Wishful Patriotism

The following from the WSJ gives a little insight into what "Obamanomics" might be like. Like a lot of Democrat thinking is is pretty much down the lines of "there is great plenty of everything, humans have no need of incentives and disincentives, there is no such thing as competition and the primary problem of government is one of redistribution". In a simple world like that, we can pretty much have success just by adding laws and bureaucracy. If such a world existed, I'm not at all sure if it would be heaven or hell, the only thing I'm pretty sure of after 50 years of life with 30 of them in corporate America while raising a family, is that this world isn't like that.

To attempt to link thinking about those largely economic issues with "Patriotism" seems WAY more disingenuous and divisive than the supposed Bush doctrine of calling the immediate surrender at all cost Democrats "unpatriotic". Just because somebody doesn't buy into the lefts latest concept of a lotus chewing nirvana where all needs are provided for by just pulling them out of the supposedly well larded coffers of American business seems questionable at best on the "can't we just all get along and sing cumbyah" path.

Anyone want to explain to me why it is "divisive" to question the patriotism of someone who claims that a war in which we are adding troops is "lost", but it is somehow "healing" to question the patriotism of businesses successfully operating, creating products, jobs and profits according to existing laws and practices.

Is it possible for everyone to have a whole lot more, do a whole lot less and accept a whole lot less risk? Gee, I hope so, that is why I'm in the technology business after all and during the 30 years I've been in that business we have certainly delivered. Everything to do with computers and electronic technology in general is 100's if not 1000's of times more capable and at prices that are typically 100ths or at least 10ths of what they were 30 years ago. (I paid nearly $5k for my first computer, a computer with 1000s of times more capability today costs well under $500 in dollars that are well inflated from the early 80's). I'd like to see someone claim that government could be innovative enough so that during the next 30 years my taxes will only go down by a mere 10x and my government services will only be a mere twice as good as they are now. I know I'm a softie, but given that government has less effective incentives and disincentives, I don't think they need to be held to anything like the standards that we in business live with every day.

I tend to believe it is very possible for the kind of economic growth that we have seen since 1980 to continue, but I also believe it is even easier to return to the stagflation of the 70's. It looks to me that Obama is headed back to the bad old days.

Obama's 'Patriot' Act

No, we're not talking about Barack Obama's opposition to the post-9/11 antiterror law. We're referring to the Senator's support for something called the Patriot Employer Act, which deserves more attention as an indicator of his economic agenda.

Along with Democratic co-sponsors Sherrod Brown and Dick Durbin, Mr. Obama introduced the bill in the Senate in August 2007. Recently in Janesville, Wis., he repeated his intention to make it a priority as President: "We will end the tax breaks for companies who ship our jobs overseas, and we will give those breaks to companies who create good jobs with decent wages right here in America."

Mr. Obama's proposal would designate certain companies as "patriot employers" and favor them over other, presumably not so patriotic, businesses.

The legislation takes four pages to define "patriotic" companies as those that: "pay at least 60 percent of each employee's health care premiums"; have a position of "neutrality in employee [union] organizing drives"; "maintain or increase the number of full-time workers in the United States relative to the number of full-time workers outside of the United States"; pay a salary to each employee "not less than an amount equal to the federal poverty level"; and provide a pension plan.

In other words, a patriotic employer is one which fulfills the fondest Big Labor agenda, regardless of the competitive implications. The proposal ignores the marketplace reality that businesses hire a work force they can afford to pay and still make money. Coercing companies into raising wages and benefits above market rates may only lead to fewer workers getting hired in the first place.

Under Mr. Obama's plan, "patriot employers" qualify for a 1% tax credit on their profits. To finance this tax break, American companies with subsidiaries abroad would have to pay the U.S. corporate tax on profits earned abroad, rather than the corporate tax of the host country where they are earned. Since the U.S. corporate tax rate is 35%, while most of the world has a lower rate, this amounts to a big tax increase on earnings owned abroad.

Put another way, U.S. companies would suddenly have to pay a higher tax rate than their Chinese, Japanese and European competitors. According to research by Peter Merrill, an international tax expert at PriceWaterhouseCoopers, this change would "raise the cost of capital of U.S. multinationals and cause them to lose market share to foreign rivals." Apparently Mr. Obama believes that by making U.S. companies less profitable and less competitive world-wide, they will somehow be able to create more jobs in America.

He has it backwards: The offshore activities of U.S. companies tend to increase rather than reduce domestic business. A 2005 National Bureau of Economic Research study by economists from Harvard and the University of Michigan found that more foreign investment by U.S. companies leads to greater domestic investment, and that U.S. firms' hiring of more offshore workers is positively, not negatively, associated with the number of American workers they hire. That's in part because often what is produced overseas by subsidiaries are component parts to final, higher-value-added products manufactured here.

Mr. Obama is also proposing to raise tax rates on affluent individuals, as well as on capital gains and dividends. This would also lead to more capital and jobs leaving the U.S. The after-tax return on U.S. investment would fall appreciably if these tax hikes were adopted, and no amount of tax-credit subsidy will keep capital from fleeing to lower tax jurisdictions.

If the U.S. didn't impose the second highest corporate income tax rate in the world, companies would have less incentive to move jobs overseas. Rather than giving politically correct companies a 1% tax credit, it makes more sense to reduce the U.S. corporate tax rate for everyone -- by at least 10 percentage points to the global average.

Economists have long understood that companies don't really pay taxes; they merely collect them. A study by the American Enterprise Institute has shown that U.S. workers bear the cost of the corporate income tax in lower wages and salaries. To borrow Mr. Obama's language, what's really unpatriotic is the 35% U.S. corporate tax rate.

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