I was a bit shocked to find a top-of-front-page banner article in the Washington Post on “A Quiet Break for Corporations.” It turns out that Anita Dungey, the owner of a dog collar manufacturing business, had found out that “One of her small advantages over imports was about to disappear, thanks to a little-noticed proposal in the Senate.” That “small advantage”? Tariffs that discriminated against foreign made products, allowing her to charge higher prices to her customers, thus shifting money from their pockets to hers. The “small advantage” was …. a reduction in the taxes paid on imports! (One can argue about how those reductions are achieved — I favor across the board reductions or eliminations of tariffs, not patchwork changes, but it’s clear that such reductions are in the interests of consumers, who are free to buy goods for less, rather than being forced to pay more to Anita Dungey.)
But it got worse:
Over time, the changes cost taxpayers hundreds of millions of dollars in lost revenue, a Washington Post analysis of U.S. trade data found.
So cutting a tax on consumers (a tariff) turns out to cost taxpayers money. Hmmmm…. I thought that “taxpayers” were people who pay taxes, not people who collect them. In fact, it might “cost” the U.S. treasury money through lower revenues (although that’s in fact a contestable proposition), but cutting taxes doesn’t cost taxpayers money — it costs taxreceivers money. I can imagine two other headlines that would be consistent with the theory of the Washington Post reporter:
“50% Tax Cut Costs Taxpayers Money”
and
“100% Tax Increase Increases Taxpayers’ Incomes”
WaPo: “Lower tariff rates reduce tariff revenue!”
Brad DeLong assailed the Washington Post twice today, yet refrained from attacking the front page investigative story centered on this premise: Each legislative season, corporate executives and lobbyists quietly draft hundreds of bills to suspend tarif…
In response to Mr. Palmer’s comments from September 20, 2006, first let me say that I am not a huge multi-national corporation making tons of money. My profits are not going into my pockets. My money goes to providing my employees jobs with benefits that the government in turn does not need to subsidise. I have literally invested everything I own into this business.
That being said, I would ask at this time that you take a moment to re-read the article and separate in your mind small businesses that make up the back-bone of this country from huge multi-national corporations.
First, let me remind you that businesses pay taxes. And, given that the government will raise money one way or another, doesn’t it make more sense to spread the tax burden over many different types of businesses instead of relying so heavily on the taxes raised through sales and property taxes?
Next,I would like to point out that I manufacture my products with the best materials I can find. At this point, I can still get many of these from American sources. But, if we as a society keep clamboring for low prices at the expense of all else, we will undermine our ability to have the choices we desire. As cheaper products enter the ports of this country and, especially if American manufacturers are caught off guard as is the case with the hush-hush nature of lifting tariffs, American manufacturers are often unable to adjust in time to compete with the tidal wave of cheaper products. It is important to understand that it takes time for manufacturers to adjust their product lines because of machinery set-up, product development and marketing, carrying costs of inventories, delivery times of our suppliers, etc., etc., etc. We do not have – nor do I believe we want – the advantage of having a government that buys our machinery or sets up our factories for us as is the case in other countries.
Thirdly, let me ask, do you really think the importers are going to keep their prices low once domestic production has been driven out? That is certainly not what I have seen in my raw material costs. So, at that point, how are we better off? We have lost American jobs and have given over control to a foreign country. And, on top of that we are subject to fluctuations in currency markets and/or currency manipulations.
The bottom line is that it is about more than strict economics. It is about the American people being able to produce something they can be proud of. It is about meeting the needs of the American work force to have control over their destinies, even if they aren’t cut out to be doctors or lawyers or used import car salesmen. It isn’t always about more money in our pockets. It is about the spirit of the American work force (who, by the way, is each and every one of us) than it is about saving a few cents at a discount store.
At this point, I would like you to again take another look at the article. I hope that this time you will take away from it what was intended – that the system of releasing information on upcoming governmental policy changes to the American public is a process that the American population(small business in this case) finds difficult, at best,to maneuver.
Thank you for your time and consideration of these thoughts.
Sincerely,
Anita Dungey, President
Auburn Leathercrafters
Anita, here’s a paragraph-by-paragraph response to your argument from an economist.
Para 1: Whether your firm is a big multinational or small enterprise is beside the point. Big vs. small isn’t good vs evil or the reverse, it’s just matter of what size of firm is better from a technological standpoint. That you are heavily invested in your firm is irrelevant for this question. Your payment to employees *are* subsidized if you are relying on government to protect you from having to compete.
Para 2: I believe you’re mistaken — big businesses generate more value (and employment) than small in the U.S. — but this is beside the point.
Para 3: Your theory of taxation is wrong. If taxes are necessary, they should be designed to minimize deadweight losses (lost gains from trade). Tariffs don’t qualify; they are particularly bad in this regard, because they reduce trade and encourage domestic inefficiency. If we must tax, let’s tax something bad, e.g. pollution.
Para 4: What, you are upset that your customers, left free to make their own choices, would prefer cheap foreign goods to your expensive stuff made with the “highest quality materials I can find?” HIn other words: “How dare those consumers prefer dog collars made with less than the finest quality materials money can buy!” My reaction — *serve* your potential customers, don’t dictate to them and rely on government power to do so. They want cheaper stuff — give them cheaper stuff (these are dog collars, not brain surgeries!)
Para 5: Yes, the foreigners will keep their prices low. If they don’t, some American or some other foreigner will undercut them to give the consumer what s/he wants. And America has NOT lost jobs overseas. America has *positive net exports* of services — more outsourcing comes to us than from us.
Para 6: You are right — this is not just economics. It’s also about whether small special interests should be able to use government to… let’s call it what it is… milk the public by preventing them from buying what they want, so they have to turn to protected firms.
Anita, you gave a good faith response to Tom. This is the same to you. You, as an American entrepreneur, ought to eschew protectionism and compete. Do so, and best of luck.
I admire Ms. Dungey’s willingness to make her case. I don’t find her arguments convincing, but I do admire her willingness to put them out for people to consider.
Much could be said, but I’ll just mention a few considerations (in addition to what Mr. Steele has to say above).
Ms. Dungey writes, “if we as a society keep clamboring for low prices at the expense of all else, we will undermine our ability to have the choices we desire.” Paying lower prices for goods and services means that we have money to buy additional goods and services. If I can buy pet collars for less (I do buy pet collars with my phone number and a promise of a reward woven into them, in case my cats become lost), then I can buy other stuff in addition, or save and invest in a business. Lower prices for consumers clearly do increase our ability to have the choices we desire.
I have sympathy for someone who is working hard and investing her savings in a business to create goods and services for sale to willing buyers. But I’m not sympathetic with using force to stop customers from buying from others. The main arguments that Ms. Dungey deployed could be used against imports from South Carolina or Arizona. And, indeed, the losses entailed by being undercut and losing sales could hardly be eliminated by being told that the competitor is in the same country. Losing money is losing money. And if a business is losing money, it won’t do to notice that there’s money in the local bank and go and rob them. It’s stealing and stealing is immoral. For the same reason it won’t do to blow up the factory of your competitor, or to lay down landmines on the road leading out of the factory, or to employ police and soldiers to stop the trucks from reaching stores where the goods could be offered to consumers.
An acquaintance of mine had a solid business of record stores in South Carolina. He did well and adjusted from records to tapes to CDs. He’s had a much harder time adjusting to digital downloads and iTunes. As a result, he’s had to close stores, lay off employees, and see the value of his business decline. He doesn’t like it and has tried hard to offer better service, but it looks like he’s selling buggy whips in an internal combustion transport world. He recognizes that he has no right to use force to stop his customers from buying from lower cost or more convenient suppliers.
Production and free exchange are noble and laudable. Slashing the tires of your competitor’s delivery trucks is not. I see little or no difference between slashing their tires and taxing their products more heavily in order to keep customers from buying them at lower prices. They’re both wrong.