High Taxes Chase More Companies from Our Shores

July 22, 2014

Mega drugstore chain, Walgreen’s, is considering a merger with European competitor, Alliance Boots.   As part of the deal, Walgreen’s would move its corporate headquarters to Switzerland and in the process lower its effective corporate tax rate from 31 percent to 20 percent.

Walgreen’s is just one of many American firms that are contemplating using the tax reducing strategy called inversion – merging with foreign competitors in countries with lower tax burdens and then reincorporating in those countries while maintaining business interests in the United States.

Naturally, the economically illiterate are having a hissy fit. They are concerned about the revenue lost by government when firms relocate abroad. Walgreen’s actions are being called everything from “unfair” to “unpatriotic”. Senator Dick Durbin, from Walgreen’s home state of Illinois, told The Chicago Tribune, that he is “troubled by American corporations that are willing to give up on this country and move their headquarters for a tax break. It really speaks to your commitment.”

What’s amazing is that Senator Durbin and other statists do not understand how the market works. Business exists to turn a profit, not to fill the treasuries of government. And businesses make a profit by providing a better good or service at a lower price than its competitors. This in turn, benefits consumers, especially lower income ones. Thus, it should surprise no one that Walgreen’s and other companies would consider moving abroad to lower costs. After all, since the latter part of the last century, America has become accustomed to its businesses offshoring jobs to other countries.

But, try telling Durbin and his ilk that it’s their beloved government’s fault that U.S. companies and the jobs they provide have gone overseas. Back in October, this commenter predicted medical device companies would jump ship due to Obamacare’s new excise tax making their products more expensive to produce. Sure enough, last month medical device giant Medtronic announced a proposed $42.9 billion offer to buy Irish company Covidien and make lower tax haven Ireland its corporate home.

At the end of the day, the ability of business to move offshore is the check against government raising taxes forever higher. Otherwise, consumers of government services will continue to demand more and more and taxes on business will be raised higher and higher. As Chief Justice John Marshall believed, “the power to tax involves the power to destroy”.

If America is going to retain its business and reacquire businesses that have already left, we need to compete with the rest of the world. Americans need to understand that there are consequences to the profligate spending of government and the over regulation and taxation of business. The sooner Senator Durbin and his ilk understand this, the better.


An Update on How the Minimum Wage Hurts Workers

June 22, 2014

It has been a while since I last blogged. A lot has happened recently that is worth commenting on. But, this post will focus on the correctness of my previous postings that the minimum wage hurts workers.

According to Andy Puzder, the CEO of CKE Restaurants – parent company of Carl’s Jr. and Hardee’s, in locations across the country where the minimum wage has been increased, his company’s franchisees are closing shops after their leases expire. “When the minimum wage increases, there are two things you can do,” he said. “One is you can reduce the amount of labor that you use or you can increase your prices.” Unfortunately, minimum wage increases do reduce jobs; as in the case above sometimes all jobs are eliminated.

But, Puzder is also correct about the causation between minimum wage increases and price increases. Many businesses in SeaTac, Washington, where the local minimum wage has recently been increased to $15, have imposed an 8.25 percent “Living Wage Surcharge” on goods and services to ease the increased cost of labor on business.

However, the bulk of the negative consequences of the $15 minimum wage in SeaTac have fallen on local workers. Those making the higher wage have reported losing their 401ks, paid holidays and paid vacations, free food, free parking, and overtime hours. In many cases, these benefits plus the lower state minimum wage added more value to workers’ earnings than the new $15 wage.

In the final analysis, the minimum wage does not enrich the working class or stimulate the economy like its proponents claim. Quite the opposite is true. The money involved to pay for the increased labor costs is not free. It comes from consumers in the form of higher prices and it comes from workers in the form of lost benefits and lost jobs.


Obamacare and False Claims

March 7, 2014

Kevin Short over at the Huffington Post produced a wrongheaded post this week titled, “Obamacare Just Made Americans Richer Without Anyone Noticing”.  Citing a report issued by the Commerce Department’s Bureau of Economic Analysis and calculations made by the Wall Street Journal, Short claims Obama’s so-called Affordable Care Act (ACA), better known as Obamacare, was responsible for three-quarters of the rise in Americans’ spending and income growth in January.  Thus, according to Short, the ACA in its first month of operation has already made Americans richer.

The problem with Short’s analysis and the reason why Americans didn’t notice they were richer is because they aren’t.  Short’s claim is nothing more than typical Keynesian bunk.

So, how did the ACA make Americans’ richer in January according to Short?  Well, the expansion of Medicaid funding to the tune of about $19 billion and $15 billion in subsidies received by Obamacare enrollees did the trick.  The logic goes, because some Americans received a combined $34 billion in federal largess, that money will be spent in the economy providing new jobs for countless Americans.

Of course, what Short fails to mention is where the money for those welfare benefits (Medicaid and subsidies) came from.  Did they come from an increase in worker productivity?  Did they come from an expansion of business and employment?  No.  In fact, according to the Institute for Supply Management  its employment gauge in February declined for the first time in 25 months and currently stands at its lowest reading since March 2010.

Obviously, the money came from taxpayers, either through direct tax payments or debt monetization by the Federal Reserve.  Neither approach represents an expansion of the economy or wealth production.  What has happened is akin to taking money from one pocket and transferring it to the other.  Only in Short’s world and the world of Keynesians everywhere is this considered prosperity.

But, what is even more troublesome is how that $34 billion was spent in January.  Again, according to the Bureau of Economic Analysis, Obamacare handouts may have been responsible for a $29 billion increase in health care services.  Besides utilities, all other spending categories experienced a decline.

What this means is if Obamacare further increases government spending on health care, then the cost of health care will rise even higher.  All of that new money entering the health care industry will bid up prices to heights never seen before.  This is precisely the reason health care costs have been on the rise for the last 50 years.

Over the last few years, there have been many false claims made about Obamacare.  From “you can keep your coverage and doctor” to health care costs will decrease to more Americans will have health care coverage, there has been no shortage of mistruths.  And now we have the outrageous claim that the ACA is making Americans richer.  Not only does taking from one citizen and giving to another not make us richer, increased government spending on health care will surely make us poorer.


President is Pushing Another Failed Policy

February 28, 2014

A couple of weeks ago, I received an email update from President Obama which discussed his signing of the Executive Order raising the minimum wage to $10.10 an hour for federal contract workers.  Within his remarks the President stated his belief that, “It’s the right thing to do”, raising the minimum wage for federal contract workers.

Naturally the President used the news of the Executive Order as a segue to lobby Congress to raise the federal minimum wage from $7.25 to $10.10 an hour for all American workers.  He claims raising the minimum wage “would move millions of Americans out of poverty”.  In fact, Obama indicated that, “Raising the minimum wage would grow the economy for everyone”.  The latter remark is based on his undying Keynesian dogma that more spending is the key to growing the economy.

There’s only one big problem with the President’s position on raising the minimum wage.  It’s called the Law of Demand.  According to this law of economics, with all other factors being equal, when the price of a good or service increases, demand for that good or service decreases and vice versa.

In the case of minimum wage laws, the service in question is the labor offered by workers.  Since minimum wage laws make the price of labor artificially higher the demand for labor decreases per the law of demand.  Consequently, some workers will receive pink slips and others will not be hired.  Higher unemployment will result.

In fact, a Congressional Budget Office report last week confirmed just that.  It indicated that Obama’s proposal to raise the minimum wage from $7.25/hour to $10.25/hour would result in the loss of possibly 1 million jobs.

And there are other reports issued by economists who know the laws of their science, which have found that minimum wage measures cause higher unemployment.  It’s also important to understand that that higher unemployment will result in greater income inequality between rich and poor.

At the end of the day, the President’s belief that raising the minimum wage will grow the economy is ridiculous.  In the first place, the law of demand tells us that less people will be working.  In the second place, the president is assuming that the money businesses earn which does not go to higher wages for their employees, somehow gets sucked down a black hole.  Does he not understand that that money could be channeled into productive enterprises like plant expansions, training for employees, and research and development?  All are enterprises which ultimately lead to job creation and higher pay for workers.  Even my 8th grade economics students understand this.  They also understanding that raising the minimum wage is not the right thing to do.


It’s Time to Try Something New for a Change

January 16, 2014

Last week, on the 50th anniversary of Lyndon Johnson’s so-called War on Poverty, President Barack Obama unveiled his latest initiative to combat economic deprivation in America.  The President’s latest scheme involves public and private funding to create jobs, enhance public safety, improve schools, and provide better housing in 20 communities across the country.  You know, it is the same old story.  If only the federal government would spend enough money we could eradicate poverty in our lifetime.  Unfortunately, for Obama, his latest initiative to fight poverty will have the same end result as LBJ’s War on Poverty – utter failure.

You see, in the 50 years since LBJ signed into law the most sweeping social welfare programs in the history of the U.S., Uncle Sam has spent about $16 trillion on public assistance schemes.  Yet, Americans living in poverty has only gone from 19 percent of the population in 1964 to about 15 percent today.  Put another way, it cost our economy $4 trillion for every percentage point decrease in the rate of poverty.  Given our already enormous national debt and the future calamity it will bring, isn’t there a more cost effective way to help the poor escape poverty?  We cannot afford to spend more money and that is clearly not the answer anyway.

At the end of the day, the best way to fight poverty is with a job.  Thus, to help the poor all minimum wage laws should be repealed immediately.  The late, great, Murray Rothbard had it right when he labeled minimum wage laws “compulsory unemployment”.  Whenever government fixes prices either shortages or surpluses result.  Fixing wage rates above the market rate will only lessen demand for workers’ labor.  Thus, a surplus of workers’ labor (unemployment) will result.  This is Economics 101.

Low wages may not provide a decent standard of living, but for the 49 percent of African-American youth who are currently unemployed, the jobs they would have by virtue of repealing minimum wage laws would give them the opportunity to work hard, get work place experience, and build a resume.  All three could lead to higher paying jobs in the future.

But repeal of minimum wage laws alone isn’t enough.  Uncle Sam needs to repeal costly regulations on business which prevents the creation of new jobs.  In 2013, the federal government adopted $112 billion worth of new regulatory costs on job producers.  This amounted to 80,224 pages being added to the Federal Register.  Since Barack Obama became president in 2009 close to $500 billion in new regulations have been imposed.  And then there is the job killing scheme known as Obamacare.  At a time when the labor force participation rate is at the lowest level since 1978, should the federal government really be concerned about expensive energy efficiency standards for microwave ovens?

To be sure, more could be done to alleviate the scourge of poverty.  A gold backed dollar like existed in the late 1800s and which kept price inflation flat for more than 60 years should be reintroduced in America.  Abolition of the Federal Reserve System which is primarily responsible for the continuous boom and bust cycle in our economy and the destruction of the middle class should be enacted.

In the final analysis, for 50 years, Washington has thrown good money at the so-called War on Poverty.  The result has been failure to achieve the objective.  And this is why it’s time to try something new for a change.


Young Voters Betrayed by Obama Policies

December 21, 2013

Barack Obama, in large part, owes his presidency to young voters.  In two presidential elections he has garnered 66 percent and 67 percent of their vote respectively.  Many of those votes proved pivotal for him in winning key states like Florida, Virginia, Pennsylvania, and Ohio.  And yet the President apparently feels no loyalty toward this group of voters that has given him so much.  In fact, it has become second nature for him to run roughshod over their interests.

To begin with, the economy Obama has produced for young people in close to five years of his leadership is horrendous.  His policies of regulate and spend have not permitted the economy to recover from the Great Recession that began in 2008.  Unemployment for 15 to 24 year olds is more than double the national average.  Many college graduates, unable to find a job, have returned to their parents’ nests to wait for better days and brighter employment prospects.  African-American teenagers face a jobless rate of more than 40 percent!

And while the President was attempting to “stimulate” the economy back to good health with profligate spending, what he did instead was run up a tab that young folks will have to pay back for many years into the future.  What’s more, when interest rates rise to their historic average and interest payments on the national debt more than double, paying back that debt will have to include much higher taxes or enormous cuts in government services.

Lastly, there is Obamacare.  The President is relying on young folks to make his health care scheme work.  He is counting on millions of them to purchase high cost plans to offset costs for the sick and elderly.  Of course, many will not accommodate the President’s wishes, thereby causing health care premiums to skyrocket for all consumers.  By the time the current crop of 18-30 year olds is interested in purchasing health care coverage the costs will be astronomical.  Thus he has put them in an unenviable position.  They are damned if they do, damned if they don’t.

Young people made a serious mistake giving Barack Obama their overwhelming support in the last two presidential elections.  But, what choice did they have?  John McCain and Mitt Romney weren’t much better alternatives.  What young people need are free market policies – sound money, a balanced federal budget, and deregulation.  It doesn’t appear this is going to happen anytime soon.


Obama is Disingenuous about the Economy as Well

November 21, 2013

Lies, damn lies, and statistics.  The current administration has become adept at using all three to mislead the American people.  There is the current kerfuffle over the President’s lie that Americans could keep their health care plans and doctors under Obamacare if they liked them.  Of course, that was a damn lie, especially if you have lost your plan and are now looking at much higher premiums.  And then there are smaller mistruths, perhaps not as egregious, when it comes to describing the current state of the economy.

For instance, I got an email from the White House last week with the headline:  “Here’s What Economic Growth Looks Like, in 3 Charts”.  Included in the message was a chart showing private sector job growth over the last 44 months.  7.8 million private sector jobs have been produced in that time period.  At first glance, this number is amazing.  But, it is only a statistic.  And statistics can be deceiving if you only take them at face value.

Although, nearly 8 million jobs produced in the last 44 months is quite an accomplishment, the figure becomes a lot less remarkable when it is viewed alongside other related statistics.  Those 7.8 million jobs in the last 44 months calculates to an average of about 177,000 per month.  Unfortunately, over the same time period the working age population has grown by an average of 213,000 workers per month.  Thus, private sector job growth is not keeping up with the number of new workers entering the job market.  7.8 million new jobs is simply nowhere near the number of jobs that are needed.

Further, the statistic put out there by the Obama Administration does not indicate what kind of private sector jobs are being produced.  According to the Household Survey of the Bureau of Labor Statistics, from February to August of this year, 963,000 more people reported they were employed, and 936,000 of them reported they were in part-time positions.  Additionally, Labor Department statistics show that people employed in part-time positions are growing four and a half times faster than those employed in full time positions.  So, while claiming 7.8 million jobs is “What Economic Growth Looks Like”, the Administration is being less than honest given that most of the jobs are low-paying, light hour positions.

To put things in the proper perspective, in 2009, 133.5 million Americans were employed.  32 million Americans were on food stamps.  Today, 143.5 million Americans are employed, while 47 million are on food stamps.  Thus, while 10 million more Americans are working today, 15 million more are on food stamps.  This is not indicative of economic growth.  It is characteristic of a collapsing economy.

But, the point is that the President needs to come clean with regards to the condition of the economy.  He is a smart guy.  He has access to the same statistics referenced in this article.  The charade that the economy is growing and has been in recovery since 2009 must end.  Lastly, there needs to be an acknowledgement from Obama that spending trillions of dollars and pumping trillions more into the economy through Federal Reserve monetary schemes has been an abysmal failure in reviving our collapsing economy.  Let’s end the lies, damn lies, and dishonest statistics so we can have an adult conversation about a new direction for America.