Why Tax Economic Rent Rather Than Productive Contribution?

Destruction of U.S. Manufacturing: The Unusual Suspects by Andrew Butter

That line is probably an under-estimate of the value that was sucked out of USA and sent elsewhere.

Because when you set up a factory in a Special Economic Zone in Guangdong Province or somewhere, to manufacture something that you know you can sell, particularly in USA; because you own the patents and the distribution and the brand. You also have the luxury of “transferring” intellectual capital, outside of the beady eyes of US tax-inspectors reading up the statutes on “Transfer Pricing”; so a lot of what get’s transferred is “intangible” (as in the tax-man can’t get his sticky fingers on it).

Here is a statistic, 80% of China’s exports have “value-added”, added, in what they call “Special Economic Zones” (and what I call Free Zones). That’s huge.

Here’s another one, 50% of the earnings of S&P 500 corporations (that’s the “E” in “P/E”) are generated outside of America...

There is a popular idea that cheap labor is why America lost its manufacturing jobs, perhaps that might play a part in something (although if it did, why didn’t Germany and Japan lose more?), but there is nothing I ever saw to support that notion....

Follow the trend-line on the chart from after the War to 1979, and extrapolate, if the investment had not piled out of America, there would perhaps be 24 Million people employed in manufacturing in USA today, as opposed to just under 12 Million....

The point of Free-Zones is to create an environment where free-enterprise, and free-markets can thrive; and when all the rest is so corrupted by silly laws, regulations, and special interests, sometimes you just need to start over.

And don’t talk about the 38% corporate tax which would be “lost”, you can only lose something you got, and there are plenty of ways to make that up taxing rich people, and people with jobs.

This is an interesting post in its entirety, and it shows the thinking behind the move of manufacturing offshore. In Butter's view, the reasons are primarily corporate taxation and regulation.

This relates to Michael Hudson's proposal to tax away economic rent instead of productive contributions in order to discourage rent-seeking and promote productive activity. Since a majority of the wealth that funnels to the top is the result of economic rent, there is an alternative to taxing factors of production that are not parasitical.

Taxation is operationally unnecessary to fund government with revenue, since a government that issues a non-convertible floating rate currency is not operationally constrained and funds itself directly. Taxation serves two purposes, first, to withdraw non-government net financial assets in order to dampen effective demand when inflation threatens, and secondly, to discourage negative economic and social behavior. Taxing economic rent discourages parasitical rent-seeking while promoting efficient use of capital and labor in production.

The other question is regulation. Regulation is required for several reasons. The first and most important is to minimize cheating and ensure a level playing field. Another is to set minimally acceptable social standards such as workplace safety. Another is to limit negative externalities.

As globalization proceeds, developed countries have to choose whether to forego social gains made over the past century or to allow the lowest common denominator to operate. This is going to be an ongoing issue as capital seeks "efficiency" and citizens look to government for effectiveness in pursuing public purpose and general welfare.