At 6 minutes into the video below, you can see Steve Moore of the Wall Street Journal claim that offshoring is driven by the USA’s tax rates. And that is a bald-face lie. Tax rates are a drop in the bucket compared to labor costs.
Imagine a factory with 1,000 union workers making $50 per hour.
50 * 1000 = $50,000 per hour
50,000 * 8 = $400,000 per day
400,000 * 5 = $2,000,000 per week
2,000,000 * 52 = $104,000,000 per year
Now move the plant to Mexico where you pay your new workers $2 per hour. That’s 1/25th of your former payroll, and comes to $4,160,000.
You save almost $100 million dollars.
Now, do you think that Mexico’s 30% corporate tax rate, at 5% lower than the USA’s 35% rate, had anything to do with the decision to offshore so many industries?
Don’t be ridiculous. On top of that, US companies get away with much lower rates. Google only paid 2.4% for its overseas rate and weaseled its total rate down to 22.2%. And federal taxes are near an historical low as a percentage of GDP.
The idea that tax rates are material to offshoring is moore-onic.
Note to Steve Moore: Go ahead an cheer the de-industrialization of your country. If things go badly here, I’m sure there will always be a place for you in Beijing.