Taxes, Union Bailouts, and “Crybabies”

Every other Tuesday, Matt Brouillette hosts “The Politics of Business” on Pittsburgh Renaissance Radio on WMNY 1360 AM from 2-6pm.  This week he tackled a variety of issues that rankled at least one listener (“John”) who emailed him after the program.  Here was his response.


John:

I wish you would have called in because I welcome challenges and disagreement.  But I’m happy to respond to all of your email comments.

You wrote: “1. at least 60-75% of PA Corps. pay NO Corporate Income Tax, which explains why the minority of corps have to pay a high tax rate”

First, are you aware that the percentage of businesses paying the corporate income tax rate in Pennsylvania (which is the 2^nd highest in the U.S.) is about the same as you will find in every other state?  There is nothing illegal or otherwise going on here.  The reality is that many of those companies are not profitable or no longer exist.  How much in taxes should those corporations pay?

Second, are you aware that corporations don’t actually pay any taxes at all?  That’s right.  Every single penny that the government takes from a corporation is ultimately paid for by the consumers of the corporation’s products or services or through lower wages and benefits for workers.  Don’t think for a minute that corporations don’t pass through every single tax penny to the lowest common denominator…that would be you and me as consumers and employees!

Third, the tax rate is high in Pennsylvania—not because too few corporations pay it—but because government spends too much money.  Not only would rates be lower if government spent less, revenue could also be higher because more businesses would move TO Pennsylvania rather than OUT of it.

You wrote: “2. stop comparing the big 3 UAW wage at ($27/hr) against foreign non-union wage of ($31/hr)...it is a myth that UAW wage is $73/hr, which includes fixed costs of retireees...foreign auto companies don't have pensions and surely haven't been in business for a hundred years like big 3. Besides, if you totally eliminated the fixed costs and slight variance on benefits from big 3, the cost of auto is about $800 per unit...do your homework before you put these myths on air.”

First, it is not a myth about the vast differences between labor cost at the Big Three and its competitors (see http://tinyurl.com/56qhkd).

Second, you cannot exclude any labor costs from any calculation of total costs that end up making it into the final price of the product (Remember my point that corporations don’t pay taxes?  Well, they don’t pay labor costs either…those are passed on to consumers too…as long as they are buying.  When they stop, that’s when there’s trouble).

Third, the fact that other non-union auto manufacturers in America have not agreed to unaffordable and unsustainable pension and health care benefits for its employees is the very reason the Big Three are looking for a taxpayer-funded bailout and they are not.  Your desire to ignore the “fixed costs” is like trying to exclude your home mortgage from your family’s debt balance sheet.  You may “feel” like you have less debt, but good luck convincing a lender.

You wrote: “3. Why don't you tell your listeners that foreign automakers in south receive billions of taxpayer $$ to build there and continue to receive tax $$ in tax incentives...you rip PA for corp. welfare...what the hell is the tax $$ to foreign companies? it is welfare also.”

I agree, and I do.  But the solution isn’t giving more welfare to the Big Three and the UAW, it is ending the practice altogether.  Two bad policies do not make one good policy.

You wrote: “4. every industrialized nation in the world has given money to tide over automakers (w/exception of Japan) except the anti-union, anti-american US because their auto industry actually pays a living wage.”

See above: Two bad policies do not make one good policy.

What’s a “living wage”?  Who defines it?  The UAW has defined it so high that it is bankrupting the Big Three.  Sounds like the fable about killing the goose that lays the golden eggs has become reality in Detroit.

You wrote: “5. do your homework and you will realize that not only the big 3 but every foreign automaker is hurting in sales badly due to lack of credit from corrupt banks (who I just heard are using TARP to pay bonuses...put that on your show!) and due to sinking economy and the highest job losses in 30 years.”

You are correct that all automakers are hurting, but only the UAW’s Big Three are looking for the taxpayers to bail them out.  The others…Honda, Toyota, Nissan, Volkswagen, Hyundai, etc…are not hat in hand in Washington, DC looking for someone else to pay for their losses.

You wrote: “6. As I listened to your show, you all sound like a bunch of crybabies in defense of our poor corporations in PA but never tell the other side of the story about the stagnated wages in this country for past 10 year…”

I only defend corporations because without businesses, there are no jobs for workers.  Go figure.  Of course, you and the UAW are always welcome to start your own auto manufacturing plants or other business to show the rest of those greedy corporate bosses how it should be done.  ...