Some business owners think a 35% tax would be a good thing.
Drew Greenblatt is determined to keep jobs in America.
Greenblatt, owner of Baltimore-based industrial basket manufacturer Marlin Steel, only buys material from U.S. suppliers. He employs 28 people, all of them in Maryland.
So it’s no surprise that he’s in favor of President-elect Trump’s latest proposal, announced in a Twitter rant over the weekend, to place a 35% tax on U.S. businesses that offshore jobs and production in other countries.
Indeed, Greenblatt says he lost a $100,000 order from manufacturer Rexnord when the company announced plans to move one of its bearings plants to Mexico from Indianapolis. He argues a tax might have served as a disincentive to relocate, benefiting both his business as well as the broader economy.
“If we were to make that [Rexnord] order, I would have hired more workers, run more hours of overtime, and we would have bought more steel from American steel makers,” says Greenblatt.
Trump himself recently blasted Rexnord as well.
Over the weekend, the President-elect took to Twitter to announce dire consequences for business that move jobs and production overseas—a 35% tariff for goods brought back over the U.S. border.
The Tweetstorm came days after Trump announced he had convinced air conditioner manufacturer Carrier to keep several hundred jobs in Indiana rather than move them to Mexico.
While some domestic business owners cheered a potential 35% tariff, many business experts feared the long-term consequences of a new tariff would be stiff.
Michelle Hanlon, a professor of tax and accounting at MIT’s Sloan School, says businesses need incentives to provide jobs in the U.S., more than they need what would amount to punishment through a new tax. One example of an incentive is Trump’s plan to reduce corporate tax rates to 15% from a current top federal rate of 35%. That’s likely to create a substantial motivation for companies to stay in the U.S., Hanlon says. A 35% tariff, however, will have an opposite effect.
“We live in a globally competitive world, and a strict punishment system won’t work,” Hanlon says. “Customers will buy products from wherever it’s cheapest.”
Jim Kessler, vice president of policy for the centrist think tank Third Way, says the 35% tax could possibly lead to a recession.
“It would be devastating for small business,” he says. “If you’re in retail, it means sticker prices rise and sales fall; if you are in manufacturing and have an international supply chain that makes up your products, you’re suddenly dealing with higher costs.”
Non-manufacturing businesses also wondered how a proposed tariff would affect them.
Lauren Schneidewind, founder and CEO of a small web development firm in Atlanta, disagrees with Donald Trump on just about everything. But when it comes to a tax of 35% for companies that manufacture offshore, she’s solidly on board.
Over the past two years, Schneidewind has seen her U.S. competitors use software developers in Eastern Europe to get a leg up in the industry, paying them a fraction of what U.S.-based developers earn. A tariff could help level the playing field for her eight-person company, LD Studios, she says.
“I agree with [Trump’s] stance of keeping jobs in the U.S.,” she says.
Some business owners say that while the cost of business would go up, outsourcing would still be an effective option. Vlad Molchadski, founder and CEO of Dallas-based marketing agency BizTraffic, says coders in India and Bangladesh can be paid as little as $8.50 an hour — a far cry from the $100 an hour commanded by coders in the U.S.
“The tariff wouldn’t deter us from using overseas labor because, at 35%, it is still more cost beneficial to do so,” he says.