Thursday, March 15, 2018

How Tax Rates and Profits Can Lead to Expanding the Economic Base

Its great when corporations believe America has a competitive tax rate and are interested in further investment. Even better that investors receive higher returns on their investment and create more financial capital.  To make these benefits widespread corporations and their stock owners must reinvest this capital in American businesses to ensure that new jobs are created and the economic foundation expands. The profit and reinvestment cycle creates a whole host of  other"trickle" benefits through society.

There are a few things the expanding economic based can do for the economy. First, it can increase the amount of business and transaction volumes between businesses; secondly, it can create additional demand for skilled labor which in turn improves job expansion; third, it improves tax revenue through the amount of business and people paying taxes; and, fourth it pushes universities and trade schools to teach relevant skills thereby improving the potential for greater investment and innovation later on.

-Business Volume: The improvement in the amount of business within the system generating revenue. As the density increases so do the volume of transactions that lead to added value on products and services.

-Job Market: As businesses reinvest in U.S. businesses they hire more people and put demand on wages. The labor market gets better and more people are employed through demand and supply mechanics.

-Tax Revenue: More businesses and labor force participation rates equates to a higher volume of taxes. While the rate can be important it is more important to have higher profit companies and higher wage employees paying taxes to create tax revenue surpluses that can be reinvested into infrastructure. This in turn improves the functioning of current businesses and raise the attractiveness to investors.

Universities and Skills: Universities and skilled trade schools will offer students relevant opportunities to update their skills and obtain the education they need to fill current labor market gaps. As these skills become available, more companies are willing to move into the area due to a ready labor market with labor and intellectual capital.

This process doesn't function well if companies take their high profits and reinvest them overseas. It becomes a net outflow to the economy and we are not able to reap the benefits of profits. Likely, one of the criticisms of globalization and movement out of the U.S. market. Creating an attractive business environment would help ensure that businesses find the U.S. market as one of the most attractive investment locations when compared to other options.

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