Politicians are vying for credit for the genesis of the growing economy (USA). Today, what matters most is that we sustain the economic and job growth. Thus, the government must not intervene with tariffs, tax hikes, and unnecessary regulations.

Like it or not, the reality is that lower corporate taxes are good for businesses, the economy, and job creation. The converse is that socialism scares businesses, harms the economy, and destroys productive jobs. Thus, the Democratic Party would do well to stop focusing on who should get credit for starting the boom. Instead, they should develop sensible policies to keep the economy growing if they plan to take over in 2020. Socialism won’t cut it!

The Growing Economy Is Great For Everyone

Another fact is a growing economy creates jobs and increases wages. However, we must look holistically at the economy. One reason wages at the bottom remain low in the USA is because of surplus labor competing for lower paying jobs. We can’t eat our cake and have it. Either there is an immigration policy that recognizes that open borders create an influx of cheap labor or society accepts stagnant wages at the lower end. 

Governments don’t create jobs; they should create conditions for job creation, but often don’t. Presently, conditions are more favorable in the USA today for businesses to flourish than in the past several years. For instance, in the first quarter of 2018 following tax reform, US companies repatriated $300 billion of almost $1 trillion held offshore because of the previous penal corporate tax rate in the USA. The Federal government took $30 billion (10%) of the inflow. Full-year repatriation rose to $500 billion. Meanwhile, Apple alone committed to spending $350 billion in the USA over five years to create 20,000 jobs. Google and Amazon have been spending significant sums, too. 

Tax Reform Wasn’t Perfect But Helpful

Critics of tax reform ignore the fact that repatriating half a trillion dollars is a massive victory for the economy and public. In theory, the government should be able to do positive things with that extra US$ 50 billion; but that’s unlikely as governments waste funds. Although repatriated amounts did not go directly to consumers, increased wages, additional bonuses, and special dividends benefited several folks and the economy generally.

Several companies used the windfall to buyback shares, make one-off payments to workers, but not raise minimum wages. That’s not the ideal situation. Nevertheless, when governments abolish corporate taxes, corporate welfare, and special allowances to businesses, they will create a better environment for productive jobs’ creation and economic growth. Let’s tax people, not entities that produce wealth for people.

Share or Stock Buybacks Need Fixing

The primary issue that needs fixing is share or stock buybacks. Firms shouldn’t be buying back shares when their shares are overpriced as many are today. We need to find a means for shareholders to prevent CEOs and boards of directors from buying back shares, ultimately boosting executive bonuses.  One approach is to require CEO’s to present alternative uses of funds earmarked for share buyback funds to an extraordinary shareholders’ meeting. We would require that one of these options be the effects of a one-off bonus payment to the workforce. Then, to proceed with the buyback, management must obtain a two-thirds majority of shareholders. Other options would need a mere simple majority.

Why should the buyback need a two-thirds majority? The CEO is in a potential conflict of interest if her variable compensation is linked to share prices. This proposal would encourage management to keep a lean workforce, and although money isn’t a prime motivator, the approach would signal the importance of employees. As well, it would go a long way to lessen the image of greedy CEOs and make share buybacks more palatable. 

Corporate Taxes Are Harmful To The Growing Economy

Let’s work to abolish corporate taxes progressively over ten years. Using empirical data, we must educate the public and politicians of the harm governments do to the economy with their convoluted tax systems. Firms shouldn’t have to spend billions on high priced accountants to lower corporate taxes, and transfer funds to tax havens. They should spend those funds to improve benefits to the workforce, develop new technologies, while anticipating and fulfilling customers’ wants and needs. More important, governments must stop playing matchmakers by assigning huge corporate welfare amounts to their cronies or industries they wish to bet on for success. Just look at the waste of taxpayers’ funds through corporate welfare dollars over the past few years. Imagine no corporate taxes, no allowances for corporations, no corporate tax returns, no corporate welfare payments! 

Conclusions

Share buybacks will become a huge problem, and the anti-business public and government will increase their demonization of business. The ideas above need tweaking, but we must find a reasonable solution to CEOs spending funds to boost share prices ultimately to hike their bonuses. Meanwhile, time will tell how tax reform dollars will benefit individuals and the economy over the long haul. No doubt, we will see that lower corporate taxes played a critical role in maintaining the growing USA economy. Indeed, without tax reform, already the crazy and erratic tariff episodes would have halted economic growth.

Businesses like stability and will be cautious with future repatriations given the current trade war, and  anti-business sentiment of the Democrats.

© 2019 Michel A. Bell

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