Finance, Forex and Investments

If someone gets a $ 1million dollar tax cut and builds a factory in india how does that help the USA economy?

please just answer the question that is asked. The question is about macro economic theory to stimulate an economy.

Public Comments

1. It wouldn't, but your question is irrelevant as NOBODY got a $1 million tax cut and built a factory in India.
2. Treat them as separate issues. 1.) the million dollar tax cut allows the company to hire more people, invest in its future, whatever it does best 2.) the factory in india allows the company to take advantage of favorable labor conditions elsewhere in the world. its goods or services are more competitive by comparison and the company succeeds. note the outcome of #1 and #2 is the same: helping the company compete and win allows it to survive, and pay taxes to the US in the process.
3. It doesn't...
4. It lets wall mart sell for less, roll back the prices from 1.00 to .99 and slave labor to booth. Shucks who can do better than that!!!!! God we need a God and a real one this time,
5. If the United States trades with India on a level playing field, there will be more wage earners in India to buy the U.S. products - IN THEORY. In practice, I seriously doubt building the factory in India instead of the United States (in effect, outsourcing the labor and materials) will benefit the United States in the long run.
6. The scenario helps in several ways. A couple: it brings taxes into the US, & lowers labor cost in the United States and allows new products or industries to develop in its place.
7. The factory would probably be making products that would be sold for less here in the US. Or it would be providing a service that would make the service the company here is offering, cheaper. For example, many companies now set up call centers up in India. When you have a problem the call goes to India, instead of US employees. By doing this they are keeping whatever product or service they are giving the american public cheaper. If products and services are cheaper, more people buy them. More jobs are created based off of them. If more people are buying computers because they are cheaper then more computer technicians will be employed to come to houses and help people fix them or connect them. If the economy in India is stimulated by an increased middle class in India then they have more money overseas to buy american products and services.
8. Well that would help BUT if a company was getting a tax cut, they would be less likely to be relocating whereas the lack of tax relief or relief from excessive regulation would cause them to relocate to India or some other place that had a more favorable business climate Nonetheless, If the business still relocated it would be because they could do business cheaper there and Americans could buy their products cheaper and Indians would have more money to buy American products. Keep coming with the thumbs down ignorant ones
9. You have basically hit upon the major issue with the concept that tax cuts at the top end boost the economy. Usually an economy that is struggling suffers from Over Capitalization - ie there is plant underutilized. Why would people invest in a country where that investment is likely to be underutilized. Hence they invest in countries which are Under Capitalized. When an economy is over capitalized we need to boost demand - something better achieved through providing more money to those with the highest propensity to spend - the bottom end and the middle classes. ie we need to trickle up (which always happens anyway) not trickle down. As for the benefits to the USA of beinding a factory in India - depending upon what was built some benefits could come to the US. If the output of the factory required US raw inputs, this would increase demand for those inputs and so boost US exports. If the output of the factory was a cheaper capital good or part for products made in the US this would increase supply in the US market for that good and so lower prices and increase utility in the US.
10. If people India are hired to work in this factory, that will add to the Indian workforce. They presumably, in turn, make more money. They then have more money to spend on products that improve their daily lives. Now U.S. companies and their U.S. made goods have a new market to sell those good to. This U.S. company has expanded into a new market. Their profits go up, and perhaps they invest in their company, hire more workers, maybe move into yet other new markets, hiring more workers. Maybe the Indian company does so well, that they in turn invest in their own company, expand, and build another factory. They hire more workers who make more money to spend on U.S. goods. And so on, and so forth....
11. It doesn't, we have been subsidizing outsourcing for awhile and all we got is the destruction of the manufacturing base and now we're seeing the result in the housing markets and retail and other areas, how, you might ask, when you have people making long term financial commitments, such as mortgages, and you allow adjustable rate mortgages to become widespread ( ARM's make the assumption that the borrower will be making more money in the future to cover any increase in payments ), and at the same time do everything in your power to depress wages, a.k.a. outsourcing, illegal immigration, run away H1B visas, etc.and then you raise interest rates this is a recipe for financial disaster when those two forces collide, which they are doing right now. Stimulus is merely a band aid, the fundamental basis for the problems remains in place, namely adjustable rate mortgages where people can't plan on a fixed outlay every month, and businesses who'll do absolutely anything to cut wages.