In an effort to stop the migration of many of the automobile manufacturing facilities from the Detroit area, Detroit’s city council is considering passing a statute that would give investment tax credits to auto manufacturers. Effectively, this would reduce auto manufacturers’ costs of using capital and high-tech equipment in their production processes. On the evening of the vote, local union officials voiced serious objections to this statute. Outline the basis of the argument most likely used by union officials. (Hint: Consider the impact that the statute would have on auto manufacturers’ capital-to-labor ratio.)As a representative for one of the automakers, how would you counter the union officials’ argument?

Question
Asked Nov 10, 2019
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In an effort to stop the migration of many of the automobile manufacturing facilities from the Detroit area, Detroit’s city council is considering passing a statute that would give investment tax credits to auto manufacturers. Effectively, this would reduce auto manufacturers’ costs of using capital and high-tech equipment in their production processes. On the evening of the vote, local union officials voiced serious objections to this statute. Outline the basis of the argument most likely used by union officials. (Hint: Consider the impact that the statute would have on auto manufacturers’ capital-to-labor ratio.)

As a representative for one of the automakers, how would you counter the union officials’ argument?

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Expert Answer

Step 1

The investment tax credit refers to the reduction in taxes to be paid by the firms or individuals. The credit amount is deducted from the amount of the tax to be paid.

Step 2

The investment tax credit helps in increasing the investment as firms would be encouraged to do investment. The thing that goes against the investment tax credit is that it will make the firms to purchase more capital i...

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