Rolexing the Economy
July 24, 2024Comments
I’ve always been fascinated by the inner workings of a mechanical watch—the movement, the balance wheel; the way the gears transmit energy from the mainspring to propel the movement of the others, and especially how each gear is integral to the workings of the whole. Rolex brags that its movement shows “superlative chronometric performance.”
Powering the Economic Balance Wheel
With the pending election ever prevalent, many discussions have argued the positives and negatives of the economy. Metal formers and fabricators often focus only on tax rates and tax legislation when evaluating candidates. Talk of tax cuts, tax percentages and tax incentives understandably surfaces again and again. Taxes are universally hated and an easy target.
But even if manufacturers don blinders, disregarding the unsavory transgressions of political candidates and ignore other consequential issues in determining their choices—even if the economy were the only factor guiding voting decisions, their crystal is not clear cut.
I liken the economy to the internal mechanism of a watch, with multiple gears winding each other under the bezel’s crystal. Other gears turning the delicate balance of the economy include the national debt and deficit, wages, global trade, industrial output, future-forward government funding, insurance rates, healthcare costs, environmental costs, education and skill levels relative to the rest of the world, and consumer-spending capacity.
In short, the corporate tax rate is not the only gear transmitting a favorable business climate for manufacturers.
Tax cuts explode the national deficit and debt. The much-heralded 2016 Tax Cuts and Jobs Act corporate tax cuts from 35% to 21% prompted capital investments and increased hires, but simultaneously eroded the country’s revenue base and exploded the budget deficit and national debt. The GDP, expected to expand as a result of the tax cuts, was motionless at best. The budget deficit burst from $587 billion at the close of 2016 to $3.1 trillion at the close of 2020. As of June 2024, it costs $868 billion to maintain the national debt, which now is 17% of the total federal spending in fiscal year 2024, the U.S. Treasury reports. Who pays that interest? Taxpayers do.
Low wages turn the gear of corporate welfare. Employers’ burden for healthcare costs has risen substantially. Underpaid employees not insured by their employers create cost burdens for all. Walmart and McDonalds are among the top employers of beneficiaries of federal aid programs like Medicaid and food stamps, according to a study by the nonpartisan Government Accountability Office.
“The question of how much taxpayers contribute to maintaining basic living standards for employees at some of the nation’s largest low-wage companies has long been a flashpoint in the debate over minimum-wage laws and the ongoing effort to unionize these sectors,” a CNBC article states. Conversely, when employees earn higher wages and no longer receive federal aid, the national debt decreases.
