Monday, October 25, 2010

How To Drive A Business Overseas

There is a lot of back-and-forth about the businesses that move overseas, taking the jobs with them. The Democrats blame the Republicans who, they claim, protect the wealthy and the corporations. The Republicans blame the Democrats for the policies that force businesses out of the U.S.

So, who is right?

First, most of the big money corporations tend to donate to Democrats, including 7 of the Top Ten. Among them are Goldman-Sachs, Morgan Stanley and Time Warner. And with the 7 wealthiest people in Congress being Democrats (led by John Kerry), the claim that Republicans are protecting the wealthy and big corporations is rather shallow at best. Particularly when you understand that in the last 60 years, the lawmaking body, Congress, has been held by Democrats for 44 of those years.

Let us, instead, look to the reasons a company moves overseas. A business has one primary objective - maximize profits, so it can expand, hire more, produce more and thereby enrich itself further. The beneficiaries of this are the people who have those jobs, and the consumers who want and use those products. Everyone wins. Everyone, that is, except the lazy, the useless and the clueless who would rather sit back and live off the sweat of others. But even they benefit, as a strong economy brings more even to them.

Now we must ask, what are the biggest threats to profits? The COB (Cost of Business) includes many expenses, but the highest expenses tend to be corporate taxes (35%), and union benefits (average of 20%). That's 55% off the top. After wages, inventory, R&D, marketing etc., most American businesses have a profit margin of 2-4%. And from that they must grow. Any business that does not grow will die.

In China, the corporate tax rate is a mere 15%. Unions, where they exist, are not a financial burden on the employers. This provides businesses with a great deal more profit - profit margins can spike up to 20% or more. And in China, their economy is bursting at the seams.

High corporate taxes in America are a Democrat standard, and they keep trying to raise that tax on the "wealthy" even more. And union power is also a product of Democrat legislation.

And that is why businesses go overseas.

But it is destined to get worse - much worse. The new health care law is going to impose much higher costs on employers. Already millions of employees are getting dropped from company paid insurance plans. McDonalds's made such an announcement yesterday. The corporations have a choice - pay dearly for more insurance, and more expensive insurance, or pay a $2,000 per employee fine.

As I listened to the news today about several large businesses already planning to make the move overseas, in self-defense, I grew sad. It does not have to be this way. There are better solutions. First and foremost, America needs to wake up, fast, and make this country a favorable environment for business. Unless we do that, you can kiss them all goodbye.

If you want jobs, great products and good services, you should not punish those who provide them. Drop the stick we use to beat up on business and pick up the carrot. Or suffer the consequences.


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