Saturday, October 16, 2010

Obama The Reactionary

Todays headline reads:

Obama Wants to End Tax Breaks for Companies that Move Jobs Overseas

People like Obama just don't get it. And they don't get it because they are reactionaries. Instead of finding the cause of a problem and fixing it, they react to the result of the problem and try to fight only the symptoms using punishment, not positive incentives.

If a person chooses to get to the core of a situation, they will find the solution is usually simple and effective.

The problem APPEARS to be that businesses are moving jobs overseas. This is what liberals see. It is what a community organizer would see. It is what someone would see if they did not bother to think it out.

But businesses moving jobs overseas is not the problem - it is only a sympton of the problem. Consider...

A business has one function - to make as much profit as possible. If they move jobs overseas it is only because they can make more profit by doing so. Therefore, the solution lies in finding out WHY it is more profitable overseas, and what can we do to offset that and give businesses a profit motive for staying in America.

If you have followed me this far, you are now beginning to see the problem, and not just the symptom.

The four highest cost factors (COB - Cost of Business) are wages, inventory, taxes and union benefits and costs. To make America more competitive so businesses will stay here, those costs must be reduced - preferably to a level below the costs of doing business overseas, to entice them to return to America.

Because of our chosen lifestyles of excess, we cannot compete with China when it comes to wages. And inventory is pretty much a wash - the same, regardless. That leaves two areas where America can make changes.

In this regard, we can make two major changes. High corporate taxes (federal and state) can add 48% to the COB, and union benefits and costs can add from 20%-30%. Together, they add at least 68% to the cost of doing business in America.

That is more than two-thirds the COB. Therefore, if we reduce taxes (instead of increasing them further as proposed by Democrats) and if we reduce the impact of unions (instead of increasing it as proposed by Democrats), we could easily reduce the COB by as much as 48% or more.

How would that translate in terms of competitiveness?

In most American industries, wages account for roughly 18% of costs; inventory 10%; taxes 48% and unions 20%. The remaing 4% is profit.

In China, wages (which, by the way are rising rapidly) account for 8%; inventory 15%; taxes between 15% and 25%; unions 0%. Profit is 52%.

See the problem?

If Congress were to reduce federal corporate taxes to 10% and reduced the union stranglehold by half, that would add 48% to the profit margin of businesses, giving a total profit of 52% - the same as China - while still retaining our high wages structure and the most necessary union benefits. There would be no incentive to move to China.

And if states could be convinved to reduce corporate taxes to 5% (from the average of 10% currently), that would give businesses already in China an incentive to move back to the states - particularly since China's wages are quickly rising.

And America would have plentiful jobs - even enough for all the illegal aliens.

I know many of you, particularly liberals, will scream that we are just making the rich richer. But think about that a moment - do poor people hire employees? Do poor people spend billions on R&D to create the products you want? Making the rich wealthier is the only way of creating more jobs. The rich make our lives better - they are the ones, like Bill Gates and Steve Jobs - that make our lives richer. Yes, they get a bigger share of the pie, but they are also making more pies, so we all benefit.

The rich will be rich, either here or in China. So the choice is clear - in which country do you want them to live, and produce jobs and products?


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