Recognizing that few people - if anyone at all – read this blog, I understand that the post I am about to make is likely only somewhat less productive than spitting into the wind. However, I have noticed that in recent discussions on policies being debated in various state legislatures, as well as those in Washington DC, there are some fundamental disconnects in relation to the stated desires of liberals (the creation of jobs) and their opposition to legislating lower corporate taxes or the creation of corporate incentives.
In most of these debates, individuals decrying lower corporate tax rates refer to such policies as “corporate welfare”. Additionally, they suggest that the legislature’s time would be better spent crafting legislation that would “create jobs”. Unfortunately, these individuals do not seem to understand that the reason why many states – like Michigan – have such high unemployment rates is due to the fact that the present corporate taxation policies have created incentives for corporations to do business elsewhere. Simply put, the corporate tax rates (and often labor policies in Union states) have created a situation where it is simply too expensive to continue to do business in that state or nation (remember, the United States has the highest corporate tax rate in the world).
There seems to be some misunderstanding as to the purposes of corporations. Most on the Left, and in fact, many on the Right seem to believe that corporations exist for two reasons: the creation of jobs, and the manufacture or provision of products and services. This is simply not the case. The sole purpose of a corporation (or for that matter, any business) is to produce a profit for the ownership. To that end a corporation may manufacture products and create jobs, but those are simply the means utilized to get to one end: profit. When states or nations enact policies which cut into the profit margins of a corporation or business they are also enacting disincentives to do business in that state or nation.
To demonstrate how this works, allow me to use an analogy that I believe that we can all relate to: filling up our gas tanks at the local gas station. When it comes time to fill up our gas tank, where are we most likely going to fill up? Is it the station where gas is $3.25/gallon, or is it the station that is charging $4.05/gallon? The obvious answer is the first station, the one that is charging $3.25. Corporations and businessmen make similar calculations. When they choose to start or relocate a business, or to expand their operations they shop around. They take several things into consideration when making their decisions: political and economic stability of the location, the cost of labor, governmental regulation, and the corporate tax rates. When a particular locality has enacted high corporate tax rates, has unsustainably high labor costs (as in most union states), is politically or economically unstable, and/or has excessive governmental regulation they will most likely choose to do business elsewhere. The costs of doing business are simply too high.
For the last few decades, businesses in Michigan as well as the United States have been voting with their feet. They have increasingly moved operations outside of Michigan, and in many cases, outside of the United States. While the popular narrative is that this is simply the result of “corporate greed”, it is simply wise business practice. Like individuals, business have a responsibility to utilize their limited resources in the manner that provides for the greatest return on investment. In much the same way that a family on a limited budget will purchase groceries at a discount grocer, corporations move operations to “right to work” states like the Carolinas or to other nations who have lower costs of labor and corporate tax rates. The primary responsibility of that corporation is to provide its ownership with the largest possible return on investment.
However, in the rush to demonize these corporations for simply doing their fiduciary duty, many people forget that they themselves are also the very same corporate ownership they themselves are demonizing for so-called “corporate greed”. If you are the owner of a 401(k), mutual fund, share of stock, or any of many other forms of investments you are, in fact, a corporate owner. The company that you may despise for “obscene” profits is actually conducting itself in the manner that it must to ensure that you, the shareholder, receives the greatest possible return on your investment to create the incentive for others to invest in the corporation.
The legislative policies that discourage or punish so-called “corporate greed” ultimately are harmful to individuals and employment because they make business too expensive. They also play a part in devaluing the investments of the citizenry. Not only is John Q. Public likely to one day receive the harm of a lay-off or pink slip as his company moves out of the state or country; but to add insult to injury his investment portfolio will also take a hit as corporate profits decrease over time due to the increased costs of doing business in an environment hostile to profits.
Businesses have repeatedly signaled that the status quo in corporate and labor policy is harmful. This has been repeatedly seen in Michigan where several businesses, even the “big three” automotive manufacturers, have continued to move operations out of the state or shut down operations at certain plants altogether. We are presently dealing with the simple economic repercussions of creating a hostile business environment. The reason we have high unemployment is because companies cannot make enough money here to justify the costs of operations.
The simple fact of the matter is that it is good for the average individual to have corporations making “obscene” profits. In fact, the more obscene the better. If a company is making large profits in the locale that they are in, it provides additional incentives to continue operations in that locale. If you enact policies that make creating profits difficult, you provide that same corporation the incentive to move operations (and jobs) elsewhere.
If we, as a people, want to continue to have a high standard of living, we need our corporations to continue making “obscene” profits. Not only do we benefit through the creation or at least maintenance of jobs, we benefit through the expansion of our investment portfolios. I believe that it is safe to say that most Americans who are employed full-time have some sort of investment portfolio, whether a 401(k), personal mutual funds, or other retirement account. That means that most Americans make up corporate ownership to some degree. When corporations profit, we profit ourselves.
We must begin to recognize the simple economics of job creation and corporate taxation. Jobs are not created in a vacuum. There are a multitude of factors that determine whether a corporation will create jobs, but it can generally be boiled down to one simple question: “Does the creation of a job here help or hurt me?” Unfortunately, if those who advocate high corporate tax rates and unsustainably high labor costs have their way, the answer to that question will more often than not be that job creation hurts the corporation. When the expense of hiring a worker is greater than the benefit they provide to the company, or the costs of operations in a locality become so high as to eat away the profit margins of that corporation, they will cease to do business and hire workers in that locality. It is an ugly truth, but truth nonetheless.
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