In February, the Fuel Surcharge (FSC) on shipments was 26%. It is now 31%. It keeps climbing with no end in sight. It’s not always a straight formula though, as I saw an invoice from the steam line the other day, where the customer’s freight rate is $1400, but the added FSC was about $1800. Adding a margin? Lol. But really what I want to add here could be best captured by this title: Cynical, naive, or just dumb?
In July 2010, the government instituted a tax incentive to businesses to get exports moving. I would guess their motivation was to encourage exports to increase profits to get companies to hire more workers. You know, work on that unemployment thing. So they give a tax break to exporters, and reduce their tax on profits from 35% to 15%.
My customer in Australia imports a lot of pork. They are owned by a U.S. company that supplies about 60% of their product. They got their product delivered FAS Long Beach, meaning free along side. The supplier paid for all expenses up to the side of the ship; rail to long beach, transloading, and delivery to the ship. My customer paid for everything from that point on – I acted as their agent, and so I was “technically” the exporter. Starting in August, the supplier wanted to sell the product, in order to take advantage of the tax incentive, DES – delivered ex-ship. Meaning they paid for all expenses up to the point that the ship tossed the container overboard at the foreign port. The supplier was now the exporter, in name, where they hadn’t been so before.
Was there any increase in exports? No; same business being done as before. Did the supplier hire new staff to handle the “new business?” No, in fact they let staff go; I’m still managing the shipments and getting my same ‘cut.’ So on paper, it looks like the supplier increased business by about 700 containers a year, and get a reduction of 20 points in those profits, but they haven’t really increased business, they just get the tax break.
This is just ONE business in the U.S. How many others are doing the same thing? So is the administration cynical, naive, or just dumb? Didn’t they do their homework on this? It took me about 5 minutes to figure this scheme out. How come the geniuses at Department of Commerce didn’t see this coming? Or did they? Is this just another way to get around the repatriation of foreign earned profits taxes by ‘reimbursing’ them at home (after all, money is fungible isn’t it?)?
guest
Of course it was intentional. They are not stupid or naive, they are just counting on the fact that most Americans are. All this legislation is crafted by the corporations intending to benefit from them. Who else would have or could have? Do you think there is anyone in government thinking of ways to raise taxes, or to stop loopholes? If there were they’d be reduced to stammering in front of a congressional subcommittee trying to find out why there are communist cells in the Commerce or Treasury Departments plotting to bring down American business with anticompetitive taxes and tarriffs. All they need is a plausible excuse, lipstick on the pig, to sell it to the media which passes it on as fact to us
Frank A.
Absolutely it was intentional. This is the kind of thing that makes those businessmen so “savvy”.
anon2525
Was there any increase in exports? No; same business being done as before. Did the supplier hire new staff to handle the “new business?” No, in fact they let staff go; I’m still managing the shipments and getting my same ‘cut.’
Despite the “headline” that the unemployment rate has dropped roughly 1% in the past twelve months, the percentage of the population that is employed has dropped by 0.1%.* That is, it hasn’t changed. The amount of jobs created in the past year has essentially simply kept up with the growth in the population of people who are of job-seeking age.
*link
anon2525
In July 2010, the government instituted a tax incentive to businesses to get exports moving. I would guess their motivation was to encourage exports to increase profits to get companies to hire more workers. You know, work on that unemployment thing. So they give a tax break to exporters, and reduce their tax on profits from 35% to 15%.
…
So is the administration cynical, naive, or just dumb? Didn’t they do their homework on this? It took me about 5 minutes to figure this scheme out. How come the geniuses at Department of Commerce didn’t see this coming? Or did they?
Political economist Alan Nasser writes:*
The fiscal stimulus agenda of the Obama administration has been to stimulate aggregate demand. This is what some of the most prominent “Keynesian” economists urge. Paul Krugman writes that “we need policies to sustain aggregate demand.” (New York Times Blog, January 19, 2011) And Joseph Stiglitz tells us that “the deficit increase has been caused by the enormous shortfall between the economy’s potential and actual output.” (Politico, March 28, 2011) Framing the problem this way reinforces the notion that the desireable goal is to increase the magnitude of the GDP. This policy has been ineffective in its stated purpose, to reduce unemployment. But the problem is not merely that the stimulus was not large enough.
The Achilles heel of aggregate demand policy is its implicit reliance on the market, and hence on a form of trickle-down theory. If the goal is merely to stimulate the production of GDP, government will provide incentives to companies to hire workers and to banks to provide credit. The former alternative consists of tax breaks and the latter of gifts of liquidity to the banks. We have seen that these policies do not work. The financial incentives do not trickle down to wage earners because employers will not hire and lenders will not lend to households with strikingly insufficient purchasing power. In a word, the problem is lack of effective demand.
…
Aggregate demand policies work through the market; effective demand policies are initiated and implemented by government. Obama has repeatedly affirmed that any politically acceptable remedy for intractable joblessness must be market-based. His administration is commited to the view that “[While] government has a critical role in creating the conditions for economic growth, ultimately true economic recovery is only going to come from the private sector.” In the same speech, he admonished those who push for a government jobs program “to face the fact that our resources are limited…It’s not going to be possible for us to have a huge second stimulus, because frankly, we just don’t have the money.” (Speech at “jobs summit”, December 3, 2009) The “critical role” that Obama assigns to government is of course giving tax breaks to companies and cash to banks.
The Obama administration has thus rejected effective demand management. Washington has pledged allegiance to its owners, the owning class. Logical arguments and steel-trap reasoning will not move the ruling class to adopt a policy whose first priority is to meet the specific needs of the working class.
…
The key issue for the Left is clear: what are the present obstacles to mass mobilization, and how can they be overcome?
(emphasis added)
*link
Morocco Bama
It’s called How Many Clever Ways Can We Come Up With To Make Our Friends Rich at the Plebes expense. It’s a tried and true formula, and welcome to the club that has figured it out, but can never profit from that knowledge. Tis a curse to know. It would be better to not know. I firmly believe that at this point, but it’s too late now. Once you know, to not know would require a lobotomy.
nihil obstet
At one point in my career as a bureaucrat, I had to work with business incentives. They’re all like this — pointless giveaways. Few politicians know business or economics. They’re contacted by the law/lobbying firm of a business that wants the breaks, who present it in the neoliberal framework arguing how many jobs this will create. Or alternatively, they’re lobbied by the economic developers, who have quite nice jobs “networking” (aka playing golf and dining with businessmen) to bring industry, and promising public money is the primary content of the economic developer’s job. I think the framework is more like regulatory capture, in which the public representatives learn to see through the eyes of those who directly profit than it is simple corruption.
I entertained myself by producing reports showing the utter irrelevance of the incentives I was administering to any corporate decisions. The reports were flawed because of incomplete data (of course the damned data were incomplete! who collects good data on bad programs?) so outside consultants were hired to produce reports recommending a little tweaking in the incentives to make them effective. I finally got myself moved out of the incentives field by pointing out that government having to pay companies to do business proved that capitalism had failed.
Notorious P.A.T.
“Despite the “headline” that the unemployment rate has dropped roughly 1% in the past twelve months, the percentage of the population that is employed has dropped by 0.1%.”
The idea that unemployment really went down is probably, as you say, a fantasy, considering that economic growth was just revised downward from 4.1% growth this quarter to…
…1.5%.
http://economix.blogs.nytimes.com/2011/04/12/g-d-p-forecast-for-first-quarter-slides/?hp
Ouch.
Cujo359
That people have found a way to game this new system doesn’t surprise me. My question is, why should I assume that this is the only change that will occur? There may be a reason, but that’s not implicit in what I read.
skuppers
“At one point in my career as a bureaucrat, I had to work with business incentives. They’re all like this — pointless giveaways. ”
Great comments all. Nihil obstet, is spot on. I saw this kind of shit all the time in gov’t service, and would just shake my head. Aah! The humanity! What were you? FCS, FAS, State?
beowulf
Skuppers, great comments. I suspect there’s a real opportunity among the shipping (and marine insurance) biz to take advantage of these newly minted exporters ignorance of “the perils of the sea”. For one thing, it sounds like that tax break won’t help much if their profit is eaten up by the Fuel Surcharge, which they’re now on the hook for.
The trouble with most business tax breaks is that they simply shift business from one sector to another or w/ state and local tax breaks from one metro region to another without doing much to improve the economy nationally. In terms of boosting aggregate demand (and reducing inequality, the two are very related), Obama and the Dem leadership are idiots for not converting the Bush tax cuts into the Obama tax cuts, say, with Bob Filner’s refundable standard tax credit, but I digress.
http://www.usbig.net/papers/ataxcutforusall.php
Trade tax breaks are a little bit different because, as Wynne Godley first noted, govt deficit = private savings + trade deficit. Our $500 billion (3% of GDP) trade deficit is an aggregate demand leakage that must be filled by govt deficit spending which wouldn’t be a problem if DC wasn’t run by idiots.
I see what the Administration is thinking, the smaller the trade deficit, the smaller the demand leakage we need to fill by borrowing. As it typical, Obama’s approach is a halfassed corporate sellout. Instead of using carrots to boost exports (does anyone doubt GE is the single biggest beneficiary?), it’d be easier and far more effective to use a stick by imposing tariff to decrease imports. I’ll link to a fascinating Levy Institute report that suggested using tariff revenue to cut the 15.3% FICA tax by 4.8 points, call it the fair trade tax cut and run against GE– oh I guess Obama took that option off the table, never mind.
http://webcache.googleusercontent.com/search?q=cache:hJTJbMq3zt0J:www.levyinstitute.org/files/download.php?file%3Dwp_538.pdf
nihil obstet
skuppers, I was with a state commerce department.
anon2525
The trouble with most business tax breaks is that…
The problem is more fundamental. It is that the duopoly only considers economic policies that might increase Aggregate Demand instead of increasing Effective Demand. The original post was an illustration of how a policy that attempted to increase aggregate demand was failing, but it did not question the assumption that increasing aggregate demand should be the goal of gov’t. policy. Policies that attempt to increase aggregate demand amount to trickle-down economics. Repeating from above, Putting People to Work.
beowulf
It is that the duopoly only considers economic policies that might increase Aggregate Demand instead of increasing Effective Demand.
We should be so lucky. Both AD and ED are Keynesian terms and half of the duopoly is steadfast against Obama or anyone else from Kenyan (I half-suspect there’s a secret Frank Luntz poll for the RNC that determined that a large fraction voters confuse Keynesian economics with the President’s Kenyan economist father). And the distinction anon2525 makes is precisely the one that John Kenneth Galbraith made in the late 1950s between “conservative Keynesian” (using tax cuts to fill output gap) and liberal Keynesian (govt job programs to fill employment gap).
I can’t say anon2525 is wrong, one of the two big missteps the early New Dealer made was dropping the “Employment Assurance” employer of last resort program from the Social Security Act (the second mistake, of course, was not adding national health insurance to the same bill) but if Galbraith rued that liberal Keynesianists lost out to the conservative Keynesianists 50 years ago, clearly our political spectrum has moved pretty strongly to the right since then. Hell, Obama’s economic policies are inadequate even by the standards of the conservative Keynesianist uber alles, Richard Nixon. Which suggests a solution.
I’ve made the point here before about Nixon and his rather progressive negative income tax proposal (killed by Southern conservatives who suddenly realized he was talking about helping poor black families, that wouldn’t do); perhaps the only way to market progressive economic policy in this country is to make it sound as regressive, angry and spiteful as possible.
So bring back the Employment Assurance plan (which Nixon actually tried to do by relabeling it “workfare”), but call it the Welfare Abolition Act. Announce that “welfare is dead and workfare is gonna to pay the unemployed to bury it” or, to get down to brass tacks, “if welfare moms want to keep their kids, they better keep showing up for work”, that sort of thing. As a rule of thumb, the more horrifying you make it sound, the more political support you’ll get. Make the program as universal, humane and well-paying as you like, just don’t let any do-gooders release positive economic studies until the damn thing is passed into law. :o)
anon2525
So bring back the Employment Assurance plan (which Nixon actually tried to do by relabeling it “workfare”), but call it the Welfare Abolition Act.
Or, in the original FDR*:
*Economic Bill of Rights
anon2525
As a rule of thumb, the more horrifying you make it sound, the more political support you’ll get.
If by “political support” you mean “popular support”, you might be right. But if by “political support” you mean “support of the political class”, I doubt that they would be persuaded. In fact, you would not even hear about it except possibly to quickly dismiss it as “populism.”
Again, repeating Alan Nasser:
Washington has pledged allegiance to its owners, the owning class. Logical arguments and steel-trap reasoning will not move the ruling class to adopt a policy whose first priority is to meet the specific needs of the working class.
And marketing won’t work, either. So long as the goal of the policy is “to meet the specific needs of the working class,” it won’t be considered and won’t be mentioned except to dismiss it without argument (“frankly, we just don’t have the money”). Only those policies that increase private profits will be considered.
Representative democracy has broken down (the people we elect do not represent our interests). When that occurs it is up to the People to use direct democracy. In a country of over 310 million people that will be “interesting” to see.
anon2525
…the one that John Kenneth Galbraith made in the late 1950s between “conservative Keynesian” (using tax cuts to fill output gap) and liberal Keynesian (govt job programs to fill employment gap).
For what it is worth, Nasser writes that stimulating aggregate demand was not argued by Keynes:
“Aggregate demand stimulation is not authentically Keynesian. Keynes was explicit that the goal of macroeconomic stabilization policy is “a closer approximation of full employment as nearly as is practicable.” (The General Theory, p. 378-379) He was unambiguous as to the principal effective means of accomplishing this goal: direct government job creation through public works projects.”
So, it would appear that JKG was taking liberties.