Yes, Yes, I Know
The only thing in Trump’s favor with this is he is brash enough to show the world these behaviors and not hide them behind closed doors like Clinton. Still, it does not matter if I step in a load of horse manure or a pile of bull crap, it still ruins my shoes and smells… well, like crap. So, the personalities are a wash for me when it comes to the two main candidates.
Thankfully, there are things to vote for with Trump, and not just reasons to vote against Clinton. I offer three for your consideration: tax reform, business regulations, and immigration.
The issue I am the most passionate about is the economy. Begin with a lesson taught by Robin from Teen Titans Go, about renting property and equity:
The start of this essay may be just as boring.
It Is A Small World After All
About two weeks ago, I attended a meeting along with over a hundred people from all over the world: China, Japan, Singapore, India, Russia, Poland, Germany, Spain, Britain, Brazil, Mexico, and multiple places around the USA (Georgia, Texas, Colorado and California). These meetings lasted all week for eight hours each day. We shared multiple spreadsheets to discuss and change.
None of us were in the same room. No one flew or sat in a conference room with anyone else in the meeting. It was all done on Skype.
It has become that easy to have people from around the world work together towards a common goal. Because of this ease, the competition in the open world economy has gone beyond just the sale of goods and services, but also competition regarding where a global company has workers and infrastructure – and spends its money on those workers and infrastructure.
I doubt anyone in Congress or the White House understands this. They all still look at a closed system for jobs and buildings in this country — or even less realistically, that they can close the system again.
The Wonderful World of Transfer Pricing
One type of tax planning is called “transfer pricing.” At a very basic level, transfer pricing manifests when a global company moves as much of its profits to low tax countries as it can, and shifts as many expenses as it can to high tax counties (for a more complete definition, see Investopedia). The easiest place for a company to place its profits is at the manufacturing site. If the workers cost much less, this helps out even more, since the expenses in a manufacturing site is largely payroll and overhead.
For simplicity’s sake, we can bypass detailed product and corporate entity flows of transfer pricing, but in the end, the product gets to a high taxed country with very little profit left to be taken and taxed. This technique enables Google to pay an 8% effective tax rate, and Apple to pay an effective 14% tax rate.
As if it weren’t obvious enough, why would a company mess around with this? Let’s use an example of company EG, they are about a $10 billion company. This puts them at around the Fortune 300. EG has a profit margin of 10%, so before taxes, EG’s profit is $1 billion. If all the profit was in the US, the tax rate of 35% would apply, and the US government would take $350 million straight from cash and after tax profits.
But with transfer pricing, every 1% reduction in taxes is $10 million dollars to EG’s bottom line. If EG can transfer price to attain an effective tax rate of 25%, EG has 100,000,000 reasons to use location strategy and place its factories in low tax countries (likely somewhere in Latin America, East Asia, the South Pacific, or selected European nations like Ireland) and shift a large amount of the profits to these locations.
Trade pacts like NAFTA and TPP make it easier and cheaper for companies to employ a worldwide location strategy.
To be sure, cash does not follow profits 100%, but a large amount does. So, EG now has a bunch of cash overseas, yet the company cannot bring it back into the US because it would be taxed at the difference between the tax rate from the non-US country and the US tax rate of 35%. This would erase all the benefits received from the reduction to a 25% overall tax rate after considering taxes in the non-US country.
Cash doesn’t do the company all that much good; the money needs to work in order to grow. EG’s cash is in the low tax country, so that’s where EG puts the money to work. Boosting the ROI (return on investment) means investing in the low tax country. When EG builds more manufacturing, builds a help center, hires more people, it does so in the low tax country and not the US.
All of this puts significant pressure on employment and infrastructure to be outside high tax countries like the US. This pressure is seen in stagnated wages and higher unemployment, under employment, and people giving up on the US job market. This pressure is felt by the lower income workers more than the higher income workers.
Okay, But What’s This Got To Do With Donald Trump?
Donald Trump understands the worldwide competition for jobs and buildings better than anyone I have seen in politics, and it shows in his tax plan. The personal income tax side is standard Republican fare, which I like, but his policy for corporate income tax reform is excellent. He reduces the corporate rate to 15%.
Yes, yes. This gives more money to the ‘evil corporations.’ I have heard the typical class warfare argument, and find it worthless. To go back to the EG example, Trump’s corporate tax reform would give EG an additional 100,000,000 reasons to rethink its transfer pricing strategy and bring back infrastructure and jobs to the US, since by just doing nothing in transfer pricing the company would go from a 25% tax rate to a 15% tax rate.
Also, Trump has in the plan taxing overseas incomes for US companies that are below the 15% (this may or may not stay in his plan because his latest speech did not talk about this and it replaced the old link, yet I will still talk about it a bit). This is huge. It brings parity to any country’s tax rates. This is normally a dangerous thing to try, because it gives a large incentive for US companies to move the company’s nationality to another country and shrink its size in the US, because it would become worth it to move and not pay the high US tax rate. Yet the 15% tax rate would be very tough to leave.
It is not just companies that like to reduce the amount of tax expense, it is also a daily occurrence for millions of people with online shopping. One of the “benefits” to shopping online is that often the person is not charged the sales tax on the purchase. This “saves” the buyer anywhere from 6% – 10% of the cost if they bought in a store in their state. Like transfer pricing, this puts money back in the purchaser’s pocket.
Where it is very different is in legality. Most companies work with the IRS on their transfer pricing structure and gain approval from the government. It is perfectly legal. People not paying the use tax owed on their purchases is against the law of all states with sales taxes (be happy if you live in Delaware, New Hampshire, Montana, Oregon, and most of Alaska, you have none).
Of course, this is just one aspect of the global competition for jobs. And tax reform is not the only tool in Donald Trump’s kit.
Trumping Regulatory Reform
Trump has a better plan for regulations than Clinton as well. He wants to reduce them as well. Yes, I hear the “evil corporations!” scream again, and it’s not appropriate here.
Plentiful and complex regulations really do not affect Fortune 500 companies. They are large enough, with enough money, to mitigate the cost of compliance and find ways around the most onerous parts of the law. There are expenses, but they can absorb them and not be badly impacted. Plentiful and complex regulations hammer the smaller companies on both sides of the bubble of the law, creating barriers for the companies outside the bubble to grow and those companies barely inside the bubble to be pushed out.
Consider Dodd-Frank. This law was meant to punish the big banks, and make sure there would never be a “too big to fail” scenario again. But those banks are bigger now than they were when they got bailed out, and the local and mid-sized banks have reduced in number (many being bought by the large banks). Though other factors were involved, smaller banks tended to be unable to afford all of the complex compliance and reporting requirements within Dodd-Frank and its regulatory progeny. Dodd-Frank put small banks out of business and made big banks bigger. There is less competition in the banking industry after Dodd-Frank than before.
That is what regulations do, create barriers to entry for the small companies thus insulating the large companies from new competition. Regulations need to be slashed in this country to help bring back small and mid-size businesses and Trump understands this.
My last reason for supporting Donald Trump is his stance on illegal immigration. The laws of this country are quite clear on this, and I expect the law to be followed, and for the government to enforce those laws.
I don’t give a damn what anyone’s non-US nationality is for these laws to be followed. In the US, the illegal activity occurring for these laws is mainly on the southern border. Steps need to be made to reduce this illegal activity, where it is happening. One way to reduce the amount of lawbreaking is to make it more difficult for people to break the law, and a border wall can meet this goal. Once the illegal activity is stemmed, then the laws can be enforced and the people deported.
Yes, it is that simple.
The same could be said for people illegally avoiding taxes on their online purchases. The government needs to take steps to reduce this activity and make it more difficult for people to break these laws. Then enforce the laws.
Why Not Hillary Clinton?
These are my three main reasons for supporting Trump, but I have to talk about one main reason I am against Clinton. Remember, I am most passionate about the economy.
Clinton gave a speech a few weeks ago, claiming that increasing the minimum wage would make more demand for products, and thus benefit the economy and increase the number of jobs. I learned better in the first two weeks of my Econ 101 class, and it makes me think she has no clue how the economy works. That worries me greatly. (Begin about 13 paragraphs down in this speech.)
She completely ignores the reaction of the businesses that would have to pay these increased wages. Demand for labor is not static, but Clinton seems to believe it is. Forcibly increasing the wages or costs of workers will cause the businesses to reduce hours and/or workers to allow them to keep operating. Some businesses will not be able to make enough of the new expense up, and close shop or sell out to larger competitors who can better absorb the expense of newly-increased wages.
Using the minimum wage debate and taking it to the extreme with Clinton’s statement, if raising the minimum wage to $15 an hour will increase demand which will increase the economy and number of jobs, then why stop there? Let’s increase the minimum wage to $50 an hour, or $100, or $1,000! This should explode demand, and the economy as a whole. I hope everyone sees the problem in this.
This also happens with regulations like the Affordable Care Act. I have three friends that have had their hours cut because of that bill. The pizza companies they work for do not want to pay for the health care, so their hours were cut to be below the threshold where the health care was required. They struggled with the reduction in hours and pay, and two of them had to find second jobs where they did not need to before. Perversely, a law intended to make their lives easier wound up making their lives much harder.
Clinton’s Michigan economic speech doubled down on these poor economic ideas. She promised more of the normal stuff that will continue the economic stagnation at best, or worse, create a recession.
Higher taxes on companies cause greater transfer pricing opportunities for large multi-nationals while crushing those smaller companies around the bubble of the new tax laws that are not able to take advantage of transfer pricing opportunities (either by lack of structure, lack of people, and/or lack of money). There will be more downward pressure on wages and jobs in the US, because of increased amounts of money being kept overseas by these companies. Then those companies that have to flip the new tax bill, will reduce their greatest expense, labor costs, as one of the ways to make up some of the difference to profits. This spells fewer and fewer jobs to be had at all in the US and continued stagnation of wages for US workers.
Next, the typical higher taxes on the rich will cause those same people, who normally would invest in small businesses, to divert their money elsewhere.
Also, Hillary Clinton has talked about creating an “exit tax” on companies. This will just increase the speed at which they leave, to get out of the country before the exit tax takes effect.
Many companies and investors will be faster than Clinton and the government enacting the law, and plenty of others who do not beat the law being enacted will nevertheless prefer to pay the one-time exit tax to receive a lifetime benefit of much lower taxes in another, more business friendly country. What Clinton promises to do will drag the economy down.
Thus, I will vote for Donald Trump.
Image by Gage Skidmore