Hillarysworld

A frequently heard argument lately from conservative candidates is that corporations if given tax incentives will invest more in the US.

So... I wanted to check it out a bit.

Will the corporations invest in the US if they get further tax incentives? That was the question I was looking to get answered. 

As you know Robert Reich is an expert on global economics, especially labor economics. He was U.S. Secretary of Labor under Pres.Bill Clinton.
Robert Reich was the nation's 22nd Secretary of Labor and is a professor at the University of California at Berkeley. His latest book is "Supercapitalism." []

Following is a blogpost from Robert Reich's personal journal; it gives the stark reality of what has been happening with profits and jobs...

Read @ RobertReich.org blog

The Great Decoupling of Corporate Profits from Jobs

Second-quarter earnings reports are coming in, and they’re making Wall Street smile. Corporate profits are up. And big American companies are sitting on a gigantic pile of money. The 500 largest non-financial firms held almost a trillion dollars in the second quarter, and that money pile is growing larger this quarter.  Profits that plummeted in the recession have bounced back. Big businesses have recovered almost 90 percent of what they lost.

So with all this money and profit, they’ll start hiring again, right?Wrong – for three reasons.

First, lots of their profits are coming from their overseas operations. So that’s where they’re investing and expanding production.

GM now sells more cars in China than it does in the US, but makes most of them there. The company now employs 32,000 hourly workers in China. But only 52,000 GM hourly workers remain in the United States – down from 468,000 in 1970.GM isn’t just hiring low-tech assembly workers in China. Last week the firm broke ground there on a $250 million advanced technology center to develop batteries and other alternative energy sources.

You and I and other American taxpayers still own over 60 percent of GM. We bought GM to save GM jobs, remember?

GM officials say no American taxpayer money is being used to expand in China.But money is fungible. Because of our generosity, GM can now use the dollars it doesn’t have to spend in the United States meeting its American payrolls and repaying its creditors, for new investments in China.

Second, big U.S. businesses are investing their cash in labor-saving technologies. This boosts their productivity, but not their payrolls.

[SNIP]

Bottom line: Higher corporate profits no longer lead to higher employment.  We’re witnessing a great decoupling of company profits from jobs. The next supply-side economist who tells you companies need more incentive (i.e. lower taxes) before they’ll hire is living on another planet.The reality is this: Big American companies may never rehire large numbers of workers. And they won’t even begin to think about hiring until they know American consumers will buy their products. The problem is, American consumers won’t start buying against until they know they have reliable paychecks.  (Emphasis added)

Full article @ RobertReich.org blog
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What we often hear as "jobless recovery" is quite strong and has contributed to a phenomenal recovery in the stock market.  As you may have noticed, the DJIA ("Dow") was around 9,000 in January 2009, and hit the lowest of lows at 6,626.94 on March 6, 2009 and is now upwards of 11,100 today.  Live link to DJIA where you can see the 5-year trend also.

Yes, we have jobless recovery. The companies, especially those that are global, are doing gangbusters well. Would you know that? Hello no! 

So, what is happening?

The profits are not being repatriated into the U.S. and the unrepatriated profits are not subject to tax.  IF they are made to be subject to tax, perhaps the government will gain a bigger income stream with which it might be able to spend (more) on essential services without further burdening the deficit even as the job-economy within the US -- and the economy as perceived and experienced by the middle class average American (without huge investment in stock market) -- continues to suffer. But corporations (and Republicans) are resisting these taxes on foreign-made money and are only investing the profits in other countries... and that is further eroding the US economy.

So, I think it is quite "safe" to conclude the following IN THE CONTEXT OF THE PRESENT GLOBAL ECONOMY:
1. More tax relief to corporations will not lead to jobs in the U.S.
2. Taxing U.S. Corporations for foreign made profits and spending that money in the US for subsistence projects, unemployment insurance and rebuilding infrastructure, investing in education as the economy continue to erode may be absolutely required.

-- Edited by Sanders on Friday 22nd of October 2010 10:02:01 PM