High Taxes Chase More Companies from Our Shores

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.

Republican Proposals Reaffirm the Party’s Commitment to the Failed Welfare/Warfare State

In an attempt to emulate the electoral success they enjoyed in 1994, House Republicans presented their version of the 1994 Contract with America this past week.  The new document tagged “A Pledge to America” details in its 48 pages the legislative agenda House Republicans will pursue if elected to a majority this fall.  Among the worthwhile proposals put forth in the document are repeal of Obamacare and the immediate cancelation of all unspent stimulus funds.  Beyond that, the Republican’s campaign platform lacks creativity and courage, favors special interests, and reaffirms the Republican Party’s commitment to the failed welfare/warfare state.

Of course, no Republican agenda would be complete without the standard proposals for tax cuts.  If the Republicans take the House they promise to renew the Bush tax cuts and give small business owners “a tax deduction equal to 20 percent of their business income.”  Now, tax breaks are always a good thing because the private sector can allocate money way more effectively than government, but the Republicans really need to branch out from their uncreative, politically popular tax cut proposals if they are really serious about turning the country around.  What good is more money in your pocket if the cost of things continues to rise?  How about proposing a new monetary system to replace the Federal Reserve’s?  How about proposing one that serves all the people not just the banks?  Maybe we could get one that puts real restraints on the spendthrift tendencies of politicians?  You know, one that provides a sound currency, backed up by a scarce commodity, which would ensure real price stability not the type the Fed provides now where prices increase over time to benefit corporate America.  But, House Republicans dare not propose that because their benefactors on Wall Street would get upset and they themselves would be negatively affected because they wouldn’t have the Federal Reserve around to monetize all their deficit spending.

Next up, House Republicans are pledging to alleviate the burdens of federal regulations on business.  The idea is if regulations are light businesses will prosper, hire, and our economy will return to full health.  You can’t beat that logic.  But, Republicans draw a line in the sand.  Under their “Pledge”, they will only require “congressional approval of any new federal regulation that has an annual cost to our economy of $100 million or more”.  What is so special about $100 million?  Is that the monetary threshold where regulations are most effective in protecting special interests by hindering new players from entering a market while at the same time minimizing the effect on the profits of the same special interests?  It is bad enough that most federal regulations on business are unconstitutional.  At the very least, Congress should approve all regulations.  But if Republicans were really serious about producing a prosperous economy they would talk about repealing onerous regulations which stifle competition and only serve narrow special interests.

Their proposals to “stop out of control spending and reduce the size of government” in “A Pledge to America” are so ridiculous it is embarrassing.  House Republicans want to cut government spending to “pre-stimulus, pre-bailout levels”.  This, they claim, will save us $100 billion in the first year and put “us on a path to begin paying down the debt, balancing the budget, and ending the spending spree in Washington that threatens our children’s future”.  Question, weren’t we on a spending spree pre-stimulus – pre-bailout?  In the seven years preceding the stimulus and bailouts didn’t a Republican president and Congress increase the national debt by $5 trillion – almost doubling it?  I don’t understand how a mere $100 billion is going to help us eliminate a deficit that could be $2 trillion this year?  This proposal is a joke.

And in a real sign that they dig the welfare state, House Republicans are pledging to “reform” Fannie Mae and Freddie Mac.  They will end the government takeover, shrink their portfolios, and establish minimum capital requirements.  Again, Republicans claim their proposal will save the taxpayer money – as much as $30 billion.

However, according to the Congressional Budget Office, the government bailout of Fannie and Freddie could swell to $400 billion and if housing prices continue their downward trajectory costs could hit as much as $1 trillion.  In light of these massive losses for taxpayers, Republicans must be joking when they boast their reform proposals will save a mere $30 billion.  They sound like Democrats.  If Republicans want to renew American prosperity they should privatizing both Fannie and Freddie, end the implicit guarantee of federal bailouts, and let the free market handled mortgages.

Lastly, under their leadership the House Republicans promise that the warfare state will be safe and secure.  Well, they don’t say that exactly.  They cloak their speech with emotional words in an effort to make opposing them an unpatriotic act.  Instead they say, “When asked to provide our troops with the resources they need, we will do so without delay”.  So, does that mean Republicans are willing to give blank checks to the military industrial complex?  If it does, the Republicans will be spending all of their proposals savings and then some.  More importantly, as the party of war, how many more conflicts will they get our troops into?

A Pledge to America is a wonderful reminder of why the American voters rejected the Republican Party in 2006 and 2008.  Economically, all they really offer are tax breaks.  In foreign affairs, they offer more war.  If they are so concerned about restoring American greatness, they should be proposing: reform of the monetary system, huge cutbacks in every federal department and agency, and closing down bases and bringing the troops home to defend America.  But, it seems the Republicans lack the creativity and courage to do that.  They prefer instead to favor special interests and recommit to the failed welfare/warfare state.

Article first published as Republican Proposals Reaffirm the Party’s Commitment to the Failed Welfare/Warfare State on Blogcritics.

Colorado Springs is a Model for the Rest of the Country

A story to keep an eye on as the “Great Recession” continues to unfold is the city finances and cutback in services of Colorado Springs, Colorado.  While many local governments and states are facing bankruptcy due to spending levels that cannot be met with dwindling tax revenues, the city that is home to the U.S. Olympic Committee is maintaining its low tax rates and living within its means.  Colorado Spring’s experience just could have many Americans wondering why we rely on government for so much.

Now, I should fess up.  I first heard of this story while watching the Ed Show hosted by far-left radio and TV political pundit Ed Schultz.  I do occasionally like to amuse myself with the laughable commentary of the likes of Ed and his other MSNBC comrades Keith Olberman and Rachel Maddow. 

Nevertheless, at issue in Colorado Springs was a desperate plea from city officials about 7 months ago to the voters asking for approval to raise taxes to pay for routine services.  It was the same old story – the recession had caused a decline in tax revenues and the city faced a shortfall of around $24 million.  Without an increase in the local sales tax, city services would have to be curtailed.  With the result of the referendum, the people had spoken – city government, you will get no tax increase; do what you can with current revenue levels.

Unlike California, where for years the electorate demanded more from government without the obligation to pay for it, the good folks of Colorado Springs not only rejected higher taxes but took it upon themselves to remedy their own problem.  Private citizens volunteered to pick up trash in parks.  Swim clubs took over public pools.  Churches and private organizations, like the U.S. Olympic committee, raised money to keep community centers and city fountains running.  Admirably, one anonymous woman donated $37,000 to keep Nancy Lewis Park green and clean.  Of course, Ed Schultz neglected to report these positive facets of the story dwelling instead on how aghast he was that voters would vote down tax increases to fund non-essential government services like museums, parks, and pools.  As a good statist it is inconceivable to him how normal people could live without being dependent on government for these needs.

And that should be the question raised by Colorado Springs’s experience – why do Americans rely so heavily on government even to the point of extreme bankruptcy for needs that could be taken care of by the private sector?  Perhaps it’s because we have been so socialized by public schools, the so-called mainstream media, and the likes of Ed Schultz to believe that our greatness comes from government and not from within each one of us as citizens.  That’s why Schultz deliberately ignored the volunteerism and charity of the folks in Colorado Springs that confronted the budget cuts head on.  Or maybe Americans have gotten so use to the Federal Reserve monetizing debt at the federal level that we have become oblivious to the limits of state power.  After all, Uncle Sam has run up over $13 trillion in debt with the help of the printing presses at the Fed and it is hard to see how that has negatively affected our lives.  But it has.  All one has to do is buy one of those novelty cards that lists what things cost in the year of your birth.  As I looked at the cost of a slice of pizza ($.15) in the year of my birth, I became incredulous since I had just spent $2.50 for a slice on Saturday.  Why has the cost of things increased so much over time?  It is because of the inflationary policies of government and the Federal Reserve in particular.

Government does have limits as we are seeing in this most recent economic crisis.  Even when times are good, government at all levels feel pressure to raise additional revenue to cover the increased costs of services produced by the Fed’s inflationary policies.  To break this endless cycle Americans must wean themselves off of their dependence on government.  If some services cannot function without government subsidies then perhaps they should be done away with.  For instance, because budget cuts have forced the buses to stop running at 6:15 p.m.in Colorado Springs indicates that the bus line is not self-sufficient after that time (for the sake of argument let’s assume it is self-sufficient before 6:15 p.m.).  After the budget crisis ends why should the city spend money on running buses at night?  Wouldn’t that be a misallocation of scarce resources since demand for bus service at night is not at the level where the bus line can at least pay its bills?  Would a restaurant knowingly stay open beyond a time that is profitable? – Of course not.  I know that restaurants and public transit are not exactly the same animal.  But they are alike in that they both must deal with scarce resources.  Like the restaurant owner, city managers must make decisions with the least amount of waste possible or face financial hardship. 

User fees could be used for services like parks, pools, and libraries.  Whoever said these services should be “free” anyway?  Like the gas tax is to roads, fees to use parks, pools, and sign out books is more just than forcing homeowners to subsidize the leisure activities of others. 

By cutting services that do not make economic sense and imposing user fees on others, could local governments drastically reduce taxes?  Would this provide for a better allocation of scarce resources to more urgent needs?  How many fixed-budget seniors would avoid losing their homes because of ever-increasing taxes?  How many young homeowners, just starting out, would be able to afford health care if they didn’t have to pay for fountains, parks, libraries, and other non-essential services?  As we have seen in Colorado Springs, would local citizens fill the void left by government?

These are just a few of the questions that need to be explored.  On the other side of this current economic crisis the American people are going to have to change and come up with more creative ways to operate.  The system is broke and broken at all levels of government.  Colorado Springs could offer a glimpse of what is to come.  We should all stay tuned to this unfolding story for the good and the bad aspects of it.  That’s assuming the mainstream media and the Ed Schultz’s of the world report it accurately.

Article first published as Colorado Springs is a Model for the Rest of the Country on Blogcritics