The Irony Of Tax Dodgers, Reshoring, And US Manufacturing

I find the comparison between those that off-shored manufacturing from the US and those that leave their home countries to avoid taxes awfully compelling.

Actually, it’s not the motivations behind their actions I find so interesting; it’s the contradictory responses of government & politicians toward both tactics that I find ironic.

Now, I know that unpredictable behavior by governments & politicians aren’t news. But what I’m seeing, I believe, speaks volumes about control, intentions, and who was responsible for moving our production & innovation bases to low cost countries in the first place.

In case you’re unaware, 2012 saw some dramatic increases in citizens expatriating from their home countries to those with lower personal tax rates. For example, this past Spring facebook co-founder Eduardo Saverin renounced his US citizenship & moved to Singapore. At the time, two US senators accused him – quite vocally – of dodging taxes on profits made from the facebook IPO.

As 2012 progressed, the number of Americans renouncing their citizenship has exploded over previous years according to various sources.

But rest easy, fellow patriots. Our government and representatives are on it. As a matter of fact, they’re on it like Alex Karras on a buffet at Ponderosa.

In economics, the Laffer curve is a representation of the relationship between possible rates of taxation and the resulting levels of government revenue. It illustrates the concept of taxable income elasticity—i.e., taxable income will change in response to changes in the rate of taxation.

In economics, the Laffer curve is a representation of the relationship between possible rates of taxation and the resulting levels of government revenue.

Several proposed and enacted pieces of legislation are creating a perfect storm to put a stop to this understandable diabolical manifestation of the Laffer Curve.

And recently, the tax exodus debate has reemerged in California.

So, the fiscal peril of losing the wealthy to expatriation over tax rates is important? I get that. But where was at least the same level of response when these same politicians in Commerce & State, representatives in associations ‘representing US manufacturers,’ and our elected officials all greased the skids for manufacturing to be shipped offshore? Why didn’t they play the tape all the way through to the end, and see our tax roles reduced? Or our innovation engine decimated? Or the downstream impact on the overall economy? Where was the outrage? Where was action to prevent the pall mall off-shoring of whole industries & our middle class, at any level or immediacy approaching those we’re seeing now to prevent tax dodging?

I’ll tell you why we didn’t see it – it’s because ‘we’ saw the opportunity to build new markets and middle classes on a global level at the expense of our own. If the argument to protect our economy is good for one threat now, why wasn’t it appropriate for off-shoring in the first place? The answer is simple – because ‘we’ wanted it to happen.

What we’re losing to expatriation to dodge taxes is a drop in the bucket compared to what we’ve lost due to the expatriation of our manufacturing base. To see such contradictory responses to similar threats is perplexing, and it should have us all asking tough questions. It’s like letting a guy break into our house with a bazooka & letting him get away with it, then killing another that breaks in with a crowbar.

I’ve been told directly that it’s water under bridge, that leveling blame is a fool’s errand. That it doesn’t enable the reshoring trend to develop as quickly as it should. But to those I say it’s critical to understand history in order to manage our present and future.

I’ve also been told that this sounds a lot like a conspiracy theory. To them, I say that anyone who doesn’t believe in conspiracy theories has never read a history book.

Sure, it’s ironic that we’ve not seen consistency among these two matters. But it’s also pathetic. And it should insult your intelligence whenever someone suggests that the off-shoring of our manufacturing base was due ‘solely’ to markets or the invisible hand.

AJ Sweatt
  1. When offshoring began I told anyone that would listen, my wife mainly, we are paying these companies to leave the US because of taxes. Seems like Mitt Romney made that statement then Obama said he was unaware of tax incentives to leave the US.

  2. I always appreciate your point of view, AJ. I’m not a big believer in conspiracy theories… especially when it comes to government. A more likely scenario, to me, is self-interest and short-term thinking that resulted in some pretty major, negative unintended consequences. Add to that a handful of powerful folks who would prefer to feel good about themselves by raising the standard of living in the 3rd world at the expense of sustaining and improving our own… well…

    Wouldn’t it be nice if we could just collectively admit that many of the business and government decisions regarding offshoring and economic strategy made in the early stages of globalization (80s, 90s, early 00s) were an epic fail? Now can we get to the “A” part of PDCA please?

    • Linda, you are a light. You’re correct about needing to move on. And I also agree that, at the most obvious levels, there was a gold rush without considering (or caring about) the consequences. But I do stand by the position that the disparity in the responses to both events raises serious questions about the original motivations. For example, how much trade occurs these days between the US and Iran? The answer is, of course, none – because it’s against the law. Someone had to throw open the doors for China to accept production in the first place. After that, we saw the traits you point out manifest themselves. Thanks for the note. I just hope we can examine more openly what happened, why it happened, and what to do to correct those portions of ‘policy’ that were huge mistakes.

  3. Nice work friend. Call them as you see them. I tend to agree here strongly.

  4. AJ, Linda is pretty much right on. You give the influencers too much credit that they would be capable of constructing even such a short sighted conspiracy. We have become a Nation of opportunists – and as you and I have recently discussed – unwilling or incapable of formulating and executing a proper National strategy.

  5. The people who knew didn’t care. and the people who cared didn’t know.

  6. First excellent article I agree 100%.
    The comment by Jim Glass I believe is a little reversed I believe the president stated some of the points in the article and I believe Mr. Romney statement was I’ve been in business 25 years and don’t know of any such tax incentive.
    But I digress until the people of this country have decided that we’ve had enough of the pillaging it will not change. Doesn’t matter if Washington is red or blue the change most come from the people. Stand up be educated and be heard. If not now, when? If not you, who?

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