How Government Prevents Job Growth
Apple has billions of dollars overseas and is investing in manufacturing infrastructure offshore. Why isn't the company investing that money in manufacturing here?
America has millions of unemployed people. As Fox News pointed out on April 6, the official unemployment rate, currently hovering at a bit over 8 percent, radically underestimates the real number of unemployed Americans.
"One of the biggest obstacles to an economic recovery has been solving the problem of the long-term unemployed," Dunstan Prial reported for Fox. "According to a recent report from RBC Global Asset Management, the ranks of the long-term unemployed, or those out of work for 27 weeks or more, have soared to 7 million, up from 1 million in 2007 ahead of the onset of the financial crisis."
Why aren't there any jobs for these people? The Great Recession certainly played a significant role in hampering the economy over the last four years, but it only accelerated a trend already in existence. That trend has been the offshoring of good paying jobs, especially those in manufacturing.
Within the memory of most living adults, America was once the mightiest manufacturing nation on Earth. We made televisions, radios, computers, cars, boats, airplanes, and washing machines, among thousands of other products.
That all began to change in the 1960s and 70s, with the trend to send jobs off-shore really taking off in the 1990's. Cheap labor and lack of regulation made manufacturing in China, India, Thailand, and Mexico attractive. Solid manufacturing jobs poured out of America. They haven't come back.
They could come back, though. But they won't. The situation with Apple, maker of now ubiquitous must-have devices like the iPad and iPhone, illustrates the current problem.
After another strong quarter of operations, Apple's cash reserves are overflowing. "Apple has once again beaten analysts’ expectations with its Q2 results out today, and correspondingly the iPhone giant now has an even stronger cash position than it did before: $110 billion in the six months ended March 31, 2012 versus $81.5 billion in the six months ended September 24, 2011," TechCrunch reported.
The trouble is, a huge percentage of that money is offshore, and prohibitive taxes are preventing its return and use in America.
Connie Guglielmo, writing for the May 7 issue of Forbes, explains why Apple won't invest that money in manufacturing facilities in America.
"The iPhone maker has $64 billion or so of its cash sitting overseas, taxed at an attractively low 5% rate but also earning little to no interest," she writes. "Any cash Apple chooses to bring back to the States would get hit at the 35% U.S. tax rate, not a pleasant prospect."
To bolster its already considerable competitiveness, Apple is investing billions of dollars in manufacturing infrastructure overseas. It could just as well spend that money here building factories and other infrastructure it needs, and hiring out-of-work Americans to staff those facilities. But facing that high U.S. tax rate, that won't happen."Spending that money on expanding offshore production is far more compelling," Guglielmo pointed out.
This is a graphic illustration of how high taxes can derail economic growth. Perhaps conceding this point just a little, the Obama administration proposed earlier this year that it might be time to cut corporate tax rates to 28 percent. That, however, is just a drop in the bucket. It's unlikely in the extreme that it has Tim Cook and friends in Cupertino planning to bring those billions of iBucks back home.
There's no reason the United States cannot return to its position of prominence as the greatest manufacturing nation on the planet. We still have the world's strongest economy and we simultaneously have millions of hard working people who would love to put their talents to work. It's an economic environment with the potential for strong growth.
The only thing holding us back is parasitic government in Washington.
Image Credit: CC By 2.0/americaspower