[dikdik]

The same argument can be made about taxes. Based on your reasoning, it's a race to the bottom for all countries in order to attract businesses.

Are we supposed to have no regulation and no taxation on businesses because otherwise some other state/country can offer them a better deal? Or do we need to have stronger regulation across country borders/policy that prohibits these loopholes. Maybe we should tax a US company more if they choose to produce products in another country to get around regulations that we have in the US.

[linkregister]

I don't think the parent poster suggested there be no regulation or taxes.

Clearly there are more to countries than tax rates and regulations. However, the parent poster relates an anecdote where one country with less restrictive regulation is chosen over another, all other things being equal.

So to answer your question, if a country has a superior market or the right labor pool, then it will succeed despite higher tax rates or restrictive regulations, to a point.

Despite a zero corporate tax rate and few regulations, Somalia still hasn't posed a threat to Europe and the U.S. as a corporate headquarters. The "race to the bottom" is bounded by other factors besides tax rates and regulation. Rule of law, enforceability of contracts, access to a skilled labor pool, access to markets, etc. are more important.

Interestingly enough, these factors are a correlated to sufficient government revenue and regulation to uphold contracts and satisfy labor.

[lefstathiou]

Thought experiment here but I think there may be an argument for no taxes on a business by flowing the taxes through to personal income. Double taxation creates incentives that I don't think are good for small businesses on a systemic level.

Here is why: as a business owner I face a 40% tax rate at the corporate level and then 35% on personal income. I am thus highly incentivized to keep profit in the business and reinvest it or look for growth opportunities rather than distribute it to myself and our other shareholders.

Now imagine you are Sam Walton of Walmart. You stumbled upon a fantastic business model that prints money (or your Apple sitting on $250bn in cash). On the margin you will always opt to reinvest the money in the company or at least let it sit there unspent (i.e. Apple/Google/Msft) if the alternative means paying an incremental tax on it. So what do you do? Grow grow grow.

Anyway just wanted to share my thoughts. I am not trying to be controversial... I believe that long term sustainable health of an economy is predicated on the health of small businesses. I genuinely believe double taxation may have a potentially perverse incentive and negative outcome on a society simply by the way it alters my own decision making and incentives.

[cylinder]

If in the US and a small business owner you should use S-corp taxation to avoid that. But yes small business has too many challenges in the US, it's the land of megacorp dominance.

[SilasX]

Well, for taxes, there's an obvious Scylla and Charybdis[1]: too high, and economic activity is scared away or pushed underground. Too low, and you can't afford public goods that make the place pleasant to live and facilitate economic activity.

I would like to see a similar model explaining what labor law accomplishes and how you know when the laws are being too strict. The problem is that the obvious answer ("so workers don't get exploited") isn't very satisfying: there's sort of an inherent barrier to not paying enough, which is competition for workers[2]. You would need to explain labor law as filling some role that isn't a simple matter of competitive compensation.

[1] My post on the importance of having a model that identifies both a Scylla and a Charybdis: http://blog.tyrannyofthemouse.com/2015/12/the-scylla-charybd...

[2] The typical argument is like, "look at [obviously poorer time]. They paid [obviously bad wage]. Now [after years of accumulation of capital] we mandate they don't do that, and stars above! They get good wages now." I don't find that satisfying.

[dragonwriter]

> The problem is that the obvious answer ("so workers don't get exploited") isn't very satisfying: there's sort of an inherent barrier to not paying enough, which is competition for workers.

Collusion among employers to keep wages down still happens. The combination of minimum standards plus anti-collusion laws function as a belt-and-suspenders approach to the problem (labor law has other purposes, too; so does anti-collusion law.)

[SilasX]

Sure. I can understand how it happens. But unless you want to list some of those other purposes:

A) That would justify anti-conspiracy countermeasures, not general "you have to pay them more" laws.

B) It would rather dubiously require a conspiracy along the rather huge number of low-skill employers. I can accept a conspiracy between McDonald's and BK, but across numbers indistries and localities?

[jeffdavis]

The article is about temp work never turning into full-time. That's a different symptom of the same problem you replied to, and it's not solved by regulating across borders.