Trump as the ‘Carrier’ of American Prosperity
President-elect Donald Trump, still weeks away from the Oval Office, is already carrying out one of his campaign promises to make America prosperous again. First Ford Motor Company, now most recently Carrier, both agreeing to keep their factories in the US rather than outsourcing to foreign countries.
Carrier is based in Indiana, where VP-elect Mike Pence currently serves as governor. The deal will provide $7 million in incentives to Carrier in exchange for their keeping approximately 1100 jobs in Indiana.
Is this a good deal for America? Or just more of the cronyism which Trump railed against during his campaign?
The Wall Street Journal doesn’t like the deal, but they don’t like Donald Trump either and were against his candidacy. Neither does Trump ally Sarah Palin who denounced the deal as another case of “crony capitalism.” Clearly this move is not part of the Beltway playbook, and understandably, media and political elites are not impressed.
But Carrier employees are delighted, calling it a “victory for the little people.” The working class schlubs in flyover country who voted for Trump despite being called racist, sexist and a bunch of other names by those same media and political elites.
Why should the political class be surprised? Trump has had his own playbook from the day he rode down the escalator inside Trump Tower to announce his run for president.
Is there precedent for a US President cutting a deal with a private corporation? How did those deals work out?
President Obama pushed his green agenda with a $535 million loan to Solyndra, a solar panel manufacturer in California. How did that play out? Two years following the loan, Solyndra closed its doors, leaving taxpayers on the hook for over half a billion in unpaid federal loans. They also laid off 1100 workers.
Compare that to the Carrier deal. Instead of 1100 unemployed Solyndra workers collecting government benefits, not earning, not paying taxes, Carrier will keep the same number of employees working, earning, paying taxes, spending their earnings in local businesses.
The Solyndra loan cost taxpayers $535 million. Not just California taxpayers, but those in Maine and Georgia, places that receive no economic benefit from Solyndra manufacturing. They received a federal loan. Compare this to Carrier, costing Indiana taxpayers $7 million via state tax incentives, about 1 percent of the Solyndra cost, and paid by Indiana taxpayers, those with the most to gain from Carrier’s success, not taxpayers in California or other states.
What economic benefit does this deal this provide? Carrier employs manufacturing technicians and engineers, with an annual salary ranging from $30,000 to $60,000 per year. For the sake of argument, assume the average annual salary of the 1100 Carrier employees is $50,000. Multiply by 1100 employees and Trump’s deal keeps $55 million in wages in Indiana.
Each employee making $50,000 annually will pay roughly $5700 in federal income tax and $1700 in Indiana state tax. For the 1100 employees, the Feds will receive $6.3 million and Indiana $1.9 million in tax revenue. Each year.
The employees and their families will live in homes, paying mortgages or rents. They will buy food, clothes, and cars. They will visit restaurants, go to the movies, and visit the local mall.
If Carrier moved its plant overseas, Indiana would lose all this economic activity. Laid off workers would collect unemployment, costing the government money rather than filling tax coffers through income and sales taxes. Eventually many of these workers and their families would move to greener pastures, perhaps in another state, leaving Indiana economically worse off.
Purists can argue that the free market should guide economic decisions and activity. Fine and good but the free market doesn’t dictate corporate income tax rates and the minimum wage. US corporations are taxed at 39 percent, the highest tax rate in the world. Hardly a free market derived tax rate. Same with the minimum wage, slowly creeping upward, raising the cost of labor, the largest expense in a manufacturing business. Again, not determined by the free market.
What is free market determined is the decision of the company to grow or shrink, to hire or fire workers, to stay in the US or move to a country with lower wage and tax costs. Clearly this is already happening. Consider the labor force participation rate, the number of Americans actually working.
One of President Obama’s legacies, not discussed on the major news networks, is a steadily declining labor participation rate during his presidency. Currently, over 95 million Americans who could be working, are not.
Donald Trump, not whining or complaining over current economic conditions and pointing the finger of blame is instead practicing his “art of the deal.” Recognizing the problem of too many Americans not working and too many companies moving factories to economically friendlier shores, he is working to fix the problem. In this case, one company at a time. Ford. Carrier. Next is Rexnord, threatening to move a ball bearing plant in Indianapolis to Mexico.
To be sure, these are band-aids on a much bigger problem of US taxes and regulation stifling American businesses. But it’s a start. Even before Trump has been sworn in he is setting the tone, announcing to the business world here and abroad that there is a new sheriff in town.
This is reminiscent of Iran releasing 52 American hostages in 1981, the day Ronald Reagan was inaugurated. Not that the Carter administration wasn’t trying to secure their release, but more importantly that the Iranians recognized that the new boss wasn’t the same as the old boss.
Kudos to Donald Trump for, not just picking cabinet members and overseeing his transition team, but rolling up his sleeves and getting to work even before assuming office. Keeping his promise to "make our country rich again, make our country great again."