Corporate Taxes and Corporate Welfare Destroy Jobs

Corporate taxes and corporate welfare destroy jobs long-term. Governments should lower taxes and stop picking particular firms to give hand-outs. This is strategy flawed.

Burger King and Tim Hortons’ proposed merger ignited calls for more government involvement in failed corporate welfare programs. Happily, a few voices, mainly Republicans, pointed to the real issue that needs addressing: ineffective corporate tax policies nudging companies to relocate abroad, and causing them to retain significant cash outside the USA. Corporate taxes reduces retained earnings needed to create jobs. Governments do not create jobs. They should provide the conditions for job creation.

Eliminate Corporate Taxes and Corporate Welfare
Eliminate Corporate Taxes and Corporate Welfare

Corporate Taxes and Corporate Welfare Destroy Jobs

Corporate taxes and corporate welfare detract from effective business performance. Long-term they destroy jobs. Naive politicians want to boycott Burger King. They claim this transaction will shelter income from the USA’s corporate taxes. But they haven’t mentioned the oppressively high US corporate tax rate of 35%. Indeed, it’s hard to imagine the US has one of the highest corporate tax rates in the world. Go figure!

Burger King’s management has a responsibility to look after its shareholders’ best interests. This present decision is good stewardship. However, liberals will disagree because they wear anti-business blinkers.

Politicians, particularly tax and spend liberals like President Obama, want more job creation and more taxes from corporations. These goals conflict. Sustained job creation won’t happen under current conditions in one of the highest global tax locations.

The president and like-minded liberals, inexperienced in business, do not understand that the economy needs robust firms to create long-term jobs. Thus, companies should pay less taxes, not more. Taxing retained profits reduces funds available for investment.  In turn, businesses create fewer jobs.  Job creation is a by-product of a strong, growing business.  Job creation must never be the goal. The goal must be production of goods and services using effective value creation platforms with sustainable competitive advantages.

No company can guarantee jobs long term. The marketplace decides firms that will survive and grow, and those that will fail. And governments’ taxation policies reduce a firm’s ability to grow.

Sadly, using taxpayers funds, governments choose industries and regions to subsidize. They have favorites like automobile, green energy, regions “needing employment,” and pet projects. These governments create special tax incentives for selected firms even those that are structurally unsound. And they continue to add complexities to taxation systems that encumber businesses and create unfriendly business environments.

Corporate Taxes and Corporate Welfare Do Not Produce Long-Term Jobs

Corporate welfare strategies do not work over the long term. So, why do governments continue them? This approach fits their tax-and-spend cavalier attitudes. Besides, it seems effective to an ignorant electorate and anti-business, liberal media. As well, all governments do it.  And they experience no adverse political effects although hard evidence shows governments are notoriously incompetent, ineffective, and wasteful. For example, the only unprofitable Tim Hortons franchises in Canada were operated by government.

Giving investment incentives to selected industries as Canada did with its auto industry is myopic. Canada’s automotive industry built on corporate welfare is declining and will continue without more welfare. Chrysler enjoyed handouts over the years, but because its business was structurally unsound with its various union arrangements, among other things, it failed more than once.

President Obama, the king of Corporate Welfare, doled out billions of “stimulus funds” to companies during the Great Recession, and they used them for outrageous projects. However, as expected, the stimulus program wasted of taxpayers’ funds. And let’s not forget the cash for clunkers that failed miserably, too! Yet, Obama continues his tax and spend approach unabated.

Governments’ role is to create level conditions for firms to flourish. They must create conditions amenable for businesses to want to operate in their jurisdictions. It is absurd and naive to think bribing companies with handouts is more than a band-aid. Governments must abolish corporate taxes and corporate welfare, and reduce regulations to a minimum. They must ensure employees are not forced to join unions and pay dues. We need right to work legislation in all jurisdictions so unions can’t use workers’ earnings for their political purposes and other escapades.

Governments’ are innately incompetent and ineffective and should not use taxpayers’ funds to pick corporate winners. Sadly, these often become losers. And it’s our tax dollars they wasted, to boot!

The USA as the epitome of capitalism must simplify its tax code and lower corporate tax rates substantially to create productive jobs over the long term. It’s time the public realize that eventually, corporate welfare is a huge drain on society. It does not provide jobs over the long haul.

© 2014, Michel A. Bell

 

Michel A. Bell

Michel A. Bell is a former senior business executive, author of six books (Business Simplified released in 2018), speaker, and adjunct professor of business administration at Briercrest College and Seminary (Briercrest). Michel graduated from Massachuetts Institute of Technology with a masters of science in management. As well, Briercrest awarded him an honorary doctor of business administration. He is founder and president of Managing God's Money, a private mission devoted to teaching biblical stewardship of time, talent, money and other resources. Visit Managing God's Money.

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