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.

Increasing the Minimum Wage and Growing Money on Trees

A wee bit of thinking is required to conclude whether raising the minimum wage will help.

First, ask who pays the increase? Answer: the employer. Now imagine a small business owner who pays her 10 employees $8 per hour and is now forced, by our ever-intervening federal government, to raise their pay to $10 per hour.  This is an increase of $2 per hour times 10 employees times 2000 hours in a work year which comes to a grand total of $40,000. (I’m using round numbers to make the math easier). That is $40,000 off of her bottom line and for many such employers that would amount to a significant chunk of the bottom line if not the entire bottom line.

So, what is this employer going to do? Swallow the costs? Of course not. She has 2 choices, lay off two employees to keep her payroll costs from going up, or raise the price of her products/services. If she lays off two employees, which two will she lay off? The best two ? Of course not. She will lay off the worst two, the two most in need of a job to help them continue to develop their skills.

What if, instead, she decides to raise the price of her products/services? As we all know, when the price goes up, demand goes down, meaning her total sales will go down. So, with costs up and sales down, she has less profit with which to continue growing her business and therefore diminishes her ability to hire future employees.

So, by increasing the minimum wage, we give a few people a pay increase at the expense of either taking away someone’s job today or taking away someone’s job tomorrow. Either way, raising the minimum wage could not possibly succeed in improving the economy any more than an edict from Mr. Obama commanding money to grow on trees could succeed.

Why Bureaucratic Bungling is No Surprise

Government bureaucracies are built to perform very specific functions, which are laid out in detail in laws and further clarified in regulations.  As such, there is no room for a government bureaucrat to take his own initiative.  He is obligated to adhere to the bureaucracy’s stated mission, rules and regulations.

Therefore every bureaucrat is required to follow what I refer to as the two Prime Directives:

1)  Follow the rules;

2)  Obey the boss.

There is actually one additional, clarifying directive, which is:  If there is a conflict between Directive 1 and Directive 2, follow Directive 2.

As a result, there is no innovation, no thinking outside of the box, no focus on productivity, growth, quality improvement, etc.  People in a bureaucracy are not paid to think.  In fact, they are paid to not think.  They are paid to follow the rules and obey the boss.  Period.  That’s why bureaucracies get stuck when an unanticipated situation arises.  The low-level bureaucrats who face this situation have nothing in the rule book specifically addressing it, so they don’t know what to do.  They are not authorized to make decisions on their own, so they have to wait for the boss to make the call.  In many cases, the first-level boss does not have authority to make the call either, so the problem gets floated slowly up the ladder, where, at some point, one of the bosses sees it as too low of a priority to bother his boss with, so he tables it.  As a result, nothing happens.  Word flows back down the chain to be patient, a decision is in the works.  And the whole system becomes paralyzed on the issue at hand because no one is willing to make a decision.

This same process is in also in effect when the bureaucracy takes what appears from the perspective of an objective outside viewer to be an inexplicably stupid course of action.  A clear example is a second-grader who was recently suspended from school for bringing in a toy gun.  In this case, the boy discovered the toy gun in his back pack and, realizing it was against the rules, forthrightly brought it to his teacher’s attention.  The school suspended him.  No doubt, at some point the school district had made it clear that weapons – or anything that even looked like a weapon – would result in immediate suspension.  This toy gun certainly fell within the strict definition of the rules, since it did in fact look like a weapon, and that made the suspension entirely legitimate from the perspective of the education bureaucrats.  Once such an action has taken place, the bureaucracy seems to be paralyzed in addressing it.  Most often, the bureaucracy’s first reaction is a full-fledged defense of its own actions.  If that fails to stand up to public scrutiny (and a total onslaught is the pertinent bar to judge by) then usually a lower-level bureaucrat is blamed for misapplying some of the bureaucracy’s rules.  It is a very rare situation when the bureaucracy admits its error and, because of that, changes policy.

Adding to this effect is the nature of people who are attracted to and stay in this type of job role.  People who hold a bureaucratic job accept that their job is to apply an established set of the rules and do what the boss tells them to do without question, day after day.  Creativity and ingenuity is not needed and not wanted.  These are not the type of people who are out to change the world; they do not enter each day with the idea of improving how things work on the job; they do not think outside of the box in order to solve problems.  They are the type of people who will show up, do the same job day in and day out, always do what they are told to do, and cash their paychecks every Friday.  Even if they come into the bureaucracy with the can-do, make-it-happen, improve-the-world mindset, they will eventually either be beaten down by and succumb to the system or they will leave it.  Only the Kafkaesque bugs remain.

Finally, this effect is all the worse for larger bureaucracies with broader missions.  If the mission is narrowly defined – “put a man on the moon and return him safely to earth” or “build an atomic bomb” for instance – a bureaucracy can be quite effective in delivering on its mission. In smaller bureaucracies, even with a broader mission, there is the very real potential to create an effective and efficient organization – if the person at the top has the right drive and determination to do it.

But rarely do such people get to the top of bureaucracies.  Referring back to the Prime Directives, individuals in the bureaucracy are not rewarded for innovation or excellence; they are rewarded for toeing the line.  For an organization to grow (not in terms of size but in terms of the quality and value of the products and services it provides), it must, at some point, take risks.  But risk is anathema to the Prime Directives.  Innovation and creativity invite the possibility of failure.  Rarely is a person with true drive and determination willing to operate under the Prime Directives long enough to get to the top with his or her drive and determination still intact.  Such a path is much longer for a large bureaucracy than a smaller one.  Consequently, the rewards of leadership go not to those pushing the envelope of innovation and change but to those who can quietly work within the confines of the system under the thumb of another long-surviving bureaucrat.

Ludgwig von Mises’ 100-page book Bureaucracy is an excellent source for a deeper understanding.

This week’s episode – “Optometric Overreach” or “To See or Not to See”

Here’s a minor but enlightening illustration of government overreach.  In the great commonwealth of Kentucky, prescriptions for eyeglasses have an expiration date (my latest had a one-year expiration date; other states are, no doubt, similar), which means if you happen to sit on your glasses after your prescription has “expired” you cannot, by law, get a replacement set without a new eye exam, even if your eyesight hasn’t changed in years.  That law forces the following decision on those with broken glasses:  Spend money you would not otherwise spend on an eye exam or walk around wearing broken glasses.

Even though I have insurance coverage through my employer that mostly pays for the exam and the glasses, I, out of defiance to this tyranny, walked through this world for several months with a super-glued set of glasses before I surrendered to the eye police and got an exam.

No doubt the optometrists convinced the lawmakers this was all for the public good.  One can easily write their legislative argument:  “Imagine someone walking around with developing glaucoma, which a simple eye exam would detect.  This law might save someone from going blind, so even if it saved only one person’s sight, it would be worth it.”  Lawmakers get to feel good about saving someone’s eyesight; optometrists get to feel good about getting more revenue; and those of us who are thusly compelled are not at all victims of this law but are beneficiaries, thanks to the enlightened few.

And let’s not overlook the fact that this law is completely discriminatory in its effect.  It only forces an additional burden on those of us with poor vision.  Those with perfect vision – or who are totally blind – are completely free from this burden.  It also has a much greater impact on the less fortunate, who are much less likely to have vision insurance or the financial means to pay for an exam.

So, we citizens of marginal vision are forced to surrender a portion of our own pursuit of happiness – in the form of the time, trouble, and cost of annual eye exams – to advance the pursuit of happiness for lawmakers and optometrists.

Put another way, The Collective has concluded this particular situation calls for the rights of the individual to be sacrificed to the rights of The Collective.

The Collective Mentality Revealed

The raw essence of The Collective mentality is laid bare with this simple fact regarding the Affordable Care Act:  The Collective will tell you what insurance coverage you must have and must pay for, regardless of what you believe is right for you.  The Department of Health and Human Services has identified a list of essential healthcare services every insurance policy must cover, and that list includes maternity and pediatric services.  Every policy.  No exceptions.  Look it up if you don’t believe me.

Whether you are a 30-something single male with no children, or a 50-something married male like me with no possibility of producing more children, or even a 50-something female who is past menopause, your policy must provide coverage for maternity and pediatric services.

You do not get the full freedom of choice.  You cannot choose not to carry insurance even if you are a multi-millionaire capable of fully self-insuring, and you cannot decline a specific coverage you do not need.  You can only choose from the policy options selected for you by The Collective.

You are subservient to The Collective.  Resistance is futile.

The Nature of Collectivism revealed in Shutdown

I have recently been reading Friedrich Hayek’s The Road to Serfdom, which is a thorough description of socialism, how socialists come to power, and all of the effects of socialism once it is in power.  To me, the whole thing boils down to collectivism versus individualism, and the core issue is this:
  • With collectivism, when there is a conflict between the rights of the collective versus the rights of the individual, there is no where to draw the line for resolving that conflict.  You can’t set a general rule describing where the rights of the individual end and the rights of the collective begin.  The collective always wins.  If you follow that to its natural conclusion, in the end, individuals have no rights.  All individual rights are ultimately sacrificed to the collective.
  •  With individualism, the rights of the individual are easily drawn.  An individual’s rights end at the moment they begin to infringe on the rights of another.  The collective (i.e., the government) has no rights.
There is a great illustration of this in one of the Star Trek movies where Mr. Spock decides to go into the engine room to prevent a catastrophe that, if left unfixed, will destroy the ship and kill everyone aboard.  He does this knowing that the exposure to radiation in the engine room will kill him.  He says, with his usual logical tone, “The needs of the many outweigh the needs of the few.”  Some would take his statement as a perfect illustration of what socialism is all about.  But the distinction here is that the decision Mr. Spock made was his and his alone.  It was his individual choice.  He made that choice without being coerced into it.  In the real socialist version, he would not have had that choice; the collective would have made it for him.
 
The recent federal government shutdown revealed the true nature of the collectivists in the Obama administration.  The World War II memorial is in a wide open space, open to the public 24 hours a day 7 days a week, with no fences around it or gates or anything.  The Lincoln Memorial is the same – completely open to the public.  Well, when the government shutdown occurred on Tuesday, somebody somewhere in the collective ordered barricades to be put up around those memorials to keep people out.  By doing that, the collective is, in effect, saying your individual right to visit these monuments is superseded by the collective’s right to decide who gets access to them.  Here we have but a small illustration of my first point, above: in a conflict between the rights of the collective and the rights of the individual, the collective always wins.