Politicians are vying for credit for the genesis of the growing economy (USA). Today, what matters most is that we sustain the economic and job gains. Thus, the government must not meddle with tariffs, tax hikes, and useless rules.
Like it or not, lower corporate taxes are good for companies, the economy, and job creation. The converse is true. Socialism scares firms, harms the economy, and destroys productive jobs. So, the Democratic Party would do well to stop focusing on who should get credit for starting the boom. Instead, they should develop sensible policies to keep the economy growing if they plan to take over in 2020, because socialism won’t cut it.
The Growing Economy Is Great For Everyone
Another fact is a growing economy creates jobs and increases wages. But, we must look holistically at the economy. One reason wages at the bottom remain low in the USA is because of surplus labor competing for lower-paying jobs. We can’t eat our cake and have it. If the immigration policy recognizes open borders, this will create an influx of cheap labor. This will lead to stagnant wages at the lower end. Society must decide what it wants to do.
Governments don’t create jobs; they should create conditions for job creation, but often don’t. Today, conditions are more favorable in the USA today for businesses to flourish than in the past several years. For instance, in the first quarter of 2018 following tax reform, US companies repatriated $300 billion of almost $1 trillion held offshore because of the previous penal corporate tax rate in the USA. The Federal government took $30 billion (10%) of the inflow. Full-year repatriation rose to $500 billion. Meanwhile, Apple alone committed to spending $350 billion in the USA over five years to create 20,000 jobs. Google and Amazon have been spending significant sums, too.
Tax Reform Wasn’t Perfect But Helpful
Critics of tax reform ignore the fact companies returned half a trillion dollars to the USA. That’s a huge victory for the economy and public. In theory, the government should be able to do positive things with that extra US$50 billion. But, that’s unlikely as governments waste funds. Most of the returned amounts did not go to consumers. Still, increased wages, additional bonuses, and special dividends benefited several folks and the overall economy.
Companies used the windfall to buyback shares, make one-off payments to workers, but not raise minimum wages. That’s not ideal. But the business is the vehicle that creates wealth. It’s not a person. We must tax people who get funds from the firm. That’s why governments must abolish corporate taxes, corporate welfare, and special allowances to firms. Then, they will create a better environment for firms to concentrate on productive jobs’ creation and economic growth. They should not entities that produce wealth for people.
Share or Stock Buybacks Need Fixing
The primary issue that needs fixing is share or stock buybacks. Firms shouldn’t be buying back shares with many of them overpriced today. We must find a way for shareholders to prevent CEOs and directors from buying back shares. One approach is to compel CEO’s to present alternative uses of funds earmarked for share buyback to an extraordinary shareholders’ meeting. One of these options must be the effects of a one-off bonus payment to the workforce. Then, to go ahead with the buyback, executives must get a two-thirds majority of owners. Other options need a mere simple majority.
Why should the buyback need a two-thirds majority? The CEO is in a potential conflict of interest if the board links her variable compensation to share prices. This proposal might encourage management to keep a lean workforce. Further, it would stress the value of their employees. Besides, it would go a long way to lessen the image of greedy CEOs and make share buybacks more palatable.
Corporate Taxes Are Harmful To The Growing Economy
We must drop corporate taxes. But first, we must tell the public of the tangled and wasteful tax system filled with loopholes. Next, we should show that firms avoid paying taxes by spending billions. Firms might redirect these amounts to create jobs and improve benefits to their workers. Further, they could develop new technologies and boost customer service. More important, governments must not give their cronies corporate welfare and they must outlaw lobbying. Governments are not qualified and they need not do this. Imagine the waste of taxpayers’ funds through corporate welfare dollars over the past few years! It is a disgrace.
Share buybacks will become a big problem, and the anti-business public and government will continue to demonization business. That’s why we must find a fair solution to stop CEOs using funds to boost share prices to hike their bonuses. Only time will tell how tax reform dollars served individuals and the economy over the long haul. We might learn that lower corporate taxes kept the USA economy steady. Without it, the crazy and erratic Trump tariffs would have halted economic growth.
Businesses like stability and will be cautious with future repatriations given the current trade war, and anti-business sentiment of the Democrats.
© 2019 Michel A. Bell