Job Creation Happens in Business As a By Product
Businesses are societies only productive job creation engine. That’s why businesses are the only wealth creating entity in society. I suggest you reflect on business’ effect on society. I am sure you will agree society needs firms to function effectively. Further, I think you will notice that ultimately, business is government’s only source of income. That’s why, it’s essential governments provide a friendly atmosphere for firms to grow and create productive jobs.
Businesses employ people and pay them salaries and wages that allow them to live, to buy stuff, to give to church, charity, and other places. Bottom line: firms create jobs that provide income for employees to become consumers! A firm’s ability to pay its workers comes from producing and selling machinery, equipment, goods, and services. In turn, firms become profitable, pay taxes to governments that enable governments to provide resources to the public. Besides, firms donate funds for philanthropic purposes, and pay dividends to its owners. This income to owners allow them to donate funds to their churches and other places.
Business is the life of the economy
Business is the job creation engine in society. Ideally, only paid out profits (dividends), salaries, and wages, should be taxed. When retained profits are not taxed, the firm will have more funds to reinvest in the business. These extra funds will enable growth, job creation, more profits, more dividends, and more taxes to government. Therefore, we should encourage firms to reinvest profits so they can create more jobs.
Some governments do the opposite of job creation. They create conditions for unions to destroy wealth and jobs. They allow closed shop workplaces that 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 and other progressive firms. If they do not, many firms 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 we prevent those rapacious capitalists from paying outrageous sums to their executives. We can’t stop them from exploiting workers, can we? Unchecked, they will merely stash away funds in the business, won’t they? So, how do we encourage firms to create productive jobs?
To be sure, each is a valid question. However, before we look at each, let us agree that businesses create all wealth in society. It pays wages to employees who pay taxes. As well, it pays taxes directly to government, even when governments waste these funds.
Too many government rules exist, but none prevents 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 amounts 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 ongoing operating and capital needs.
My reference to business includes all forms: small, medium, large, home-based, partnerships, corporations, manufacturing, services, and others.
How To Create Jobs In Today’s Economy
Here is the core of a simple job creation formula 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 it. We need jobs today. More government stimulus, by any name will merely add to debt and deficits and ignore the only job-creation entity in our midst, business.
Government should abolish capital gains and corporate income taxes. It should tax funds leaving the business to employees and owners–employees’ compensation, and dividends paid to owners. As well, 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 firms doing business in the United States avoid paying 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 main government role must be to ensure that the infrastructure for effective business operations exist. It can do this well if it focuses on that job and not stop creating silly rules that lawyers get around.
Getting rid of corporate taxes would mean fewer funds to government. That should spur it to cut waste. Government’s tax collection functions would be reduced. Then, it might do what good business leaders do. It might review its departments, eliminate unneeded functions, and shrink. Sadly, that’s wishful thinking. Governments and waste seem to go together.
Politicians will dislike this proposal because it is simple. Besides, it will create negative emotions in the public, who, like politicians, seem to enjoy bashing businesses. Who will tell people they need businesses 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 businesses, 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 rules.
Article first published as Business Create Wealth and Jobs: Remove Corporate Taxes to Stimulate Growth and Job Creation on Technorati.com.
(c) 2011, Michel A Bell