Industrial Insight

Offshoring inresponse to high payroll taxes… | June 23, 2011

June 23, 2011
The Unintended Consequences of High Payroll Taxes

What are the unintended consequences of taxing U.S. businesses so much more on their payrolls than their corporate incomes?

This isn’t necessarily an intellectual exercise – this is something that has been the case since 1978, when the amount of taxes paid by U.S. businesses first began regularly exceeding the amount of taxes they collectively paid on their business incomes.

Yesterday, we hypothesized that U.S. businesses would respond by shifting jobs outside of the United States, since that would be the most likely way they could preserve their revenues while avoiding the employers’ portion of U.S. payroll taxes.

Today, we’ll go a step further – we’ll hypothesize that the jobs that would most likely be displaced in this way would most likely be in manufacturing. The reason why is because manufacturing is something that isn’t necessarily location specific, as most service type occupations are.

For example, it doesn’t really matter much where your mobile phone is manufactured – it could be in Europe, or Asia, here in America or in Africa for that matter – no matter where it might have been produced, it will still be the same mobile phone.

By contrast, the service occupations that support your mobile phone will be location specific. You can likely easily find local outlets for your service provider, which must be fairly close to where the customers for mobile phone service are.

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