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Posted By Anthony on December 3, 2009

CLAYTON, Del. -

In 1849 Henry David Thoreau wrote Civil Disobedience. In this landmark piece he proposed “That government is best which governs least” and we are finding, as succeeding generations have, this statement to be even more appropriate than when first penned. Can these words, written nearly 160 years ago, provide insight into the US’s economic future? We shall explore this question as the genesis of this article which is birthed in the events related to the US’s current economic crisis.
First, came the sub-prime meltdown, which was followed by the 700 billion dollar bailout initiative, and then this past November we saw the “Big 3” US automakers sitting before our elected officials, in the meeting rooms of our Congress, with hats in hand, predicting dire economic consequences if they were not handed some of the 700 billion in US tax payer bailout dollars; finally, we are hearing about a proposed 800 billion dollar (again, tax payer funded) stimulus initiative from President Obama. So far we are looking at 1.5 trillion dollars and it is not stopping there.
Why are we abandoning free market principles?
As events unfolded I went from being astonished to becoming perplexed. In my perplexity I started thinking maybe it was just me, but then I heard an interview with President Bush, after he had authorized an almost 15 billion dollar loan program for GM and Chrysler. I was stunned to hear him say that in order to deal with this crisis he had to “abandon” free market principles. That is when I realized it was not me.
By any objective measure it is clear this current economic crisis has been caused by government intervention and ensuing policies that have hamstrung business and if history is any guide our economic crisis will not be solved by government intervention based on an abandonment of free market principles. Also, what about the constitutionality of any bailout plan? Under our system of government the bailout, particularly as it has unfolded, is unconstitutional. It violates the equal protection doctrine enumerated in our Constitution. This doctrine simply states that the government cannot take action to benefit one group over another, i.e., lend money to one business while letting another fail. Soon some smart business owner will figure this out and make a demand for a share of the 1.5 trillion dollars currently on the table.
Ask yourself, “Do those we deem smarter than ourselves really have a handle on the situation and are their proposed solutions viable?” Thinking through this question we need to realize it is all about expectations. Personally, I realized I am frustrated because my expectations are not congruent with reality (back to it’s me again.) I realized that my expectation, much like yours I am sure, centers on the belief that those we have entrusted to govern would, in times such as these, set aside political ideology and work to a solution that is best for the common good. This expectation, I now know, is inappropriate for a politician. A politician will always think first in terms of political expediency and thus is prevented from an accurate assessment of the root cause of the issue and the crafting of an appropriate solution to the crisis. When I realized this I thought, in a moment of desperation, the US is doomed as the pillar of capitalism. What are our choices as we wait on our political leaders to come to our rescue? Are we doomed as we have to patiently wait for our rescue?
Is this pessimism an over-reaction? I think not. In a few short months we have seen the proposed numbers for the bailout go from the unimaginable to insanity. The American people were stunned at a proposed 700 billion dollar bailout, now we are being told this number will include another 800 billion dollars, and will ultimately be dwarfed to the tune of 7.5 trillion dollars. This stunning figure of 7.5 trillion dollars represents over one-half of the total US GDP for all of 2007. To put this number in perspective GDP is that number which represents our combined enterprise as a nation and in 2007 it was about 13.87 trillion dollars. As of 2007 the percentage of debt verses GDP growth was about 61%, imagine a world where those that govern add 7.5 trillion dollars to that figure, the consequences are unimaginable. Is it really a viable solution to abandon free market principles and allow those we deem smarter than ourselves to commit over one-half of our total national output to some yet defined economic rescue plan? Personally I think not.
A common sense plan
It is time for our combined voices to be heard above the political rhetoric. To that end let us propose a common sense plan for success. A plan designed to help not only the US auto industry but all of US based business; a plan that will help US business of all sizes to become profitable and competitive in the global market place using market driven forces. Most important about this plan is that it does not spend a single US taxpayer dollar in the process. Essential to this plan is for us to agree along a single common theme; that any tax-based incentives to stimulate economic growth do not “cost” the US government anything. We need to send a message to those in government whether they be elected, appointed, or hired, to those in academia, and to those in the media, that says any plan that targets reducing taxes as a means to stimulate the economy does not cost the government a single penny. Further, we need to stay on message that the role of government is not to create jobs, instead that role belongs to business. To state categorically it is business’ natural inclination to expand and create jobs while the right role of government is to facilitate this effort by getting out of the way business so it can create jobs.
Understanding the main problem
Let us first understand what the problem is. At the core of the US economic downturn is a lack of liquidity. This fancy financial term being bandied about simply means that businesses need cash to keep their doors open. Not rocket science. So the question is how do we get more cash into the coffers of American businesses, and how do we do accomplish this without spending our hard earned dollars? The answer is the elimination of all Federal taxes on all US business.
Let us quell attacks on the idea of letting business keep its profits as a nonsensical position by pointing out that there are only three things one can do with money. One, is to put it in a coffee can and bury it in the back yard. This obviously has no benefit to you, me, or the country. Second, is to spend it. Doing so causes the economy to expand, and when the economy expands jobs are created. Third, save it. This too will cause the economy to expand, and when the economy expands (more) jobs are created. Ask yourself a simple question, who would you rather have the money, the businesses that created it or the politician who only wants to spend it?  Those who oppose tax cuts got us into this mess with their politically-driven economic ideology. Now it is time for them to get out of the way and let us fix this mess before it is too late.
Cutting costs without sacrificing jobs and wages
There is no doubt that US business production costs in a global economy are way out of line with the rest of the world, and frankly any plan to assist US businesses has to accept this reality. The question is how do we reconcile this without diminishing our standard of living? Traditionally, when a business found itself in a situation where its production costs were making it less competitive, it sought efficiencies that (hopefully) would return the firm back to a competitive advantage. Unfortunately, this has often meant job losses, and as the UAW is currently experiencing, this has also meant pressure to decrease wages and benefits.
What if instead we put in place a mechanism that helps businesses cut their production costs without sacrificing jobs and wages?  How would we do this?

David Storobin, Esq., in his May 6, 2007 article, Eliminate Capital Gains Taxes Now - for the starving children, wrote, “One of the founders of left-liberal economic thought, John Keynes wrote, ‘Taxation may be so high as to defeat its object, and … a reduction of taxation will run a better chance than an increase of balancing the budget. For to take the opposite view today is to resemble a manufacturer who, running at a loss, decides to raise his price, and when his declining sales increase the loss, wrapping himself in the rectitude of plain arithmetic, decides that prudence requires him to raise the price still more - and who, when at last his account is balanced with nought on both sides, is still found righteously declaring that it would have been the act of a gambler to reduce the price when you were already making a loss.’”
As a free market proponent I find it ironic to quote Keynes at the outset of a free market based proposal to the US’s current economic crisis. Contrary to President Bush’s abandonment of free market principles, I want to make the argument for a market based solution, seeing the free market as a means to solving the problem.
The US government can provide a financial stimulus package by making adjustments to its current tax code and subsequent tax policy and will not have to use a single tax dollar in the process.
Eliminate all Federal taxes on US-based business. Let’s defuse any arguments based in political ideology by using a simple fact – businesses do not pay any taxes, they simply pass that cost on to the consumers of its products and services. Any tax on business is counter-productive and ultimately impacts the consumer of the product. Don’t believe me? Look at your phone or cable bill. By eliminating Federal taxes on US businesses we immediately improve the cost structure of a business by driving down its production cost. Consequently the business will become more competitive in the global market place. Remember, the 3 things you can do with money rule (see Part 1 of this article.) Forget what the protagonists for high taxes say about greedy businesses, the reality is a business’s natural tendency is to expand and it will use the extra money to make and sell more of its product or service. And, it is that process that creates more jobs, not a government bailout or stimulus package. This is a no-brainer folks; don’t let the radical socialists tell us otherwise.
Eliminate the Capital Gains tax. This will do some great things for US business; first, it dramatically improves US businesses’ cash position.  As any business owner will tell you cash is the lifeblood of its business.  We have all heard the phrase “cash is king.” In our current economic situation we need to attract investment and not drive it away. At 15% the US has one of the highest Capital Gains tax in the world and this compares unfavorably with over half of the other developed nations in the world. Take Germany for instance, it has a 0% Capital Gains tax.  Storobin argues in his article that “The one tax that is especially detrimental is a Capital Gains Tax, which is imposed on investments. This is nothing short of a tax on economic growth because it provides a disincentive to invest. Those who have the money to be invested do not necessarily need to invest. The money may be placed in a bank account or even kept at home” (hmm, sounds like the three things one can do with money rule.) He continues with “The only reason people may decide to invest is if they have an incentive to do so. The higher the capital gains tax, the lower the rate of return and, therefore, the lower the incentive.” There is direct correlation between investment and the size of the Capital Gains tax.
The second benefit a US business would enjoy through elimination of the Capital Gains tax would be liquidity, this applies particularly to a publicly traded company, as it could sell its stock and raise cash. Use GM as an example, who owns millions of shares of its own stock, selling its stock today to raise money is impractical because of the tax consequence. Eliminating the Capital Gains tax would remove this impediment and allow GM to raise hundreds of millions of dollars for business expansion.
A third benefit of eliminating the Capital Gains tax will be to spur investment both domestic and foreign. Imagine if you will, you are an entity with millions of dollars that needs a place to park, where would you rather put that money, in a country that charges a Capital Gains tax of upwards to 23% (as proposed by President-elect Obama) or in a country that has a zero Capital Gains tax?
Common sense, as well as the free market, tells us the Capital Gains tax punishes investment and it is time we got rid of it, for all of our sakes.
Eliminate the businesses half of FICA. This is perhaps the most controversial of the four proposals. This may seem strange to many readers, except for business owners, because most employees do not realize their employer has to match their FICA. So what is FICA? To understand FICA look at your paystub; see those deductions for Social Security, Medicare Tax and Federal Unemployment? That amount represents only one-half of the total. Your employer has to match that amount and essentially write a check for its half to Uncle Sam every payday. This tax liability is perhaps the single major inhibitor to job growth there is. Aside from being an inane tax FICA is a job killer for sure and needs to go. Ask yourself, who sold us on the idea that a business needs to match what its employees pay in Federal unemployment tax, Social Security, and Medicare?
Rebate to US businesses their 2007 and 2008 taxes. Instead of letting those we deem smarter than us write a check to the US automakers for billions of dollars, why not give them their money back? It sure would be a heck of a lot cheaper to the US tax payer. For instance, take Exxon Corporation – you know, that greedy oil company that keeps our cars running, our houses warm, and helps keep the lights on, a company that has been demonized by our politicians for making obscene profits on the backs of the poor US consumer, and whom our President wants to impose a “windfall” tax on. Exxon paid 30 billion dollars in US taxes in 2007. That’s right, a “B” as in BILLION.  Not sure how much more President Obama wants from Exxon but imagine the jobs $30,000,000,000 could create. Don’t buy into the politically correct rhetoric about business being bad; think instead this way, who would you rather have the $30,000,000,000, the creative people who figured out how to make so much money that the company had to pay $30,000,000,000 in taxes, or the politician whose only job is to figure out to spend it? Sorry Joe, I think it is more patriotic to let our US companies keep more of their hard-earned dollars so you have less to waste it on.
What can I do, it’s only me – While writing this article I have had extended conversations (or, as my children will attest, Ad nauseum talks) with a number of folks about this issue and many have asked “what difference can I make, after all I am only one person.” My answer has consistently been, we need to do what we can when we can. So, how can I help you with this? I can encourage you to call, write, or stop by and see your elected officials at every level. Tell them enough is enough and that you expect real solutions that are designed to help our business and to stop playing politics with the futures of our children and grandchildren. Tell them that we will not abandon free market principals for government imposed solutions that have a history of failure and of prolonging the crisis. Tell them the solution is to get off of the backs of business so business can create jobs.  Tell them we want real change and not just an eloquent speech about change.
Who can you contact? Go to http://capwiz.com/seiuorg/dbq/officials/. This link is to a web site that makes finding all our elected officials very simple.  All you need to do is make sure you are on the “elected officials” tab, and enter your zip code.  The response will list all your elected officials Federal on the left side state and local on the right. Once you have this information, call or write them and tell them you want real solutions to our problems.
Remember this is our government and those we put in office are there to serve us all.
If anyone has questions or comments about this piece, please feel free to email me at ted.isabella@gmail.com.

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