The phrase “preaching to the choir” couldn’t be a better fit. Mackey’s opinion piece, which appeared today in the Wall Street Journal, is about as dead on as dead on gets. It centers on one thing: freedom.
I was immediately drawn to the second paragraph. It reads: “America became the wealthiest country because for most of our history we have followed the basic principles of economic freedom: property rights, freedom to trade internationally, minimal governmental regulation of business, sound money, relatively low taxes, the rule of law, entrepreneurship, freedom to fail, and voluntary exchange.” I selected this paragraph for a reason; it should really make Americans think. LME poses these questions: to what extent do these principles of economic freedom hold true today? Has our government protected, promoted and maintained these fundamental tenets of economic and personal liberty, or has it slowly eroded them, causing the country to slip into the economic conditions we are experiencing today? In my opinion, it’s the latter rather than the former.
Let’s take a quick look at some of these to see how they exist in today’s economic environment:
Minimal Governmental Regulation of Business: This one can be applied in numerous ways. I’ll focus on one: healthcare reform legislation and what it forces businesses to do. Prior to the government overstepping its bounds, if you were looking for a job, you marketed your skills and negotiated a full compensation package with your potential employer. If you didn’t like the salary and benefits they offered, you had the right to look for another employer that best fits your wants and needs. This was freedom.
How did the government mess this up? The new healthcare reform legislation imposes a $2,000 per employee tax penalty on employers with more than 50 employees who do not offer health insurance to their full-time workers. Prior to this, if employers had a difficult time attracting skilled workers, they would either increase wages, benefits, or both. It’s how the suppliers of labor and the demanders for labor meet to create the overall price (compensation) of labor. Now, the government forces employers to pay a cost for workers they employ that potentially exceeds the benefit they receive from those workers. For example, assume a large manufacturing plant has 300 employees and 30 of them are janitors. Say the average market wage for a janitor is $7.50 per hour with no additional benefits. Under the new law, if the plant is forced to provide medical insurance for these 30 employees, the plant will be paying much more in total compensation (wage plus health insurance would be say, $10.00 per hour) than it should. Why should a private company be forced to pay $10.00 per hour for something that normally costs $7.50 per hour? How is this freedom, and how does anyone expect this plant to survive, let alone compete? Obviously this is a simplified example, but the underlying theory holds true.
Relatively Low Taxes: Oh boy. Here we go. Taxes. Let’s focus on corporate taxes. The top marginal corporate tax rate in the U.S. is 35% for companies making more than $18,333,333 per year. This income level includes the majority of large companies and encompasses most employers with a significant number of employees. Add these tax rates to state taxes and many corporations’ tax burdens exceed 40%. How does help companies compete on a global stage? Does it surprise anyone that many American companies relocate overseas? And freedom? How can freedom exist when individuals and corporations must forfeit so much of what they earn to an oversized government?
Freedom to Fail – HA! This will be quick. One word: Bailouts. See the previous post “Too Big to Fail.”
There is another key aspect Mackey brings up that any reader of LME would realize is fully supported in this blog: flat rate taxes. He states “Many Eastern European countries implemented low flat tax rates in the past decade, including Russia in 2001 (13%) and Ukraine in 2004 (15%), and experienced strong economic growth and increased tax revenues.” He left out Estonia, but we will forgive him. But did you notice something in Mackey’s comment? Maybe you whizzed by it: “many Eastern European countries… experienced strong economic growth and increased tax revenues.” Maybe Western European powerhouses like, oh, I don’t know… Italy? France? Portugal? Spain? Ireland? etc. will realize their socialist, discriminative, highly progressive tax system has killed incentive and nationwide production so much that it has caused these countries to fall into the economic holes they are in.
All in all, this article is well written, and its points are clear. In order to get our country out of this rut we need to: restore economic freedom by reducing taxes, cutting government spending overall, and getting the government out of the business of over-regulating American companies. Unfortunately, and according to most recent polls Americans feel this way as well, the country is in decline and will continue to do so.