Outsourcing and Taxes
There are pros and cons about outsourcing US jobs but I've not seen nor heard of its affect on local and federal taxes nor on reduced savings or investments. This writeup attempts to look at outsourcing from a different point of view. It also emphasizes the worth of the American middle class.

The world economy is crashing because the American middle class can't buy foreign made goods because many have lost their jobs and can't pay their bills or pay taxes much less buy stuff. The financial community also made bad investments, which caused them to limit their lending thus affecting businesses and causing American workers to lose their jobs

To understand what the Stimulus Plan has to do, we have to not only visualize what we want, but how it should work and be self sustaining for years in the future; i.e., not just a quick temporary fix. What is needed is numbers, not words nor wishes, just numbers that show how the Stimulus will help our society now and in the future and be paid back. What this means is that the American middle class needs jobs that provide a steady income rather than getting a handout.

Now the financial community wants the Stimulus Plan to be a bailout to "pay off" their bad debts.... but this will not fix the real problem. To fix the real problem, the American middle class must start working again to have the income to buy things and to pay off their loans. In order for the middle class to do this, they must have jobs irrespective of the impact on foreign countries. If the foreign economies were in good shape, then they would be weathering the American financial screw up with minimal impact on their own economies. The foreign economies actually depend on the American middle class to buy the goods they produce.

The American middle class needs to be stimulated back into the vibrant productive group of peoples that it used to be. Why? The American middle class appears to be the engine that powers the world economy. Oh? When the buying power of the American middle class is adversely affected (disastrously reduced), all the world economies seem to suffer.

The American middle class is like the goose that lays golden eggs. No other nation has such a large middle class. Various business/financial types want to get all the "gold" out of the goose as fast as possible; i.e., increase profits by outsourcing jobs to those who will work for less, setup bonuses and golden parachutes, and use every gimmick to get money out of the middle class; i.e., credit cards, loans, adjustable mortgages, etc. The goose is getting really thin and weak (just like in fairy tale) and may die since the methods to get the "gold" is killing the goose. The goose has to be brought back to life and laws put in place to prevent this from happening again. Think "Environmental Protection". The goods and services that the American middle class must start producing again are those things that the American middle class will consume themselves.

As to the thought that American protectionism would cause foreign countries to boycott American goods .... What would they boycott??? What does America make any more?? Have you looked at the trade deficit? It's close to $40 billion dollars a year. Who would be affected if this would be done?? I bet it would be the owners and shareholders of all those businesses, which import goods? What does America export anyway?

And the idea that American workers do not have the skills.... well, they had them before their jobs were outsourced and they still have them now. Also, the basic manufacturing jobs do not require college level degrees. There is something special that Americans have that results in a high degree of creativity that no college degree can teach. Also, remember what Henry Ford did. Besides using the assembly line, he also raised the wages of his workers. Other industrialists at the time thought he was crazy, but he did that so that they could buy the cars they were making thus creating a demand that far exceeded the raises they got. America had something special from the early 1900s thru the 1980s.

What makes America so great is its middle class. The middle class is basically the workers who actually create, make, and fix things. When people in the middle class earn money, they usually spend it in their local communities. A dollar spent in such a community goes thru at least 5 hands (local businesses; mom&pop stores, plumbers, restaurants, etc) before leaving the community. One of the most important things to realize is that all of these "hands" pay taxes and save money.

The total taxes collected from the middle class depends on who is earning and how many "hands" are involved. For example, if the tax rate is 20% and each person saves 10%, then an earned $100.00 will result in:

  Income Saves 10% Taxed 20% Spends Locally
Citizen 0 $100.00 $10.00 $20.00 $70.00
Citizen 1 $70.00 $7.00 $14.00 $49.00
Citizen 2 $49.00 $4.90 $9.80 $34.30
Citizen 3 $34.30 $3.43 $6.86 $24.01
Citizen 4 $24.01 $2.41 $4.82 $16.78
Citizen 5 $16.78 $1.68 $3.36 $11.74
    $29.42 $58.84  

The amounts and percentages may not be absolutely correct (not everyone saves and/or pays taxes), but it should be close enough for this discussion. Note that of the initial $100.00, over half, almost 60%, went into paying taxes. And about 25% was saved (deposited into a bank or invested) making it available for those financial institutions to lend it out to growing businesses. All this happens because the money circulates in the local middle class community at least five times. As a result, in the above case, 12% ($11.74) went outside of the community.

So when the company transfers jobs outside of the local community, the following will happen:

You can see this effect in the communities that sprung up around the places where the American jobs were outsourced to.

In a lower class community, earned income is lower and passes thru fewer local "hands". There is minimal savings and tax revenue.

It would seem that the upper class would generate quite a bit more savings and taxes, but this is not the case. The problem is that the people in the upper class do not actually

What should have been done is for the business owners and financial wizards and government officials to realize that an outsourced job results in loss of about 3 times the tax revenue and 3 times the savings. The only people that made out were the owners of the businesses that outsourced their jobs.

Once the American worker starts working again, then the world economy will also start picking up. Rules have to be put in place to prevent this from happening again; i.e., the financial screw up and middle class job loss.