In: Economics
The tax rate cuts was supposed to reduce tax burden on both the Harley-Davidson plant and consumer, led to an opportunity to close the business.
Directions: Analyze and responses by Providing the following answer to the questions below on the impact supply and demand of tax rate cut on the Harley-Davidson plant.
:
• explanation the immediate initial impact of corporate tax cut as it affects the law of supply and demand curve for Harley-Davidson plant.
• Investigate and explain the direction of the shift in Harley-Davidson plant supply curve and demand curve.
• Give an exclamation on how the effects of the shift on the equilibrium price and quantity for Harley-Davidson plant?
Harley-Davidson is a Case Study in How the Trump-GOP Tax Law is Failing American Workers — But It’s not Alone
After big tax-rate cut, Harley shut a Kansas City plant—costing 800 local jobs—rewarded shareholders with $700 million in stock buybacks and opened a new facility in Thailand. But the motorcycle maker’s corporate-tax-cut story is not unique.
Washington, D.C. – Iconic motorcycle maker Harley-Davidson’s response to the new Republican tax law—cutting jobs, rewarding shareholders, and moving production offshore—perfectly illustrates the law’s failure to deliver as promised for American workers. With the media attention here and here on the closure of Harley’s Kansas City plant just weeks after the Tax Cuts and Jobs Act was signed into law, we encourage you to use this opportunity to assess for your readers how other corporations in Missouri and across the nation have used their tax cuts, and the broader impact of the TCJA on Missouri families.
A Tax Law That Was Supposed to Generate Jobs Costs Kansas City 800 of Them
Harley-Davidson opened its manufacturing facility in Kansas City in 1997 after state and local governments offered it tens of millions of dollars in tax credits and other incentives. Just 20 years later—and just weeks after President Trump and Republicans in Congress enacted tax cuts they claimed would create many jobs—Harley announced it was closing its plant near the Kansas City airport, shifting production to York, Pennsylvania. Even after accounting for the new hires there, 350 net jobs were lost.
During the debate leading up to the new tax law, House Speaker Paul Ryan used Harley-Davidson as an example of the kind of corporation that would benefit—specifically allowing it, in Ryan’s words, to “keep jobs here in America.” Earlier, President Trump claimed that the GOP tax plan (along with a tougher trade stance and other policy changes) would allow companies like Harley to “create more jobs and more factories in the United States.”
Last year Harley announced it was opening a new manufacturing plant in Thailand. Though the company denies it, a union representing Harley workers see a clear connection between the Kansas City plant closing and the new operation in Asia.
As Harley Workers Lose Jobs, Shareholders Rewarded with Stock Buyback & Higher Dividend
Less than a week after announcing the Kansas City plant closure, Harley said it would buy back nearly $700 million of stock, plus raise its dividend. (The value of the buyback is based on the stock’s closing price on the day of the announcement.)
Stock buybacks overwhelmingly benefit the wealthy, since rich people own most corporate stock: the wealthiest 10% of American households own 84% of all shares, the top 1% own 40%.
Other Examples of Missouri Workers Losing Out After Corporate Tax Cut
Harley Davidson is not alone among corporations doing little or nothing for their workers, or even laying them off, after enactment of a tax law that was sold as a boon to the middle class. Many are also using their tax-cut savings to richly reward wealthy stockholders. Here’s how some Missouri-headquartered companies have responded to the TCJA, as reported in the Americans for Tax Fairness “Trump Tax Cut Truths” website:
Express Scripts Holdings is estimated to save $864 million from the new tax law this year alone. That’s 43 times more than the $20 million the St. Louis-based pharmacy benefits manager is sharing with its employees through one-time bonuses. Just a few days before final passage of the tax law—when passage was all but guaranteed—the company announced it would buy back $3.3 billion worth of its own stock—165 times more than the worker bonuses. (The value of the buyback is based on the stock’s closing price on the day of the announcement.) This April, Express Scripts laid off nearly 500 workers at its Columbus, OH, facility.
Great Southern Bancorp spent more than 20 times as much on its shareholders through stock buybacks than the Springfield bank did on its workers through one-time bonuses—$25.4 million vs. $1.2 million.
The Kansas City Southern railroad and Commerce Bancshares are each sharing only about 7% of their 2018 tax cut with workers through one-time bonuses. In the case of KCS it’s a $96.5 million tax cut vs. $7.1 million in one-time bonuses and $43.6 million in tax cuts vs. $3.4 million in one-time bonuses for Commerce Bancshares.
The following Missouri businesses are collectively spending over $2.7 billion in stock buybacks, but nothing on workers’ pay: Edgewell Personal Care, O’Reilly Automotive, Olin, Peabody Energy, Perficient, UMB Financial.
Agribusiness giant Conagra and outsourcing-service provider Convergys, based out of state, are together eliminating over 600 Missouri jobs, in Arnold and Trenton.
Shareholders and Not Workers Are the Big Winners from New Tax Law
Despite all the publicity last winter about tax-cut-related bonuses, the reality is only 4.2% of American workers have received any kind of bonus or wage hike tied to the new tax law, with the great majority of those being one-time bonuses rather than permanent pay hikes.
Companies have received 11 times more in tax cuts than they have paid out to workers ($76 billion vs. $6.9 billion) and spent 65 times as much on stock buybacks as on employee pay hikes ($450 billion vs. $6.9 billion).
In Missouri, the richest 1% (taxpayers making at least $500,000) will get a tax cut of nearly $49,000 in 2019 on average, while the bottom 60% (those making less than $63,000) will only get $370, according to the Institute on Taxation and Economic Policy.
Nationwide, 83% of the tax cuts will go to the richest 1% once the law is fully implemented, according to the non-partisan Tax Policy Center.
Harley’s Thailand Move Is the Kind of Corporate Offshoring the New Tax Law Will Encourage
Republicans claimed the new international rules in their tax law would end offshore profit shifting, discourage corporate outsourcing and keep jobs here in America.
In fact, the new law:
Won’t end profit shifting, since offshore profits will be taxed at much lower rates as domestic profits;
Loses revenue from the combined corporate international provisions, once temporary revenues are excluded; and
Creates new loopholes that will make it advantageous for corporations to move their factories and equipment—and jobs—to foreign countries.
The non-partisan Congressional Budget Office estimates that before the tax law was passed the United States was losing about $300 billion in taxes each year due to corporations shifting their profits offshore—mostly to tax havens. The new tax law, because it left loopholes in place and created new ones, only reduced that annual loss to $230 billion a year (p. 127).
Under the new tax law profits made or shifted offshore by American companies are now taxed at about half the domestic tax rate. And the way the new tax on foreign profits is calculated, multinationals have even more incentives to shift real plant and equipment offshore—anywhere, that is, but here in America.
TCJA Boosts Big Corporations While Doing Nothing for True Small Businesses
The law’s new pass-through deduction has been sold as a “small business” tax cut, but most of the benefits flow to wealthy business owners (such as President Trump whose company is made up of about 500 pass-through businesses). According to the Center on Budget and Policy Priorities, in 2024 over three-fifths of the benefits will go to the wealthiest 1% of pass-through business owners, while just 4% will go to the bottom two-thirds, made up of the solo practitioners and proprietors of Main Street shops that truly personify “small business.”
Workers Will Also Suffer from Loss of Public Services Caused by the Tax Law
The Congressional Budget Office estimates the TCJA will increase the federal debt by $1.9 trillion over 10 years, including economic effects and increased interest costs. This huge increase in debt jeopardizes funding for health, retirement, educational and other public services the American people depend on to get by and get ahead. President Trump has already proposed $1.7 trillion in spending cuts to Social Security disability insurance, Medicare, Medicaid, food stamps, housing assistance, tuition aid and dozens of other important programs.
Conclusion
Harley-Davidson’s actions in response to the new tax law—which privilege wealthy stockholders over average workers—are merely an especially egregious example of how major corporations are responding to the TCJA. We urge you to assess this larger story for your readers.
(this is what I have )
The supply side drives economic growth the supply side focuses in creating better climate for the business. The immediate initial impact of corporate tax cut as it affects the law of supply and demand curve at Harley Davison supply curve Government Policy changed moving production offshore failing on keeping jobs in America. After closing a plant production shifted to York, Pennsylvania even after accounting for new hires there. Harley-Davidson took its tax cut, closed a factory, and rewarded shareholders
The direction of the shift in Harley Davison plant supply quantity demanded will increase and quantity supplied will decrease with employment loss, plant closes and goes off shore with affect. The demand will increase with the new tax law allowing Americans to keep jobs here. The GOP tax plain would allow companies to create more jobs with more factories in the United States.
The shift in equilibrium price and quantity will decrease and price will change for Harley Davidson plant facing rising costs from new tariffs, will begin shifting the production of motorcycles heading for Europe from the U.S. A decrease in the price of a good will result in mire being supplied an increase in quantity demanded an increase in supply an increase in demand.
In January Harley announced plans to close its Kansas City plant. Days later it said it would spend nearly $700 million on stock buybacks that would benefit shareholders. And this week the company announced that because of European tariffs, a consequence of Trump’s trade war, it will shift overseas some production — and presumably jobs. The company is already opening up a new plant in Thailand.
Harley-Davidson is an American symbol. Trump and the GOP have trotted it out as a prime example of business success and held it up as a winner from their policy proposals. Now Harley has become a lesson in how the private sector often doesn’t respond in the ways politicians want.
Instead of creating jobs in the United States, Harley’s laying off workers, and it’s expanding operations abroad.
n January Harley announced that it will close a plant in Kansas City, Missouri, leaving 800 workers without jobs. It will shift operations to another plant in York, Pennsylvania, and hire some workers there, but ultimately there will be a net loss of 350 jobs.
Days after the plant-closure announcement, which Kansas City workers say took them by surprise, Harley-Davidson announced a dividend increase and a stock-buyback plan to repurchase 15 million of its shares, valued at about $696 million.
This is a pattern that has played out multiple times since the tax cuts passed and something that Democrats warned about before the bill became law. Companies profit, shareholders reap the benefits, and workers are left out.
The Kansas City plant’s closing will cost Harley as much as $200 million through 2019, according to Bloomberg’s estimates, and could result in annual savings of $65 million to $75 million after 2020. Greg Tate, a staff representative for the United Steelworkers District 11 that represents about 30 percent of the Harley-Davidson plant’s workers, told me earlier this year he thinks Harley’s tax savings might have actually freed up cash for it to move ahead with its US restructuring plan.
Harley-Davidson has long been viewed as classically American, gaining iconic status in the years following the hit 1969 movie Easy Rider. Its bikes came to be associated with freedom, a can-do spirit and American know-how. Yet the company’s famous reputation also made it harder to take steps that would damage its “made in the USA” image and cherished brand name.
Even Harley-Davidson had to bow to the inevitable, though. Trump and trade fights or not.