Welcome to the May “Leaders” issue of NorthBay biz. This month’s magazine focuses on individuals and companies that personify success. From architecture to the political arena and several industries in between, our stories this month analyze leadership—discerning the unique ingredients incumbent for success. And, as you’ll find out, the skills employed are diverse and manifest themselves in many different ways.
Personally, I’m convinced that every company is only as good as its people. Brilliant leadership, effective marketing and a kick-ass product are necessary ingredients, but the real differentiators are the employees. Without motivated, capable workers at every level within a company, the other components necessary for success either can’t be developed or are so diminished that the company is ordinary at best. Inside this issue, you’ll also find all our usual special features and columns. As always, we welcome your comments, suggestions and ideas on how the region’s only locally owned business publication can continue to serve you and the business community.
They say, in life, timing is everything—mine stinks. This is our May issue, which is published and distributed on April 20. My column is on taxes. Oh well, let’s just pretend the timing is intentional, you know, being really early for next year’s tax season.
“If it moves, tax it; if it keeps moving, regulate it; and if it stops moving, subsidize it.” So goes the mantra of the modern day politician/bureaucrat. And it’s this process that’ll result in making America’s economy an also-ran in the global market.
Currently, our federal corporate tax rate of 35% is the second highest in the world. When you add in state income taxes, the corporate tax rate in America averages 40%, which means we can all pump our fists and chant, “We’re Number One” (the highest in the world). How are we going to compete when everywhere else in the world has recognized lowering tax rates produces higher economic production resulting in a stronger economy? Last year, the European Union average corporate tax rate was 24%, down from 38% in 1996. How does the dollar stack up against the Euro these days? One of the most astonishing tales of turning a dismal economy around— practically overnight—is Ireland. Incorporated in the transformation, corporate taxes were lowered from 50% to 12.5%. Think there might be a correlation there? And I haven’t even mentioned China or India yet.
American business needs to be unfettered from stifling, restrictive and, yes, punitive taxes and regulations if we hope to compete globally. Why are so many jobs leaving the country? Why are so many companies moving their headquarters abroad? The answer is simple: American companies can’t compete under the hostile business restrictions imposed by politicians. The very same politicians who then rail against tactics employed by business (outsourcing jobs overseas, etc.) so they can overcome high taxes and ever- increasing regulatory compliance to successfully compete.
Let me use this modern day parable as, perhaps, the best example of a system desperately in need of overhaul: Suppose that every day, 10 men go out for beer, and the bill comes to $100. If they paid their bill the way we pay our taxes, it would go something like this: The first four men (the poorest) would pay nothing. The fifth would pay $1. The sixth would pay $3. The seventh would pay $7. The eighth would pay $12. The ninth would pay $18. The 10th man (the richest) would pay $59.
So, that’s what they decided to do. The 10 men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. He said, “Since you’re all such good customers, I’m going to reduce the cost of your daily beer by $20.” Drinks for the 10 now cost just $80.
The group still wanted to pay their bill the way we pay our taxes, so the first four men were unaffected. They would still drink for free. But what about the other six men—the paying customers? How could they divide the $20 windfall so everyone would get his fair share? They realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth and sixth men would each end up being paid to drink his beer. So the bar owner suggested it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay.
And so: The fifth man, like the first four, now paid nothing (100% savings). The sixth now paid $2 instead of $3 (33% savings). The seventh now paid $5 instead of $7 (28% savings). The eighth now paid $9 instead of $12 (25% savings). The ninth now paid $14 instead of $18 (22% savings). The 10th now paid $49 instead of $59 (16% savings).
Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings. “I only got a dollar out of the $20,” declared the sixth man, who then pointed to the 10th man, “but he got $10!’ “Yeah, that’s right,” exclaimed the fifth man. “I only saved a dollar, too. It’s unfair that he got 10 times more than I.” “That’s true!” shouted the seventh man. “Why should he get $10 back when I got only $2? The wealthy get all the breaks!” “Wait a minute,” yelled the first four men in unison. “We didn’t get anything at all. The system exploits the poor.” The nine men surrounded the 10th and beat him up.
The next night, the 10th man didn’t show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half the bill.
And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much—attack them for being wealthy—and they just may not show up anymore. In fact, they might start drinking overseas, where the atmosphere is somewhat friendlier.
For those who understand, no explanation is needed. For those who don’t understand, no explanation is possible.
As my brother Ken is fond of saying, “We’ve met the enemy and he is us.”
That’s it for now. Next month, we look at a new effort in Congress to institute an optional, voluntary “flat tax.” Enjoy this month’s magazine.
