Jeep, owned by the bailed out car company Chrysler, is considering moving their entire production of the vehicles to China. Currently the factories which make Jeeps are located in cities such as Toledo, Ohio. Shutting down these factories would mean the loss of many American manufacturing jobs, and economic turmoil in the cities where the manufacturing plants are currently located. These local economies probably thought they were safe after the auto bailouts, but the original failure of American automobile manufacturing was a symptom of what is wrong with American economics. The bailouts were doomed from the start.
It was not a matter of pouring more money into these companies. It was a matter of reducing the costs of making vehicles. Unions are one thing that raise the cost of production in America. Union members are often paid more than what their skills would garner in the free market, and therefore raise the prices of the goods they are producing. The company must spend more money on employee wages and benefits, pushing the cost on to the consumer. This makes goods more expensive for the consumer, and makes it harder for a company to turn a profit. But what’s a quick way to reclaim the profits? Outsource the jobs to somewhere that employees don’t have to be paid as much. It helps Jeep in this particular situation, that there is a Chinese market for the vehicles. Unless Jeep is running a charity, they cannot continue to pay employees over market price to produce cars. If force was not involved in our economy, this could be a choice for the workers between taking a lower wage, or having no job at all. Since our economy does involve the force of government, the choice will not be up to the employees, and they will be forced out of a job because of the “protections” given to them as a union member.
Instead of a bailout, what the government could have done to cut costs of manufacturing in America, is to lower or eliminate corporate taxes, which are currently at 35%. In a recent article about the first Presidential debate this year, I discuss the folly of corporate taxation.
…the corporate tax rate should be 0% because corporations cannot and will not pay taxes. Corporations pass the cost of taxes on to their customers, in the same way that the costs of materials, and hiring personnel are passed on to the consumer. The amount of money taken in over expenditures is profit, and the company will not absorb the taxes by taking it out of the profits. Since corporations have a responsibility to the shareholder to turn the biggest profit possible, when this profit shrinks enough they will look for other ways to cut costs, such as outsourcing jobs. To summarize, cutting the corporate tax rate to 0% would keep more jobs in America, lower the prices of goods and services provided by corporations, and attract more business to America because the costs of operating would be lower (Original Article Here).
Jeep still makes cars in America at the moment, which means it is still able to turn a profit here. Since the company is considering a move to China, that means they are unsure of their potential to turn a profit in coming years. If drastic measures were taken by our government right now, Jeep and many other companies on the edge of profitability would stay in America. The positive effects on the economy by eliminating the corporate tax would be monumental. Not only would companies like Jeep stay in America, but other companies would be attracted to America because none of their profits would go directly to the government. Of course the government would still get their tax revenue in the end, the corporate executives who get paid huge salaries pay income taxes.
It boggles the mind that simple solutions to our economic woes are rarely discussed. If congress and the white house were actually serious about getting our economy back on track, keeping jobs, and attracting business to America, they would be debating an immediate end to corporate taxation.