Tag: John Galt

Fixing the Economy Demands More Than a Stroll across Lafayette Park

President Obama’s visit with the Chamber of Commerce this week has infuriated the anti-business Left.  But short of expropriation and nationalization, what doesn’t? 

Robert Reich and NPR and the scribes at the Huffington Post just don’t get it.  Their man may be in the White House, but business holds the keys to the kingdom.  Whether the president’s priority is job creation or reelection, nothing matters more than sustained economic growth. And without business having confidence that policy in the United States will become more hospitable and predictable, investment and job creation will remain tepid.

The president doesn’t have nearly the leverage assumed in the delusions of groups like Public Citizen, which wrote: “What America needs is not olive branches to giant corporations but controls over the companies that sank the economy.”  Back here in reality, businesses have options.  Many can choose to produce and operate in other countries, where the economic environment may be more favorable.  In that regard, globalization has produced a veritable Galt’s Gulch, which serves as an important check on bad economic policy.  Governments are now competing with each other to attract the financial, physical, and human capital necessary to nourish high value-added, innovation-driven, 21st century economies.  Gratuitously punitive anti-business policies will only chase away the companies that the president exhorts to invest and hire.

According to a survey of 13,000 business executives worldwide, conducted by the World Economic Forum, 52 countries have less burdensome regulations than the United States.  Add to that the fact that the United States has the highest corporate tax rate among all OECD countries and it becomes less mysterious why U.S. businesses shift more operations abroad.

As I wrote in a December 2009 Cato paper:

Governments are competing for investment and talent, which both tend to flow to jurisdictions where the rule of law is clear and abided; where there is greater certainty to the business and political climate; where the specter of asset expropriation is negligible; where physical and administrative infrastructure is in good shape; where the local work force is productive; where there are limited physical, political, and administrative frictions.

This global competition in policy is a positive development.  But we are kidding ourselves if we think that we don’t have to compete and earn our share with good policies.  The decisions we make now with respect to our policies on immigration, education, energy, trade, entitlements, taxes, and the role of government in managing the economy will determine the health, competitiveness, and relative significance of the U.S. economy in the decades ahead.

The president is beginning to get it – though grudgingly.  He acknowledges the burdens of excessive and superfluous regulations and bureaucracy (remember his SOTU story about the jurisdictions entangled in the salmon’s journey from salt water to fresh water to the smoker?).  The president has hinted that he would like to see the corporate tax rate lowered.  He knows that businesses have options to invest, produce, and hire abroad—and that oftentimes U.S. policy chases them there.  But, so far, rather than push policies to encourage domestic investment, production, and hiring, the president has done the opposite, while demonizing businesses that follow the incentives to go abroad.

The president’s position during his exchange at the Chamber of Commerce was that he has made concessions to business by moving toward the center on tax and trade policy, and that now it is time for business to show good faith by investing and hiring.  But Obama’s small steps toward the center come after two years of sprinting to the left on economic policy.  After ObamaCare, Dodd-Frank, taxpayer bailouts, unorthodox and legally-questionable bankruptcy procedures, subsidies for select industries, Buy American and other regulations governing how and with whom “stimulus” dollars could be spent, and the administration’s tightening embrace of industrial policy, businesses want a more quiet, less intrusive, less antagonistic, predictable policy environment before they will feel comfortable playing the role Obama wants them to play.

Until that happens, the president shouldn’t expect torrents of investment and hiring from the business community.

Will the Last Person to Leave Illinois Please Turn Off the Lights?

There is a very bizarre race happening in Illinois. The Governor and the leaders of the State Senate and General Assembly are trying to figure out how to ram through a massive tax increase, but they’re trying to make it happen before new state lawmakers take office tomorrow. The Democrats will still control the state legislature, but their scheme to fleece taxpayers would face much steeper odds because of GOP gains in last November’s elections.

As a result, the Illinois version of a lame-duck session has become a nightmare, sort of a feeding frenzy of tax-crazed politicians. Here’s the Chicago Tribune’s description of the massive tax hike being sought by the Democrats.

The 3 percent rate now paid by individuals and families would rise to 5 percent in one of the largest state tax increases in Illinois history. …Also part of the plan is a 46 percent business tax increase. The 4.8 percent corporate tax rate would climb to 7 percent… In addition, lawmakers are looking at a $1-a-pack increase in the state’s current 98-cent tax on cigarettes. …Democrats will still control the new General Assembly that gets sworn in Wednesday, their numbers were eroded by Republicans in the November election. With virtually no Republican support for higher taxes, Democratic leaders contend it will be easier to gain support for a tax hike in a legislature with some retiring members no longer worried about facing the voters.

If Governor Quinn and Democratic leaders win their race to impose a massive tax hike, that will then trigger another race. Only this time, it will be a contest to see how many productive people “go Galt” and leave the state. John Kass, a columnist for the Tribune, points out that the Democrats’ plan won’t work unless politicians figure out how to enslave taxpayers so they can’t escape the kleptocracy known as Illinois.

The warlords of Madiganistan — that bankrupt Midwestern state once known as Illinois — are hungry to feed on our flesh once again. This time the ruling Democrats are planning a…state income tax increase, with more job-killing taxes on corporations… A few tamed Republicans also want to join in and support a tax deal, demonstrating their eagerness to play the eunuch in the court of the pasha. And though they’ve been quite ingenious, waiting for the end of a lame-duck legislative session to do their dirty work, they forgot something important. They forgot to earmark some extra funds for that great, big wall. You know, that wall they’re going to need, 60 feet high, the one with razor wire on top and guard towers, equipped with police dogs and surrounded by an acid-filled moat. The wall they’re going to have to build around the entire state, to keep desperate taxpayers from fleeing to Indiana, Wisconsin and other places that want jobs and businesses and people who work hard for a living. …With the state billions upon billions in debt, and the political leaders raising taxes, borrowing billions more and not making any substantive spending cuts, we’ve reached a certain point in our history. The tipping point. Taxes grow. Employers run. The jobs leave. High-end wage earners have the mobility to escape. What’s left are the low-end workers who are stuck here. …the Democrats aren’t about to disappoint their true constituents. So they don’t cut, they tax. Because the true constituents of the Democratic warlords are the public service unions and the special interests that benefit from all that spending. Why should politicians make cuts and anger the people that give them power, the power that allows them access to treasure? …we reach another tipping point: The point at which those who are tied to government, either through contracts or employment, actually outnumber those who are not tied to government. Do the math on Election Day.

Illinois is America’s worst state, based on what it costs to insure state debt. The greedy politicians in Springfield think a tax hike will give them enough money to pay bondholders and reward special-interest groups. But that short-sighted approach is based on the assumption that people and businesses will cheerfully bend over and utter the line made famous by Animal House: “Thank you, sir! May I have another?”

Moving across state lines is generally not something that happens overnight. But this giant tax hike is sure to be the tipping point for a few investors, entrepreneurs, rich people, and employers. Each year, more and more of them will decide they can be more successful and more profitable by re-domiciling in low-tax states. When that happens, Illinois politicians will get a lesson about the Laffer Curve, just as happened in Maryland, Oregon, and New York.