Article first published as Business Create Wealth and Jobs: Remove Corporate Taxes to Stimulate Growth and Job Creation on Technorati.com.
Business is the only wealth creating entity in society. Reflect on business’ effect on society and it will be evident business is indispensable. Ultimately business is government’s only source of income. Governments need to provide a friendly atmosphere for business to grow and create productive jobs.
Business employs people, pays salaries and wages that allow consumers to live, buy stuff, give to church, charity, and elsewhere. Its ability to pay comes from producing and selling machinery, equipment, goods, and services. Business pays taxes to governments enabling them to provide resources to the public. Besides, business donates funds for philanthropic purposes, and pays dividends to its owners.
Business is the life of the economy. Ideally, only paid out profits (dividends), salaries, and wages, should be taxed. Business should be encouraged to reinvest profits thereby creating more jobs.
Some governments do the opposite of job creation; they create conditions for unions to destroy wealth and jobs. They allow closed shops, which force workers to join unions and expand unions’ agendas. This practice should end. However, unions and management must find ways to work together as they do at Southwest Airlines. If they do not, many businesses will continue to destroy value, and lose jobs.
To be fair, bad union practices thrive with poor corporate leadership similar to what existed at General Motors for years.
I can hear the criticisms. How do you prevent those rapacious capitalists from paying outrageous sums to their executives, and from exploiting workers? How do you prevent them from merely stashing away funds in the business? How do you encourage business to create productive jobs?
Valid questions. Before we look at each, let us agree that eventually business creates all wealth in society. It pays wages to employees who pay taxes. As well, it pays taxes directly to government, which often spends it wastefully.
Too many government regulations exist, but none prevents so many executives from being overpaid for poor results. The argument that we need to pay excessive amounts to attract top talent is nonsense. It would be good to get rid of some of these top executives who collect huge compensation while their firms perform poorly. General Motors is a classic example. As it was dying slowly, its inept leaders continued to be overpaid.
That said, governments’ role must preclude reigning in executive pay. That’s the owners’ role. Government must work to remove barriers that could prevent owners from exercising this right.
Canada and the USA have adequate laws protecting workers’ rights. We do not need more rules.
It is the owners’ role to ensure business leaders invest retained earnings wisely to grow their firms. Business should be allowed to keep cash, tax-free, to meet its operating and capital needs.
How To Create Jobs In Today’s Economy
My reference to business includes all forms: small, medium, large, home-based, partnerships, corporations, manufacturing, services, and others.
Here is the core of a simple job-creation formula that I think could apply in Canada and the USA. Governments need to choose a realistic timetable to do it. Probably, now might be their best chance to do this–we need jobs today. More government stimulus, by any name will merely add to debt and deficit and ignore the only job-creation entity in our midst, business.
Government should abolish capital gains and corporate income taxes. Basically, it should tax funds leaving the business to employees and owners–employees’ compensation, and dividends paid to owners. Therefore, it should abolish special tax incentives to all sectors.
Removing corporate income taxes sounds like a big deal. Certainly, left-leaning politicians will oppose it, but studies like this show most USA and foreign corporations doing business in the United States avoid paying any federal income taxes. Imagine the number of accountants and lawyers who would be able to focus on productive work instead of working to avoid taxes legally.
One primary government role must be to ensure that the infrastructure for effective business operations exist.
Abolishing corporate taxes would mean fewer funds to government, and should spur it to cut waste. Government’s tax collection functions would be reduced. Then it might do what good business leaders do and review its departments, eliminate unneeded functions, and shrink. Sadly, that’s wishful thinking; government and waste seem to go together.
Politicians will dislike this proposal because it is simple, and it will create negative emotions in the public, who like politicians, seem to enjoy bashing business. Who will tell people they need business to sustain them? Politicians won’t. That’s why they might prefer a more convoluted scheme that they can hide behind to deflect criticism.
As long as people run business, greed and fraud will exist, and some business owners will exploit workers. We must work always to preempt these bad practices, and where they exist we must resolve them promptly within current laws. We don’t need new regulations.
(c) 2011, Michel A Bell