Intel Proves Taxes Don't Matter
Chuck Sheketoff
Three days in a row this week in the The Business Journal we learned that Intel is looking at making investments in China (Monday's story), India (Tuesday's story), and Vietnam (Wednesday's story).
That's because taxes don't matter, no matter how hard Intel pushes to get out of paying them here in Oregon and elsewhere.
Taxes don't matter in location decisions....the news this week confirms once again that other factors are far more important.
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9:24 p.m.
Jun 16, '05
Not quite. No reasonable person has ever said only taxes matter, or even that taxes are the most important factor, when businesses are making their site selection decisions. But the total cost of doing business is important and while low wages, low land costs, low construction costs and other low costs can offset high taxes, tax breaks can help offset other high costs of doing business in places like the United States.
It's fair to say that businesses use a more sophisticated financial model in making these decisions than most politicians, or most political think tanks. Saying taxes don't matter is as off base as saying that taxes matter most.
11:26 p.m.
Jun 16, '05
Jack.... Former GOP Secretary of the Treasury and Chairman of Alcoa:
I never made an investment decision based on the Tax Code . . . If you want to give me inducements for something I am going to do anyway, I will take it. But good business people do not do things because of inducements; they do it because they can see that they are going to be able to earn the cost of capital out of their own intelligence and organization of resources.
Jun 17, '05
Kari:
Would you provide context for that quote? It's pretty damning, but I'd like to know where and to whom Jack said that.
Jun 17, '05
Bert,
the quote is from former Treasury secretary Paul O'Neill at his Senate confirmation hearing, January 17, 2001. You can find the transcript here.
Jun 17, '05
The are three primary reasons why Intel has shifted 20,000+ jobs to Oregon over the past 15 years.
The first is that wages are lower here than in California. I worked at Intel in 1990. My counterparts in California made roughly 45% more than I did. When those California jobs were relocated to Oregon Intel saved billions.
The second is that electricity is cheaper here than in most of the rest of the country. Chip plants require tremendous amounts of electricity. This has saved Intel millions (tens of millions?) (hundreds of millions?) of dollars.
The third is that chip manufacturing requires prodigious quantities of high-quality water, primarily to dilute the toxic wastes so that the companies will meet environmental regulations. Oregon has high-quality water that is much cheaper and more plentiful than at Intel's other sites in California, Arizona, and New Mexico.
These three advantages that Oregon offers provided far more profit to Intel than the tax savings and are the "real" reasons why Intel has relocated much of its U.S. operations here and continues to invest in Oregon. The tax giveaways are not the meat and potatoes. They are the gravy.
Jun 17, '05
"Intel proves taxes don't matter"
Well then why not raise taxes on businesses to 95% of net profits?
I often read (on this site) that raising the minimum wage doesn't affect unemployment either.
Why don't we raise it to $100 an hour while we're at it?
Just think of all the good we could do...
10:43 a.m.
Jun 17, '05
I wish the people who love to use the Paul O'Neill quote would take the time to read it. O'Neill was talking about federal tax inducements to business to make new investments, such as investment tax credits, accelerated depreciation, etc. He didn't say that taxes weren't a factor in deciding where to make the investments they were going to make for good business reasons. It would be as ridiculous to say taxes never matter in selecting a location for your business as it would be to say labor costs never matter or energy costs never matter or land costs never matter.
2:19 p.m.
Jun 17, '05
panchopdx--
Raising minimum wage a few bucks an hour doesn't affect unemployment. If you look, the places laying people off are not the ones paying minimum wage-- most of the layoffs have been with people already making more than $10/hour. As a matter of fact, many of the layoffs in this country have been in tech and manufacturing-- jobs that are often paying well over $20/hour.
Just because we'd be ok with the minimum wage being $8, $9, $10 an hour doesn't mean we'd be ok with $50, $60, $100 an hour.
Raising it to a ridiculous amount like $100/hour would affect unemployment. Most businesses could not afford to keep their current staff and pay at least $100/hour.
Jun 17, '05
Jenni,
If raising the minimum wage "a ridiculous amount" will obviously affect unemployment aren't you really admitting that the cost of labor is a significant factor in the ability to operate a business profitably (and thus offer employment)?
Suppose you own and operate pizzeria where you supervise ten minimum wage employees so as to produce you an average net profit of $35 per hour. Now suppose the minimum wage goes up by $1 per hour. Suddenly your net profit (i.e., how an owner makes money) is just $25 per hour. Now that might be acceptable to you, but for some owners it might not.
So unless you are willing to accept a lower profit, you'll probably consider options like:
1) Laying off an employee and demanding more productivity from remaining employees to sustain your net profit, or
2) selling (or closing) your business to put your time and money to a more profitable use, or
3) raising the price of your product and praying that you don't lose customers, or
4) hiring illegal immigrants to do the work.
Of these choices: #1 will contribute to higher unemployment; #2 & 3 may contribute to higher unemployment; and, #4 may actually increase employment (although not the variety of employment the government promotes or measures).
Some businesses may accept a lower profit, but in so doing they discourage competition. Why would anyone else risk capital and time in a venture that shows little opportunity for a decent return?
The reason manufacturers relocate overseas is because our labor costs are not competitive.
Rational people investing capital will seek its highest return. Meaning that (all things being equal) they are less likely to invest in a business that is located in a place with higher labor costs.
Less investment = fewer jobs.
I'm sure that Patty Wentz will post some statistic to support the union's position that Oregon's minimum wage has helped employment numbers. But it won't explain why Oregon remains one of the highest unemployment states in the country.<?a>
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