More to business than just taxes, duty to nation
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Two seemingly unrelated events last week point to flawed assumptions underlying the troubled relationship between government and business.
In his State of the Union address, President Barack Obama exhorted businesses to ask themselves "what you can do to bring jobs back to your country." As charming and politically expedient as his challenge may be, it conveniently ignores the fact that the global corporations that send jobs offshore may swear allegiance to the Almighty Dollar, but not necessarily to Washington.
Meanwhile, the Tax Foundation was itemizing which states do the most for business by offering the most advantageous tax climates. The Washington, D.C., nonprofit was founded in 1937 by executives concerned about escalating federal spending and taxes during the Great Depression. Its mission is to promote what it calls "tax consciousness."
Based on its analysis of 118 variables, the foundation concluded Pennsylvania has the 19th-best tax climate. The Keystone State's 12th-best ranking when it comes to individual income taxes offsets a 42nd-place finish on property taxes and 44th-place finish for corporate taxes, its study showed.
Wyoming, South Dakota and Nevada offer the best business tax climates while New Jersey, New York and California offer the worst climates, according to the foundation.
By way of perspective, Wyoming, South Dakota and Nevada had unemployment rates of 5.8 percent, 4.2 percent and 12.6 percent in December while the jobless rates in New Jersey, New York and California were 9 percent, 8 percent and 11.1 percent.
"Business taxes affect business decisions, job creation and retention, plant location, competitiveness ... and the long-term health of a state's economy," wrote foundation economist Mark Robyn, who authored the report.
He said that while the quality of health care, transportation and schools also contribute to a state's business climate, improvements to those factors take longer to implement, while the tax climate can be improved with the stroke of a pen.
The report cites several examples of how tax policy drives business decisions: Intel deciding to build a chip plant in Arizona instead of California; and Northrop Grumman moving its headquarters from Maryland (ranked 42nd) to Virginia (26th).
The foundation's results were based on five types of taxes ranked in the following order: individual, sales, corporate, property and unemployment insurance. Individual income taxes accounted for a third of a state's ranking while unemployment insurance rates accounted for 11 percent.
"A state with lower tax costs will be more attractive to business investment, and more likely to experience economic growth," Mr. Robyn wrote.
But businesses -- as well as individuals -- have to be willing to accept the other half of the lower tax argument.
In its latest report card on America's debilitated infrastructure, the American Society of Civil Engineers estimated the nation's roads, bridges, inland waterways and other infrastructure are in need of $2.2 trillion in improvements.
Are businesses, which rely on the infrastructure to produce and move their goods, and their customers willing to forgo those much-needed projects in their quest for lower taxes?
The National Association of Manufacturers, forever beseeching Washington to get regulators off the backs of its members, has identified four economic goals that can be achieved through a renaissance in manufacturing. They include training a more productive workforce through education reform and improvements, and protecting intellectual property.
While reforms may reduce some costs, improving the educational system will cost money. Are corporate and individual taxpayers prepared to contribute to that expense?
Protecting intellectual property also will cost money, as a former Reagan administration business adviser noted last week. The Economic Strategy Institute's Clyde V. Prestowitz Jr. responded in his blog to a New York Times piece about Apple's massive reliance on Chinese factories.
Here's the quote from an unidentified Apple executive that riled Mr. Prestowitz: "We don't have an obligation to solve America's problems. Our only obligation is making the best product possible."
Mr. Prestowitz observed that Apple's products include content that traces its roots to federal government research and development, that the unidentified executive probably expects Washington to prevent the piracy of Apple's intellectual property, and that the U.S. military's Asian-Pacific presence maintains peace in a region where conflict could severely interrupt Apple's efficient supply chain.
A business-government relationship based on the government getting off the backs of business when it comes to some matters and protecting business' backs when it comes to others is as disingenuous as Mr. Obama expecting multinational corporations to rally around the flag and bring jobs back to the United States.
Republicans and Democrats not getting along is one thing. But the failure of businesses to appreciate their obligations to government as well as the government's failure to come to grips with the threats and opportunities posed by a global economy are far more serious matters.
Ones that cannot be resolved with the stroke of a pen.
First Published January 29, 2012 12:00 am
