Burger King and Tim Hortons’ proposed merger ignited calls for more government involvement in failed corporate welfare programs. Happily, a few voices, mainly Republicans, pointed to the real issue that needs addressing: ineffective corporate taxation policies that’s nudging companies to relocate abroad, and causing them to retain significant cash outside the USA.
Naive politicians want to boycott Burger King because, inter alia, its management decided correctly to shelter income, legally, from USA’s oppressively high corporate tax rate of 35%–one of the highest in the world. Burger King’s management has a responsibility to look after its shareholders’ best interests, and this decision is good stewardship. However, liberals will disagree because they wear anti business blinkers.
Politicians, particularly tax and spend liberals like President Obama, want more job creation and more taxes from corporations. These goals conflict; sustained job creation won’t happen under current conditions in one of the highest global tax jurisdictions.
The president and like-minded liberals, uniformed and inexperienced in business, do not understand that the economy needs robust businesses to create long term jobs. This means corporations must pay less taxes, not more, so they can reinvest more funds in their businesses thereby creating more jobs as a by product. Job creation must never be the goal–the goal must be production of goods and services using effective value creation platforms with sustainable competitive advantages.
No company can guarantee jobs because it’s the marketplace, not government handouts, that decides which companies will survive and grow, and which will fail.
Unfortunately, using taxpayers funds, governments choose industries and regions to subsidize—automobile, green energy, regions “needing employment,” and pet projects. These governments create special tax incentives for selected businesses even those that are structurally unsound. And they continue to add complexities to taxation systems that encumber businesses and create unfriendly business environments.
Corporate welfare strategies do not work over the long term. So, why do governments continue them? This approach fits their tax and spend wasteful attitudes and seem effective to an ignorant electorate and anti business liberal media. Besides, all governments do it —- some more than others —- and they experience no negative political consequences although empirical evidence shows governments are notoriously incompetent, ineffective, and wasteful. For example, the only unprofitable Tim Hortons franchises in Canada were operated by government.
Giving investment incentives to selected industries as Canada did with it’s auto industry is myopic. Canada’s automotive industry built on corporate welfare is declining and will continue without more welfare. Chrysler enjoyed handouts over the years but because its business was structurally unsound with its various union arrangements, among other things, it failed more than once.
President Obama, the king of Corporate Welfare, doled out billions of “stimulus funds” to companies during the Great Recession. Some of these funds were used for outrageous projects. However, as expected, the stimulus program was a colossal waste of taxpayers’ funds. And let’s not forget the cash for clunkers that failed miserably, too! Yet, Obama continues his tax and spend approach unabated.
Governments’ role is to create level conditions for businesses to flourish. They must create conditions amenable for businesses to want to operate in their jurisdictions. It is absurd and naive to think bribing companies with handouts is more than a band aid. Governments must abolish corporate taxes, reduce regulations to a minimum, and ensure employees are not forced to join unions and pay dues—we need some form of right to work legislation in all jurisdictions so unions can’t use employees’ earnings for their political purposes and other escapades.
In summary, governments’ are innately incompetent and ineffective and should not use taxpayers’ funds to pick corporate winners, and by default, losers using tax dollars. The USA as the epitome of capitalism must simplify its tax code and lower corporate tax rates substantially to create productive jobs over the long term. It’s time the public realize that eventually corporate welfare is a huge drain on society—it does not provide jobs over the long haul.
Michel A. Bell is author of five books, speaker, founder and president of Managing God’s Money, and adjunct professor of business administration at Briercrest College and Seminary. For information on Managing God’s Money, visit www.managinggodsmoney.com.
© 2014, Michel A. Bell