie says:

      Mr. President Obama? There's still time to change the road you're forcing us to follow against our will and our inalienable rights. Christian man.

    4. Raven North Carolina says:

      This person who people call the president of the once great USA has never ran a business so what does he know about the economy of a nation. Under this type of leadership, the USA is only going down futher in the eyes of the world. IMO, the leaders will not be satisfied until we are slaves and they get all of our paycheck! Might I mention, he is just a puppet for the higher-ups who are pulling the strings (NWO crowd)

    5. SB Owner Springfield says:

      Dubay's past remarks are prescient; look where we are today.

      Just the talk of raising taxes freezes job growth until there is cretainty.

      I believe the road to recovery begins in November when the brakes can be put on the runaway progressive statist's train.

      I guess this wasn't another Polish joke, this time the joke is America.

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    7. Timothy Cox, London says:

      Good post, but it should read "fewer" not "less" jobs!!

    8. Drwew Page, IL says:

      Our current president has no education, training, or experience in economics, business, medicine or the military. His education, training and very limited experience is with the law, and even that is suspect. How would you evaluate a lawyer who exercises power of attorney on behalf of his clients, signing documents that cost his clients billions, if not trillions of dollars, without having read the documents he signs?

      There has been quite a bit of controversy on hanging the label of "socialist" on Mr. Obama. Some feel that such a label is unfair, because he has not taken over the means of production or taken over private property, although the non-government stockholders of G.M. and Chrysler might disagree on this point.

      The point is, our President by all of his actions has shown that he subscribes to the theory "To each according to his needs and from each according to his abilities". He believes it's the government's job to redistribute wealth from those who have earned it to those who have not. He also believes that the government should have the right to confiscate all the money it needs from anyone who has any and to redistribute that money in the form of government assistence (welfare, food stamps, subsidized housing, medical care, etc) to those that the government deems worthy.

      Mr. Obama & Company's spirit of generosity (with other people's money) is not limited to American citizens. They want to provide for all the needs of those who have broken the law and entered our country illegally. The easiest way to do that is to grant blanket amnesty to all illegal aliens, making them by fiat, American citizens, entitled to all rights, priveliges and benefits provided by our generous government. The rest of America surely wouldn't mind having their taxes increased again to provide for all of our newly christened brothers and sisters, would they? And wouldn't they want to financially help the poor and suffering throughout the rest of the third world? Just think of the hundreds of millions of people in Africa, Asia, the Middle East, Central and South America and places like Haiti who are poor, homeless, starving, without medical care and education. Don't you think that they too are America's obligation? I know President Obama does. After all, Americans are the richest people in the world.

    9. Lynn Bryant DeSpain says:

      A Nation never, never, never, raises taxes in a recession! Not unless you believe in putting out fires with gasoline!

    10. john says:

      Oh Lynn, come and witness the tax rises in Ireland in our economy firesale!

    11. Paul, New York says:

      "One of the reasons for the flight of companies from Ireland and other European nations is the potential for a common tax base across the European Union which forced Ireland to raise its taxes on businesses significantly to be more consistent with high-tax European norms"

      I know this is a late comment but the above sentence and many of the assumptions and assertions in this article are just plain wrong. While I support the argument that increasing business taxes may hurt US business, Ireland is not a good example.

      First, Ireland did NOT increase business taxation in recent times. The Corporation Tax rate is 12.5% and has been since and will remain so for years to come. All political parties that stand a chance of forming a Government in Ireland ín the next 10 years support that tax rate and will never change it. Recent tax increases have all been for personal taxes or sales-type taxes.

      Second, it is true that there is a proposal from the European Commission to create common rules on how to calculate the tax base across the EU (the so-called Common Consolidated Corporate Tax Base) but this is a different issue and, in any case, Ireland and a significant number of other EU countries oppose this plan. As taxation matters must be agreed by consensus of all 27 EU States, even one country can block a proposal, so this proposal is extremely unlikely to go anywhere.

      Third, there has been no "flight of companies" from Ireland. Dell is the single major case in recent years and it moved its manufacturing (essentially assembly) operations to an existing plant in Poland where wage costs were less. This is hardly surprising, given that the sort of work being done at the plant did not involve much skill or added value. Ireland continues to attract multinational companies, despite the recession (in fact the recession has helped improve Irish competitiveness, as it has reduced wage costs, input prices and the cost of property / commerical rents at far higher rates than in competing economies). Rises in unemployment in Ireland have much less to do with multinationals withdrawing from Ireland (with the notable exception of Dell), and much more to do with the bankruptcy of SMEs and companies in the service industry due to reduced domestic consumer spending.

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