Welcome to the September Money and Investing issue of NorthBay biz magazine. This issue provides insights into financial topics that have a substantial bearing on the health of our local economy. Also included in this issue is a special report on real estate/construction. So please enjoy all the stories, new special features and new columns in the area’s only locally owned, formerly glossy business publication—NorthBay biz.
CEOs of publicly traded companies have a fiduciary responsibility to their shareholders to maximize returns, and they usually do so by the time-tested model of lowering expenses and increasing revenues. And every business’ guiding principle, publicly traded or not, is to deliver a high ROI expressed as profit. That’s how a business can afford to compete, create jobs, grow, comply with regulations and pay its state and federal fees and taxes.
Over the years, it’s become more and more difficult to achieve this simple-but-compelling goal for numerous reasons, not the least of which is the onerous tax burdens placed on business. In the current economic climate, companies are forced to be creative—too often as the only way to survive. While it’s been somewhat muted lately, do you remember the strong criticism when businesses resorted to, first, outsourcing, and then, offshoring, as a way to reduce costs to compete? In the ensuing firestorm of rebuke, was there ever any serious discussion of why companies had to resort to this tactic? What mechanism in the marketplace had changed that forced formerly profitable businesses to change practices to survive?
A recent jobs report was published with headlines proclaiming “good news”: Last month, 288,000 jobs were created. This report was intended to buoy spirits by signaling a recovering economy. However, the real numbers behind this published statistic were 525,000 full-time jobs lost and approximately 800,000 part-time jobs created. This is what passes for good economic news these days, as the job market adjusts to the realities of a still faltering economic recovery and the impact of the Affordable Care Act.
Now the latest assault on business comes in the form of questioning the “economic patriotism” of companies that would dare relocate their business outside the United States to save on taxes. The American corporate tax rate is 35 percent—the highest rate imposed on business in the world. For a little icing on that cake, California imposes an additional 8.84 percent corporate tax on top of the federal rate. This might come as a surprise to Washington, D.C., and Sacramento politicians, since most of them never held a job in the private sector, but companies are in business to make a profit. It’s the fuel that drives the country’s economic engine and pays for all the feel-good policies our nanny state pols think are indispensible.
Progressive politicians have for years argued that tax rates don’t matter—that business investors don’t make decisions based on tax policy. Why, then, are so many of our businesses relocating or expanding to other, more tax-friendly states? It’s past time for politicians to change their tune, as businesses are not only fleeing high-tax states, but now increasingly, the country. Why stay here when Ireland’s corporate tax rate is 12.5 percent? Why have so many countries, including Great Britain, Germany, Spain, Japan and Australia dropped their corporate tax rate significantly below America’s? Because they’ve figured out that, by competing to attract business, they can create jobs, increase government revenues and reignite their reluctant economies. How do American companies compete globally with a firm in Ireland manufacturing the same product if they have to spot their competition 20 percent, or more, in tax burden?
Is the drive to tax the bejesus out of everyone and everything so ingrained in politicians they can’t see what’s plainly in front of their faces? At the very least, let’s cut the rate so American companies can compete on a level global playing field. That’s a minimum of what should be done. I’d argue it’s the “patriotic” thing to do, but why stop there? Why not just get rid of it entirely?
Want a formula for an instant, dramatic increase in U.S. investment and output? Want to create millions of jobs and higher wages? Want to repatriate the $2 trillion American corporate dollars parked overseas currently doing nothing? Then let’s become a country that invites investment and encourages business success. Cut the corporate tax rate to zero and watch what happens to the economy. Watch foreign investors and businesses flock to our shores. Instead of welcoming undocumented to cross our borders, let’s welcome certified investors to America. This strategy would instantly reignite our torpid economy, and the ensuing economic boom would benefit everyone. And instituting policies benefitting all Americans, instead of picking winners and losers, is to me what true “economic patriotism” is all about.
That’s it for now. Enjoy this month’s magazine.
