Tuesday, November 10, 2009

UPS vs. FedEx


Evan said...

Not as cool as the original whiteboard guy...

First, FedEx makes use of advantageous labor laws in its ground transportation which allow it to classify drivers as independent contractors, not employees. This sort of classification is generally good for transportation companies but costs the government (both state and federal) lots of money in taxes that it would earn if these people were classified as employees. This is a fairly thorny issue but the video didn't pay either side their due in actually addressing it.

Second, is it really a bad thing that the government can "crush a company overnight?" It does have the power to regulate interstate commerce, I don't see why it can't use that power to...uh, regulate interstate commerce.

Lachlan said...

If the problem is that they're not paying enough taxes, it is perfectly obvious why businesses would flee the United States for a country that sees companies' duties as providing quality products to willing consumers, not financing federal programs.

And the problem isn't the regulation of interstate commerce, necessarily. The problem is that the federal government can "crush a company overnight" to satiate its political base. And yes, that is a very big problem.

Evan said...

The problem is that they aren't paying enough taxes on their domestic employees, according to the government. The independent contractor law is fairly complex but the short version is, if you say that your workers are working for themselves and contracting their services to you, you don't have to pay things like social security taxes on them. They're technically responsible for paying it themselves out of pocket, but few do. A company can't outsource that kind of work, but it creates a thorny labor issue--"real" independent contractors are people like electricians working on a home. It's much less clear if the workers for transportation companies fit either the letter or spirit of the law.

And I'm really unconvinced that it's about "sating the political base." Over the past two years states have been pushing for reform in this area so they get more tax revenue, because state revenue has dropped and this is an obvious (in the states' eyes) loophole which needs closing. Certainly the Teamsters and unions generally have an interest, but so do lots of other people.

And isn't FedEx's model just built to exploit the law in the most profitable way possible? Laws can change, and that can have adverse consequences on a business. Sometimes serious ones. Everybody's always jostling for position.

Lachlan said...

Someone much smarter than myself once said something along the lines of "it is every citizen's patriotic duty to pay as little in taxes as is legally required."

Every dollar not confiscated by the federal government can be used by businesses to deliver a better product more efficiently, rather than to finance arbitrary federal spending programs.

It is only a 'loophole' to the extent that state and federal laws seek to impose a preordained relationship between employer and employee in order to maximize tax revenue, and do not allow both parties to negotiate a mutually beneficial working relationship (and it will be mutually beneficial, or workers will simply go to UPS).

The federal government will continue to drive businesses overseas if it keeps nullifying legitimate (legal) business arrangements, or adjusting laws to impose greater tax burdens on businesses. Why would a firm choose to be headquartered in the United States when American bureaucrats can rework established business practices to maximize the revenues at their disposal, when they can easily be based out of a country that sees the proper role of industry as the production of quality goods that consumers want, not the financing of federal spending projects?

When the business of business stops being business, we all lose. God bless FedEx for paying as little in taxes as possible. Talk about corporate responsibility.