Buying In Bulk: Why America Is The New Costco For China

Who is the world’s economic super power? Only a few years ago most Americans could confidently and proudly say it was their own country, although with the last four years of minimal growth, the scary truth of China being the world’s leading economic power is coming into fruition.

Over the weekend China reminded us once again why they should not be taken lightly with the majority purchase of AIG, at a price tag of $4.2 billion.

Along with purchase of the government backed green energy battery company, A123 for $256.6 million as well as continued billion dollar investments in the American housing industry, China alone has picked up more than $6.5 billion of American assets in 2012.

From these alarming statistics there may be only one scenario running through your mind. Were the dreams of Eric Cartman in the summer of 2008 a sign of things to come; is China really on their way to taking over the world?

While this may be a bit of a stretch, the Chinese economic machine poses all the ingredients need for a successful and booming economy.

So what has been the recipe for a soaring China and a sinking America? It’s actually quit simple, China makes a lot of things and we don’t. And why is that you may ask? That too is simple; the cheap labor and a lower corporate tax rate make China much more appealing to American manufactures.

With China and America’s corporate tax rate respectively at 25%  to 40%, it is only natural for employers to ship jobs overseas and take advantage of lower rates.

When manufactures see that they will be taxed at a much lower rate, the incentive to leave America for a country where they are able to hire more labor leads to more production and higher profits.

Other than the cheap wages that China allows its citizens to work for, the United States can and will have to offer these same incentives to not only its own people, but other overseas industry that would in time bring more jobs, revenue, and help to restore America as an elite world power.

If President Obama’s administration fails to address this issue, more and more American manufactures will be tempted to test the royalties that wait in a country such as China, especially when we are only months away from the possible “fiscal cliff”.

The mantra is simple; we as a country are making it impossible for growth by taxing our citizens and companies at enormously high rates for programs and entitlements we can no longer afford.

We must get back to spending by necessity, creating a friendly job climate for investors with low tax rates, and promote incentives not only for large but small business owners instead of more and more job killing regulations.

Tax Less, Earn More: Why The Capital Gains Tax Rate Should Remain Low

Last month Gov. Mitt Romney released his 2011 tax returns, in an effort to silence the whimpers from the left, and still liberals cry that Romney did not pay his “fair share”. According to the records Romney earned 13.7 million in revenue, paying a total of 1.9 million in taxes, an average tax rate of 14.1%.

On paper this tax rate is much lower than most Americans pay. However, Romney was taxed at a capital gains tax rate which is much different than an income tax rate. It is like comparing the SEC with the ACC, they are just apples and oranges. The capital gains tax is taxed at different levels, where as an income taxed is taxed once. The capital gains taxes motivates investments, and income tax has no direct motivation for private sector growth. I say direct because lower income tax rates can increase personal spending but that requires consumer confidence.

Let’s break down the capital gains tax. When an individual invests in a company, he/she buys a portion of that company. The idea is that portion of the company will become more valuable with time because of assets created through revenue. So any increase in value of a share in a company must come through increased revenues. Therefore, any dollar added to the value of a share is first taxed at the corporate rate (35%). Then when an investor wants to withdraw that money after a year his withdrawal from is taxed at a rate of (15%).  Therefore, the money earned from investments is taxed twice. Now that we understand capital gains lets address changing the rate.

So what’s the problem just raising it 15%? Raising the capital gains tax rate will decrease the amount of capital available for the private sector. Remember investing in the market requires the investor to take a risk. At 15% the capital gains tax is low enough to promote people to invest in the stock market with their 401(k) or savings. If the rate is increased this motivation decreases. Theoretically speaking if the rate is raised high enough, no one will invest. Raising it even a 1% means some decrease in the amount of capital going into the market, resulting in the inability to expand their workforce, and the decrease in overall production growth here in the United States.

Really the whole proposition for a “Buffett Rule” is to increase revenues. If you look at this The Heritage Foundation illustration you can clearly see revenues from the implementation of the Buffet Rule will not dent the current annual deficit. There is no upside to raising the rate, and there is a huge downside. This tax rate must stay in place so that we ensure not only small business job growth thought America.

In response to:

http://www.washingtonpost.com/politics/decision2012/romney-in-florida/2012/09/20/e030ee0c-0317-11e2-91e7-2962c74e7738_gallery.html