Closing America to Business

R. E. Smith Jr.

Next time you hear someone rant on about American businesses locating overseas, think about it. Actually, it’s not difficult to understand; nor is it surprising. Our political Heroes penalize corporations with high taxes: federal and state. Among 30 of the wealthiest nations of the world, the U. S. ranks second highest in combined corporate taxes: 39.2 percent. Japan is only a shade higher at 39.5 percent. Other socialist countries such as Australia, Canada, France, Germany, Italy, Spain and the U. K. extract 30 percent or higher taxes.

Powerful incentives would be necessary for a viable business to stay or move here when they could locate in Ireland, for example, and pay only 12.5 percent of their profits in taxes to a less greedy government. Or, in Iceland that takes 18 percent of earnings (with global warming heating up, Iceland may soon be a veritable tropical paradise and a great place to locate).

Hypocritically, the same Heroes who impose high taxes will condemn corporations for leaving to reduce their costs. “How dare they?” “We need those jobs.” “We want the taxes.” But tax increases cause problems. High taxes are counterproductive.

Not only does international capital flow away from high tax countries, but excessive taxation depresses wages. Capital flows to low tax states and wages improve. Economists such as Kevin Hassettt with the American Enterprise Institute can prove it. Ireland experienced incredible economic growth of 10 percent annually in the late 90s. Hassett and a colleague show that a corporate tax reduction from 35 percent to 30 percent produces an 11.5 percent increase in blue-collar wages over five years.

To avoid tax abuse, why wouldn’t a U. S. company locate in Ireland and pay a 12 percent tax rather than stay in the states and pay 39 percent? Of course, if they mail profits back home they will be taxed at the U. S. rate. So, prudently they leave cash in the Irish banks. As Mr. Hassett says, “foreign and domestic firms have good reason to steer clear of the United States.” Too bad for us. Political wealth-distributors shoot our economy in the foot, causing America to limp into the world market.

Hassett explains that these negative results come from politicians who are “far more anti-business than popularly perceived.” I think we have an increasing problem with the quality of our elected officials. Among the dim congressional bulbs on both sides of the legislative aisle, only a few economically literate members can be found.

Tony Newmyer writing in “The American” magazine (January/February 2007) lists 10 of the most literate: six Republicans and four Democrats. Among the latter, including Sen. Kent Conrad (N. D.), Sen. Chris Dodd (Conn.), Rep. Barney Frank (Mass.) and Rep. John Spratt (S. C.), Sen. Dodd is said to be the “most business-friendly.” Kent “chart-man” Conrad is a numbers cruncher. Spratt, chairman of the House Budget Committee, is the “intellectual fire-power” among Democrats reviewing Republican spending. Newmyer describes Barney Frank as “scary-smart.” Chairman of the House Financial Services panel, Frank is “left of his own caucus”; a wealth-distributor and a bigger-government guy (or, should I say Gay?).

The Republican economically educated from the top ten include Sen. Bob Bennett (Utah), Rep. John Boehner (Ohio), Rep. David Dreier (Calif.), Sen. Judd Gregg (N. H.), Sen. John Kyl (Az.) and Rep. Paul Ryan (Wisc.). Bennett and Boehner had business experience before they got into politics. Dreier is a “supply-sider and free-trade advocate.” Gregg had the guts to vote against the 2003 prescription drug entitlement. Kyl is “one of the Senate’s most reliable backers of free trade, lower taxes, and smaller government.” Ryan is a “powerful” debater on economic policy.

Regardless how economically astute be these men, their influence and commitment to specific political issues remains to be seen. They’ll have other fish to fry on the political grills back in their voting districts. Special interests abound in multicultural America, and they politically overpower what’s economically good for us all.

And we can’t let business interests off the hook. Hassett reminds that they push for short-sighted, narrow tax breaks and government offered handouts, while neglecting their collective lobbying power to reduce corporate taxes. Corporate taxes isn’t even on the U. S. Chamber of Commerce list of 15 economic and taxation positions.

Many factors influence decisions made by business people. Certainly, a big one is the cost of taxes levied against the fruits of their labor. We will reduce our standard of living should we continue to allow our elected officials to penalize business successes and, thus, damage our economy. Let’s not close America to business.