Profit, The Evil Demon

Since many on the left try to paint Profit as inherently evil and for-profit corporations as evil incarnate, I thought I would try to illustrate what profit really is.

To get a sense of the evil being done by profit-seeking corporations, let’s go back in time before corporations existed and imagine the simplest of economies.  Imagine a small village operating under a barter economy with many individuals providing goods and services to others in the village.  Let’s focus on just three of these individuals.  One individual, Farmer Bob, grows corn and raises pigs.  The other two individuals, Farrier Fast Freddy and Farrier Slow Joe shoe horses.

The going rate in this village to shoe a horse is 5 ears of corn and 1 pound of pork.  How did that become the going rate?  Well, Farmer Bob has the skill to shoe his horses himself, but it takes him about 4 hours to do it.  He estimates all of the work involved in gathering up 5 ears of corn and producing a pound of pork comes to about 2 hours, so he figures he would be getting a pretty good deal by exchanging something that costs him 2 hours for something that would cost him 4 hours.

Farrier Fast Freddy is similarly situated.  He can shoe a horse in 2 hours, but doesn’t like messing with corn and pigs.  He figures all of that corn and pig work would end up taking him about 4 hours to complete, so he, too, likes the 2-hour time-saving deal he is getting.

Both parties spend 2 hours to get 4 hours worth of value.  Both parties benefit by saving 2 hours, and those 2 hours saved are the exact equivalent of what we now call Profit.

Meanwhile, it takes Farrier Slow Joe 3 hours to shoe a horse, which means he earns a profit of only 1 hour.  Over the course of 12 hours, Fast Freddy can earn 30 ears of corn and 6 pounds of pork while Slow Joe earns only 20 ears of corn and 4 pounds of pork.  So between Fast Freddy and Slow Joe, who enjoys a higher standard of living?  Fast Freddy does because he was more productive, or, in modern day terms, he earned a greater Profit.

What applies to Fast Freddy and Slow Joe also applies to villages, towns, cities, states, and nations as a whole.  Those who are the most productive, that is, those able to produce the greatest profit, are those who will enjoy the highest standard of living.  The United States enjoys the highest standard of living in the world for one and only one reason – we are the most productive.  Period.  That also means we make the highest profits.

As it turns out, Profit is simply the difference in the cost of doing something versus the price we would be willing to pay someone else to do it.  Put another way, profit, which is counted out in our modern world in the form of cash or wealth, is simply a measure of productivity.  He who is the most productive earns the greatest profit and the greatest standard of living.  We see that clearly with Farrier Fast Freddy versus Farrier Slow Joe; it is no less true in any other situation.

Finally, we should note that, as individuals, by continuing to develop our skills and learn new ones and by deftly managing our responsibilities and taking on new ones, we are able to produce more for our employers and thereby earn a higher salary.  In other words, we make ourselves more profitable.  Each day each of us, individually, actively seeks a higher standard of living by seeking a higher personal profit.

Individually, we are just as “guilty” of profit-seeking as those evil corporations.

ELIMINATE the corporate Income Tax

Want corporate money out of political campaigns?
Want to jumpstart the economy?
Here is one stone for both of those birds:  Eliminate the corporate income tax.
Consider this.  The primary focus of every corporation is the bottom line – net after-tax profits.  In the U.S., with a top corporate income tax rate of about 40%, corporations get to keep only 6 dollars out of every 10 they earn; the other 4 go to taxes.  Eliminating the corporate income tax would have the same impact to after-tax profits as a 66% increase in sales.  Imagine the impact to the economy if every company received an immediate 66% jump in sales.
  • Imagine the reinvestment and growth opportunities a company would have with 66% more after-tax cash in its coffers.
  • Imagine what U.S. multinationals would do with the cash they are holding overseas if they were able to keep 10 out of 10 dollars they bring back home instead of just 6.
  • Imagine where foreign companies would invest their money if they knew they got to keep all of their profit here in the U.S. versus just some of it in other countries.
  • Imagine the additional savings U.S. corporations would reap by eliminating the expense of corporate tax compliance.
  • Imagine the jobs being created in, and flowing back into, the U.S. from all of that new investment.
  • Imagine businesses making investment decisions on the merits of the investment itself, not whether it saves them taxes.
  • With no need to distinguish between for-profit versus not-for-profit corporations, imagine the elimination of the arcane rules for 501c3 and 501c4 organizations and the like, and imagine the associated IRS targeting shenanigans completely vaporized.
  • In fact, imagine the vast volumes of tax laws that could be entirely eliminated.
  • Imagine the savings in federal spending gained by eliminating the corporate division of the IRS.
  • With the value of tax loopholes reduced to zero, imagine what happens to the level of corporate lobbying in DC.
  • With corporations unable to get a return on investment from their political contributions, imagine what happens to corporate cash in political campaigns.
  • With corporate cash drying up for politicians and no favors to be gained or given, imagine what happens to crony capitalism.
Politicians from both sides of the aisle have been advocating corporate tax reform for years but have taken no action.  Why?  Two reasons:  a) both the liberals and the media would howl at Republicans for aiding and abetting the enemy – corporations – regardless of the above-mentioned political and economic benefits; and b) power.  The vast amounts of cash in The Capital that are associated with corporate income tax are a big conduit of power for politicians and corporations alike.  Eliminate that conduit by eliminating the corporate income tax, and the problems will go with it.  Simply reducing corporate income tax rates is not enough.  We must wipe away the entire rat’s nest.  Besides, corporate income taxes account for only about 10% of federal tax revenue, and the net drop in revenue would be much, much less due to the positive impact on the economy.