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China to be primary beneficiary of US tax rebates?
As most people with an eye on world affair will know, Washington recently authorized the issuing of a sizable tax rebate as part of wider efforts to stabilize America's faltering economy. However, this more hasn't been to everybody's liking and some observers have questioned the wisdom of such an endeavor.
Some have questioned whether more of this refund should have gone to people who would invest it; thus stimulating the business sector more, some have questioned whether more should have been given to people who would spend it; thus stimulating the consumer sector more, others have questioned whether the money should have been refunded at all and have questioned why it wasn't instead spent on services for those who would be hardest hit by an economic slowdown.
More to the point, for this blog at least, some have also questioned whether the current refund plan will benefit American citizens even half as much as it will benefit China's growing export market.
Parija B. Kavilanz, senior writer for CNN Money
Many Americans believe any rebates from tax stimulus will benefit Beijing more than Baltimore and Bakersfield. Here's what some experts say.
NEW YORK (CNNMoney.com) -- Some critics are convinced that any tax rebate checks from Congress will go straight to China if Americans take the extra money and splurge at the mall.
But trade experts dismiss that idea as a narrow-minded characterization of the global marketplace.
"To say that the money you spend at the register will go to China ignores all the other segments of the U.S. economy that [the rebates] will benefit," said J. Craig Shearman, with the National Retail Federation (NRF).
Goods from China, which is America's largest source of imports, provided a sizeable 14% of all U.S. imports last year, mostly consumer goods that included toys, clothing, footwear and electronics.
Those Chinese-made items are probably what consumers will buy with their rebate money.
The proposed $146 billion stimulus package - so far approved only by the House - is designed to stave off a possible recession by lifting consumer spending at home, partly by giving some taxpayers rebates of between $600 to $1,200.
One fair trade proponent - Alan Tonelson, with the U.S. Business and Industry Council - said in a recently published article that Americans should "accept that many of the stimulus' benefits will leak overseas."
That sentiment is echoed by many Americans. Just last seek, one CNNMoney.com reader wrote, "The refund checks [are] a great way to provide stimulus for the Chinese economy. Everybody will run to Wal-Mart or other big box stores and spend their extra cash on products made in China or elsewhere."
But other trade experts take issue with the issue that the rebates are a boon for the Chinese.
"For every dollar spent on a Chinese-made product, only 3 cents goes back to China. The rest stays in the U.S.," said NRF's Shearman.
Shearman said the money is spread out along the supply chain and helps to sustain domestic industries and services such as product research and development, marketing, and distribution.
Since manufacturing represents a much smaller part of overall economic activity, more purchases of imported goods eventually helps supports these service-sector jobs, said Dan Ikenson, associate director with Washington-based Cato Institute's Center for Trade Policy Studies, a libertarian think tank.
"All these are the higher-paying U.S. jobs along the production process, jobs that are good for the economy," he said.
"People who are concerned that China or other countries benefit more than the U.S. from the rebates reflect a myopic view of how the world works," said Ikenson.
Actually, Ikenson said doesn't believe the stimulus package, in its present form, would even spark economic activity in a meaningful way.
He says even if Americans only bought more domestically made products with their rebate checks, it still wouldn't prompt U.S. companies to increase their output and investment. That's because "suppliers know that the uptick in demand is just a short-term response by consumers."
Rebates: No big deal for stores
To his point, similar rebates doled out to consumers in 2001 provided only a short-term lift in consumer spending that year.
However, the refunds gave absolutely no boost to retail sales the following year.
Instead, Ikenson believes permanent tax cuts to businesses and consumers would spur economic activity in the longer term.
Shearman of the NRF is more optimistic, thinking the stimulus from the rebates could provide a long-term boost to the retail sector.
He said the product on the shelf is only the end of the pipeline in the economy. As retailers order more products from their suppliers to meet increased consumer demand, wholesalers and distributors will also see their business rev up.
"This effect will go all the way back to the raw materials supplier," Shearman said. "All the workers along the supply chain will have their paycheck guaranteed in the pocket."
While this blogger knows all about scary political rumors, and about the percentage of them which turn out ot be founded on ulterior motives, ACBc an see some truth in this one. While The rebate certainly benefit China more than America, it won't be of much comfort to the tradespeople, small businessmen and entrepreneurs on from whose toil the American dream is based.
This one will benefit Wal-mart a lot more than it will your average Ma and Pa store. Of course, what benefits Wal-Mart benefits China, too. Which is where the grain of truth comes in.
I can poke holes in this post all day long.
Don't give out rebates. It will only benefit the poor people who inevitably
buy products made in China.
Actually, no, you're not poking holes in this at all. You're highlighting
my point beautifully by demonstrating the contrasts between the different
camps in the US. Your argument, for example, mirrors Ikenson. I
purposefully posted an entry with a provocative title that disagreed with
the content for just this reason.
Haha:
I doubt my income of US$200 last year will qualify me for a rebate. If I do
get anything, it'll sit in a bank account until I move back to the states.
I do think that many people will spend their rebates on necessities like
food. I hope some people will be smart enough to use it to pay off some
debt, but they'll probably just buy some imported nonessential stuff.
As a non-domiciled citizen, are you even eligible to pay tax?
"non-domiciled"? Ok, I've never heard that term used in reference to a
person. At any rate, everyone is "eligible" to pay tax in the United
States. It happens every time you purchase something unless it's a food
item. Anyone who lives and works in the United States is required to pay
tax on their income (with exception to foreign diplomats).
Non-domiciled means that you are a US citizen who doesn't live in either
the US or a US territory/outpost.
Actually, US citizens are required to pay tax on any income regardless of
where it's earned. I believe the US is the only country in the world to tax
its citizens in such a manner. When living and working in China (or any
other country for that matter) US citizens are required to file what is
referred to as a "World Income Report" and it takes the place of their
standard tax form. It's a crock if you ask me. Fortunately it's easy to get
around when living in China because the US government has no means to
verify the information.
You've got to be kidding me? That means that you have to pay both local tax
and US tax? There must be some kind of discount, mustn't there?