Tax Policy, American Business and the Japan Earthquake

We are living in some very interesting times right now. In the last week, one of the largest earthquakes ever recorded in modern history hit Japan. Thousands perished and many more are likely to have difficult times.  My heart and prayers go out to the people of Japan.  It makes the last three years of economic strife pale in comparison.  We may have lost much of our economic wealth and livelihood, but at least we have our lives.

The Japanese are a brilliant,  proud and resilient people and they will prevail. I am confident of that. They rebuilt after WWII and I am confident they will rebuild again. The same fortitude that will enable Japan to recover is also  needed for our own economic recovery.

Last week, I talked about the investments that are going to be required in the United States by the fenestration industry in order to reduce our energy demand in the USA.  In a roundabout way, this relates to the tragedy that happened in Japan last week.  I expect great leadership to emerge in Japan in the near future. The earthquake will probably have a cathartic effect within Japan and its leaders will probably develop and implement positive public policy.

It’s emotionally difficult to bridge the gap between last week’s events and tax policy, but the same sort of tax policy that could help Japan rebuild could help American manufacturing to prosper in the future. I researched from the web and found from wikipedia that the USA and Japan are first and second when it comes to corporate tax rates. Their corporate tax rate is 40.69% and ours is 35%.  Not surprisingly Japan’s economy has languished in the last decade, and our economy has faltered over the last three years.  I’m not saying that high tax rates have caused all the world’s economic woes, but I am saying that lower tax rates can help both our countries to start growing.

These corporate tax rates have a severe dampening effect on the ability for a company to grow.  There is a drain of potential capital that could be used by corporations to rebuild in Japan and for American companies to re-tool in the USA. The long term consequences of these high corporate tax rates is less investment in the future, and, consequently, less jobs in the future.  In the case of American manufacturing, I think it is prudent to reduce the taxes on all USA manufacturing companies tax rate significantly. This way money generated from operations can be plowed back into machinery and equipment that is necessary in order to tool up for future needs.

I consider myself a middle of the road independent voter (neither Republican nor Democrat, nor Conservative or Liberal), but I already know what some are going to say: “It’s a tax break for the rich.”  To which I already have a rebuttal.  As long as the capital stays in the business, don’t tax it heavily.  As soon as a dividend or other disbursement is made, then tax it at the 35% rate.  The government will still get their money, but only when the capital is not needed to fund future economic expansion.  The USA Treasury will also get more tax dollars in the future because more firms will grow faster and bigger.  In our industry, it means new extrusion tooling and new fabrication tooling in order to create new window and doors designs that will reduce our power grid requirements.

I think a reduced tax rate on ALL USA manufacturing is good public policy—but it is not, in and of itself, going to drive more efficient windows in the market place. I saw a good article recently in which the author was debating whether or not the investment in more efficient windows has a reasonable payback for the end user.  At today’s energy prices, that might be debatable and if it is debatable, it is guaranteed that the average consumer is not going to opt for more energy efficient windows.

In order for consumers to be motivated to install more efficient windows, it has to be a slam dunk financial decision. And I’m not sure that slam dunk is there myself.  However, if you look at in a macro-economic sense—it is a slam dunk.  If everyone installed more energy efficient windows, the Nation would unabashedly be much better off.  Herein is the rub: individually, it is debatable whether energy efficient windows have a reasonable payout, but collectively there is no question that energy conservation should play a part of our future energy solution to our nation’s needs. To be proactive, it’s going to take good tax policy to nudge us all to future in which we are not dependent on other countries. And good tax policy is going to be a contributing factor in our future manufacturing basis, which is going to fuel future jobs.

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