Trade, Candy and Distance: A Unifying Theory on the Border

Adjustment Tax+ Guest Workers (H1B Visas)

Sam KaplanApril 12, 2017

The Border Adjustment Tax

20% Tax Applied to value of goods and services sold domestically

• Acme Kirkland making widgets in Kirkland sold in Kirkland, they’ll be taxed at 20%

• Acme Kirkland exports them to Botswana, they won’t be taxed• Road Runner Kirkland makes widgets out of components it buys from

Alberta, Canada. If it sells those widgets in U.S., taxed at 20%. • Road Runner Kirkland exports to Botswana, it pays 20% tax on materials

imported from Alberta

BUT, it’s much more complicated than that!!!

• Currency rate adjustments• Deductions eliminated

Talk about Trade, Jobs & Value

Figure 2. Maximum Statutory Corporate Tax Rates, OECO Countries, 1979-2004 (profits as a porcentage of the worldwide total)

60 I STANDARD DEVIATION

50 UNITED STATES

i 40 !:' • ... 30

20 """""'- .... 1 STANDARD DEVIATION -

10 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003

Source: Amu1t pub ,caboris of PntewaterhoMse Co0l)e11 Corporete Tllles Worldwide s~1nm1nes

Figure 3. Central Government Corporate Tax Revenues Relative to GOP, OECO Countries, 1979-2002

(profits as a percentage of the worldwide total)

Percent 50 f 5 40 35 30 25 20 1 S 10 05

ti STANDARD DEVIATIOt-1

0 0 t t I I f I I I I I • I I I I I I I

1979 1981 1933 l9SS 1987 1989 1991 19S3 1995 I I I I I I

1997 1999 2001

Source. Corporate tu re- dat.1 are from lhe DECO ,..,.nu■ stato<11cs GOP data 111 trom the Wolid 81nt·s World Oevelopmeot lndoc,1tors dauibast.

Long Term Mfctr Job Loss

17%

15%

13%

11%

Percent of Population in Manufacturing Jobs Past Half Centu ry

NAFTA 9% ----.,..._ ___ "...,...........___ _ I China

7% -----..._:_ lL._ __ -i. 5% ... ___ _

......_.._ ___ _ 3%

...,.,1"'

- united States - Germany

How Trade Works: Through Candy

LAW

(irLoBAt..iZATioN OVTSo\JI\CilJ(; TA~iFF

i Nlc-R.tJATioN A-L. iMPO"-.,.

TR.A Dl;' cosr

CVSTOM5 EXCHA/Jei£

RA,E ilJSV~A/JCt

We Need a Tradermetrics Revolution

The Sabermetric Revolution

The Gravity Equation: Distance of TradeTable I -Average Level and Change in the Distance of Exports DOT'\ and Imports

DO~ i, 1962-2000

Avernge Level in the Change in the Distance of

Distance of

Country/Region Exports Imports Exports Imports DQTX•>

I DQTM•>

I .6D0Tf•> .6D0TM•> I Categoriesb1

(in kms) (in kms) (in %) (in %)

I. World 4789.6 4937.6 - 2.5 2.9 No Change

Average country•l 5466.6 5653.2 - 5.3 - 12.0 :'llegativc Change

World w/o USA 4464.8 4521.4 - 2.4 - 7.0 :'llega1ivc Change

World w/o EU-15 6445.0 6637.3 - 5.2 0.2 :'llega1ive Change

OECD countries 4300.0 4472.7 - 7.0 8.7 Opposite O1aoges

11011-OECD countries 6825.0 6253.5 - 7.4 - 14.0 :'llegativc Change

2. £U- l5 members 2699.8 2962.5 - 12.3 - 13. 1 Xegativc Change

France 2548.6 2726.7 8. 1 - 5.9 Opposite Changes

Italy 2957.0 3082.3 1.7 - 31 .0 Nega1ivc Change

Spain 3147.0 3666.2 - 32.2 - 21. 1 Nl'gn1ivc Change

United Kingdom 3987.9 3976.6 - 41.9 - 36.7 '.'legativc Change

3.Americas 6008.5 6311.8 -5.5 26.7 Positive Change

Americas w/o USA 4948.0 4906.6 - 27.4 - 0.3 Negative Change

Americas w/o CAN and USA 7188.7 6631.5 - 23.2 - JO. I ~egativc Change

South America 8582.1 7778.3 - 5. 1 2.0 No Change

NAFTA 5664.6 6 108.5 - 3.5 38.4 Posi1i ve Change

Canada 2809.6 2796.8 -41.8 35.9 Opposite Changes

Mexico 44 10.4 5102.4 -33.3 - 8.0 Negative Change

USA 6697. 1 7 158.5 7.8 30.0 Positive Change

H1B VisasTop sponsors for H-1 B visas in the US in 2016

Infosys

Tata Consultancy Services

IBM

Wipro

Accenture

Deloitte Consulting

HCL America

Tech Mahindra

Microsoft

I gate Technologies

Ernst & Young

Google

Cognizant Technology Solutions

Larsen & Toubro lnfotech

Ust Global

Amazon

Intel

JP Morgan Chase

Number of LCAs*

16,553

13,600

9,605

33,289

Worldwide TalentDistribution of Computer Skills Among People Aged 16-65

100%

75%

50%

25%

0%

■ Level 3 (strong)

■ Level 2 (medium)

Level 1 (poor)

■ Below 1 (terrible)

■ Can't use computers

NN/g

(Scandinavia is the average of Denmark, Finland, Norway, and Sweden. The UK is the population-weighted

average of England and Northern Ireland, since Scotland and Wales didn't participate in the research.)

Thank you

Gittes Global .

Sam Kaplan President

206-399-1981 san1k@gittesglobal~com

\V\\/vV .gittesglobal .com