Crony Capitalism Part 2

Rick Santorum’s proposal to eliminate Corporate Income Tax for the Manufacturing sector is a perfect example of Crony Capitalism. Although he says that he isn’t picking winners and losers and it seems broad enough that lots of people can get behind it, it’s still crony capitalism. He also has logic behind it. In his mind a manufacturing job is how someone without a college degree moves into the middle class so that their kids can go to college and move up the income scale – the American Dream. But is he correct?
I only have two questions with the proposal – Why? and how?
He says that someone trying to get ahead can move into the middle class by getting a job in the manufacturing sector. Get a job, make a good salary, save money, send kids to college, American Dream right? But is he looking in the rear view mirror? That may have been true when the job was with Chrysler with the UAW behind you but is it still today. A “Manufacturing job” does not necessarily pay $35 per hour. Although I have no statistics I would hazard a guess that there are more jobs at $15 per hour than at $35. (I just didn’t a google search and found somewhere that said Toyota Jobs in WV pay $21,000 per year – that can’t be right can it?) Companies are still out to make a profit and they will pay the minimum that the market will allow. (By the way, that’s what we want). Secondly, not all manufacturing is created equal. It might be true that you can do it if you are working in an Intel fabrication plant but it wouldn’t necessarily be true if you are screen printing t–shirts. Within any job/field you have to work hard and move up. There is no lottery ticket. Even that t shirt job if you work hard and bust your butt you can use it as a stepping stone to get another better job or you can just do the minimum and keep getting $9 per hour and bitching over your beer at night. No guarantees.
The second question is how? How do you define a manufacturing company? What percentage of the work needs to be in manufacturing to pass muster? Does the tax exemption only apply to the plant that manufacturing takes place? Do I have to develop internal transfer pricing mechanisms to determine profit at that plant? What if I have a distribution center attached to that plant? Does that count? It I put offices there and have my designers there, do they count? What about the accountants doing all of this counting, do they count? I can see a lot of lawyers and accountants getting a lot of fees to make companies into “manufacturing companies”.
They only way to move up into the middle class is thru hard work and freedom. A quick story. 17 years ago my wife and I moved into a new house and hired a company to paint it. The crew showed up and they were mostly Brazilian. . At one point during the job he approached my wife and said to her that if she was interested in a cleaning lady his wife did great work. He handed her a card. A couple of weeks later my wife called his wife and hired her. Over the years they were sponsored for citizenship by the painting contractor and got it. The husband went off and formed his own painting company and has a couple of crews working for him. The wife still cleans our house. She has a couple of people working for her and does a great job. They have two kids who have both gone to college. They travel to Brazil twice a year for two weeks and go other places at least once a year. (When my wife sees the pictures on Facebook she asks me why our cleaning lady has been to Egypt (or Alaska or wherever) and we haven’t). To me, they are the American Dream. Hard Work, Play by the Rules and the Freedom to succeed or fail on your own.

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