American Elephants

Treasury Will Pull Out All The Stops to Enforce Economic Patriotism! by The Elephant's Child

The Treasury Department could act as early as next week to stop companies from moving their headquarters out of the United States for tax purposes. “Economic Patriotism.” Where is these companies’ economic patriotism? Representative Sander Levin, ranking Democrat on the House Ways and Means Committee, which has jurisdiction over tax issues warned that “They’re preparing to act and they’ll act as soon they are ready.”

Treasury Secretary Jack Lew told Levin on Wednesday that he would not necessarily wait for Congress to go home before he would take unilateral action.  Wonder where he learned that trick?

With his brother Senator Carl Levin, (D-MI) Sander Levin has written legislation to” tighten the rules restricting so-called tax inversions, which are tax maneuvers in which U.S. businesses buy a company in a low-tax country to move their headquarters there.”

It’s the Burger King deal with Tim Horton’s Coffee Shops, and the move of their corporate headquarters to Canada, where total tax costs will be 46.4 percent lower, that has driven Democrats to start writing more confiscatory laws immediately. Burger King will continue to pay taxes on business done in the United States.

The Obama administration and Congressional Democrats have raised the alarm over possible consequences to the U.S. tax base.  Republicans  have been suggesting for some time that they should lower or eliminate the corporate tax, because the U.S. corporate tax is not only the highest in the industrial world, but the U.S. also taxes income earned abroad —which no other country does.

There is a long history going back to Martin Van Buren, of administrations that helped an economy to recover from a recession by cutting taxes. Cutting taxes allows companies more confidence in the future, and they are more apt to grow, expand, and hire — creating a better business climate— which in turn grows the economy.  Canada’s corporate tax was 43 percent in 2000, and is 26 percent today, and their economy is booming.

Democrats are fundamentally unable to grasp the idea that cutting taxes could  produce more income and make the economy grow. It simply does not compute. Treasury Secretary Jack Lew trained as a lawyer, but has simply moved through the corridors of government as a bureaucrat in one office or another. He got all huffy about the Burger King move, in a video at Bloomberg, mentioning all the advantages the U.S. provides —roads and bridges (you didn’t build that) and infrastructure!

So far as I can tell only 9 companies have actually done a tax inversion. A number have started to and backed out after being threatened.

Speaker John Boehner and Senate Finance Committee ranking member Orrin Hatch have warned that any Treasury measure that would be effective would likely lie beyond Lew’s authority.

The Scandal of Obama’s Very Own Slow Recovery by The Elephant's Child

President Obama simply cannot stop doing the things that discourage businesses from hiring, and failing to do the things that wold help improve the employment situation. The biggest downer at present is ObamaCare. The regulations that force businesses to pay for the health care of anyone working 30 hours a week have led, not to a flurry of hiring more people for 40 hour weeks, but to workers being reduced to part-time at 28 hours or less.

Grocery stores operate on a low profit margin, and schedule workers for the hours when the store is busiest. Here, and probably nationwide, more stores are converting to at least partial self-check-out lines. The same for big box stores like Home Depot. Business has never liked being in the health-insurance business, and is using this opportunity to get out of it. Every law, passed in haste, will have unintended consequences. Thoughtful people can anticipate some of them, but things do not work out as expected. In manufacturing plants, more tasks are performed by machines. Who do you call today where you are answered by a human instead of a machine?

The administration has bragged that the economy added 175,000 jobs last month, but the number of job openings actually fell by 118,000 in April. The burning desire of a statist administration is for ever more regulation, ever more control — impulses that create more unemployment. If you refuse to allow the free market to work, you don’t get much work. Economics writer James Pethokoukis plaintively asked recently “Where are the entrepreneurs?”

Starting something new is taking a big risk. People who have a great idea borrow from their home equity, relatives, friends, take out second mortgages and load on debt to start a new business. Why are so many of Obama’s backers looking for subsidies and grants from the government to start a business? To absolve them from the risk of starting on their own.

Free people strive and create; regulated, controlled people hunker down and try to save their money. We have a government at present that wants more people to be dependent on the government. They are paying people to sign others up for food stamps, for welfare, for disability—the help that you are “entitled” to. The thing you won’t see on this chart is the increase in part-time or temporary employment. The problem is not, as is often claimed, available workers lacking the skills needed for the sectors with job openings — but a broad-based lack of demand for workers. Business is hurting. If you listen carefully to the radio, you will hear all sorts of businesses advertising who have never advertised before.

The administration’s efforts to destroy free market capitalism are perhaps the biggest scandal of all.


(Click to enlarge)

Nearly One Billion People Have Escaped Extreme Poverty in 20 Years, Thanks to Free-Market Capitalism by The Elephant's Child

From Economist Mark Perry at AEI, an excerpt from The Economist:

The world’s achievement in the field of poverty reduction is, by almost any measure, impressive. Although many of the original Millennium Development Goals (MDGs) —such as cutting maternal mortality by three-quarters and child mortality by two-thirds—will not be met, the aim of halving global poverty between 1990 and 2015 was achieved five years early.

The MDGs may have helped marginally, by creating a yardstick for measuring progress, and by focusing minds on the evil of poverty. Most of the credit, however, must go to capitalism and free trade, for they enable economies to grow—and it was growth, principally, that has eased destitution.

The world now knows how to reduce poverty. A lot of targeted policies—basic social safety nets and cash-transfer schemes help. So does binning policies like fuel subsidies to Indonesia’s middle class and China’s hukou household-registration system that boost inequality. But the biggest poverty-reduction measure of all is liberalizing markets to let poor people get richer. That means freeing trade between countries (Africa is still cruelly punished by tariffs) and within them (China’s real great leap forward occurred because it allowed private business to grow). Both India and Africa are crowded with monopolies and restrictive practices.

Many Westerners have reacted to recession by seeking to constrain markets and roll globalization back in their own countries, and they want to export these ideas to the developing world, too. It does not need such advice. It is doing quite nicely, largely thanks to the same economic principles that helped the developed world grow rich and could pull the poorest of the poor out of destitution.

Economics 101: Incentives Matter. by The Elephant's Child

Ten days ago, I wrote a post about how the attempt to redistribute wealth usually ends up redistributing the wealthy instead. When government becomes too eager for ever higher taxes and fees, those who are trying to protect what they have earned often pick up and move out of that government’s jurisdiction.

I was inspired by new French President Francois Hollande’s attempt to raise taxes on France’s wealthy to 75%. Imagine a government that allows you to keep just 25¢ out of every dollar you earn. That’s a pretty powerful incentive to move. The redistributors, however, always assume that people, poor saps, will just obey.

Thanks to U.S. tax rates — Obama’s insistence that ‘the rich’ have not been paying their ‘fair share’—has resulted in the number of Americans who tore up their passports in 2011 and left the country to move permanently overseas, was seven times higher than those who left in 2008. In the first three-quarters of 2012, more than 1,100 Americans renounced their citizenship and made their homes elsewhere, according to the  Federal Register. The available data for the fourth quarter of 2012 are not yet available, but on track to surpass the 2011 numbers.

There are 6 million American citizens living abroad and continuing to pay U.S. taxes. Expatriates increasingly abandon their citizenship over taxes. The U.S. is the only industrialized country that requires citizens living abroad to pay income taxes even if their income is generated abroad. The newly passed law concerning the “fiscal cliff”has increased the taxes on individuals earning more than $400,000 a year and married couples earning more than $450,000 to 39.6 percent, up from last year’s rate of 35 percent.

People and businesses respond to incentives. This is a very simple fact of life, yet liberals in particular and politicians in general seldom get it. They are sure that if they just raise your taxes, they will get more money. Doesn’t work that way. Often they get even less revenue.

Works the other way too. When you reduce taxes, particularly on businesses, but on individuals as well — you free people up to grow, attempt, invest, invent and develop to improve their lives and to follow their hopes and dreams. And when people are set free to grow, economies grow as well.

How very odd that Obama cannot grasp this simple basic economic concept. If his hope is to take away from the rich in order to help the poor, he’s wasting his time. The evidence, however, is even less encouraging. Those whom he expects to reward with the revenue garnered from the rich, are his supporters and the unions. That isn’t philanthropy, it’s graft.
(h/t: Gateway Pundit)


ObamaCare versus The Doctors in Oklahoma. by The Elephant's Child

Back during World War II, wages were frozen, so in order to attract and reward employees, employers began offering health insurance as a benefit. And here we are. It seemed like a good idea at the time. Third parties pay the majority of medical bills, so competition is not allowed to fun free. Yet when free enterprise opens up the marketplace, the result is better care for a remarkably lower cost. A third-party payer system is one in which A buys goods or services from B that are paid for by C. Because insurance companies or the government pick up the tab, patients don’t have the normal incentive to choose the best value. In the current situation patients often do not know what procedures cost.

Three years ago, Dr. Keith Smith, co-founder and managing partner of the Surgery Center of Oklahoma took a radical step in the health care industry. He posted a list of prices for 112 common surgical procedures online. He and his partner Dr. Steve Lantier founded the Surgery Center 15 years ago, after they became disillusioned at the way patients were treated at St. Anthony Hospital in Oklahoma City, where the two men worked as anesthesiologists. . They bought the shell of a former surgical center with the aim of creating a for-profit facility that could deliver fist-rate care at a fraction of what traditional hospitals charge.

The Surgery Center demonstrates that you can deliver high quality care at low prices.”In any other industry, tons of attention is devoted to making systems more efficient, but in health care that’s just completely lost,” says Dr. Jason Sigmon, an ear, nose and throat surgeon who regularly performs procedures at both the Surgery center and at the Integris Baptist Medical Center which is run by the non-profit Integris Health, the largest health care provider in Oklahoma.

Every employee, except for clerical staff,  at the Surgery Center is directly involved in patient care. Human resources and building maintenance are the responsibility of the head nurse. No administrative employees. (the top 18 administrative employees at Integris Health in 2010 received an average of $413,000 in compensation). Because bills charged by Integris are paid primarily by insurance companies or the government, the hospital gets away with gouging for its services. A procedure that Dr. Sigmon performed at Integris in October 2010 called a “complex bilateral sinus procedure” which helps patients with chronic nasal infections. The bill, which was strictly for the hospital and does not include Sigmon’s or the anesthesiologist’s fees totaled $33,505. When Sigmon performs the same procedure at the Surgery Center, the all-inclusive price is $4,885.

ObamaCare is, first of all, very badly written law. It assumes that America will simply salute and follow its regulations. But people and businesses respond to incentives.  Companies are getting out of the health insurance market and self-funding. Hospitals are reorganizing and Doctor’s groups are reorganizing. Some doctors are establishing “concierge” practices where patients pay a concierge fee to a physician for yearly care. There will be many other responses as ObamaCare begins to take effect.

On the other hand, a new provision buried in ObamaCare effectively prohibits doctors from starting their own hospitals or expanding the hospitals they already own, which has been widely interpreted as a give-away to the American Hospital Association — the way things are done in Chicago politics. The Surgery Center is exempt from this statute, since it is technically not a hospital and does not accept Medicaid or Medicare.

Smith and Lantier believe that market-driven facilities like theirs will thrive and proliferate as consumers catch on to the very costly collusion between Big Government and Big Health Care. Affordable health care is possible.

Yes! It’s Romney & Ryan, Capable and Consequential. by The Elephant's Child

It’s a formidable ticket. There is probably not a better pair to address the enormous problems we face. These are two serious adults, who want to have an adult conversation with America about how to return to the free and prosperous country we know that we can be — once again.

As Iowahawk said: “Paul Ryan represents Obama’s most horrifying nightmare: math.”

The Democrats have already had Paul Ryan throwing Granny off the cliff. It will be an increasingly nasty campaign. Obama is a fierce competitor, and answers to no boundaries of taste or truth. I am still reeling from the president’s promise to do unto the entire country what he did for General Motors. Mitt Romney has a deep knowledge of American business, what business needs to release their energy and restrained power to restore the economy. Paul Ryan has a deep knowledge of federal budgets and what is possible and what is not. We will be in good hands.

It Isn’t Outsourcing That is the Problem! by The Elephant's Child

If you are working hard, doing a good job, and suddenly you are let go—for any reason, it is devastating. Even if you didn’t like your job much, it is still devastating. It is a blow to your sense of self-worth, and it’s accompanied by a great wash of fear. Will you be able to find another job, buy the groceries, pay the rent or mortgage. Scary times.

Politicians take that fear and try to build on it to get you to reject the opposing party. Nasty, but that’s the way things work. President Barack Obama and his Democrat administration are defending the once-discredited theory, now resurgent, that government must act as the economy’s “guide” and use public funds to “stimulate”it. The Republicans, on the other hand, advance the idea that the main source of new growth is the innovative energy of America’s people, and their entrepreneurial spirits. What the economy needs is for government to get out of the way and stop being such a barrier to growth.

“An essential part of the free-market argument is ‘creative destruction,'” notes Guy Sorman in City Journal,” a theory proposed by the great Austrian economist and Harvard University professor Joseph Schumpeter. “If you don’t understand Schumpeter’s insight—expressed most powerfully in his classic 1942 book Capitalism, Socialism and Democracy—you’ll have a hard time understanding why free markets work so well to generate prosperity. Yet creative destruction is a complicated concept, poorly understood by the general public and not always easy to defend.”

The biggest stadium in the country is the Michigan stadium in Ann Arbor. It holds 109,901 people, I assume not counting the football teams and staffs. If I put you in charge of their lives, telling them how to live, where to work, what to buy and what not to buy, how to order their time when not working, how would you do?  Obviously. Silly question.

For me it is an illustration of the free market. All those different people with their different beliefs, different histories, different hopes and dreams will— because they are free people, sort themselves out and mostly manage their lives quite efficiently. And that’s only 110,000 people. Our country holds over 330 million. Why don’t they all try to use the telephone at the same time, or all arrive at the same stoplight at once? Why does a nice restaurant have roughly the same number of customers most nights? Why doesn’t everybody turn up on Friday night? Millions of people making their own self-concerned decisions and it mostly all works just fine with no direction. There is a  kind of wisdom in all those separate decisions.

Our politicians, on the other hand, are quite sure that they can make it all better with lots of rules and regulations. We can tolerate a good many, but the wisdom of government does not trump the wisdom of the people as a whole. They are just not smart enough to know how to regulate so many; or to regulate American businesses and tell them how many to hire and how many to fire and where to do business.

Schumpeter’s insight was that in a capitalist economy the old must constantly give way to the new. Production technologies in a free economy improve constantly. New products and services appear constantly. The electronics industry is an exemplar. Seems like you no sooner buy the newest new thing when it has been superseded by something newer with better features. Not many typewriters these days.

The upside is that America actually leads the world in manufacturing. We produce 21 percent of global manufactured products. China comes after at 15 percent. Manufacturing supports an estimated 17 million jobs in the United States, about one in six private sector jobs. In the current campaign there are lots of accusations about outsourcing, which is assumed to be a very bad thing and to destroy jobs. But is it? In 2010, for every $1 that American companies invested abroad, other countries invested $2 in America and American jobs. The total stock of foreign investment in the U.S. came to $4 trillion. That represents a lot of jobs.

Outsourcing is based on an unpleasant truth: Certain types of operations, such as call centers, for example, or unskilled product assembly, are simply too costly for companies to do in the United States. By having those jobs performed overseas, companies are able to preserve their resources for the things those companies do best, their “core competencies.”

Big manufacturers are building new plants here. BMW is adding 300 new jobs in its South Carolina plant this year, and Airbus recently announced it will employ 1,000 workers at a new plant in Alabama. Both South Carolina and Alabama are right-to-work states.

Multinational corporations still employ more Americans. U.S. multinationals employ 22.9 million Americans — more than twice as many people as they employ in China, Mexico and all other countries combined. Foreign-owned multinational corporations employ 5.5 million people in the United States. Insourced businesses are a tremendous boon for the U.S. economy. Jobs brought to America by foreign-based companies—account for nearly 5 percent of private-sector employment. These businesses buy more than $1.8 trillion in goods and services from local suppliers and small businesses in the areas where they locate.

All very reassuring, but not very meaningful to those who have lost their jobs. There is a downside to “creative destruction.” But in a May 2012 paper, researchers at the London School of Economics Center for Economic Performance examined 58 U.S. manufacturing industries from 2000 to 2007 and found that the cost savings and productivity increases from shifting some work overseas enabled  enough new domestic hiring to offset any jobs lost abroad.

Economic policy is not about preserving every single job that exists at any cost, but must be about creating general prosperity.

There is a lot that policymakers could do to improve the situation. The Index of Economic Freedom, produced by the Heritage Foundation and  The Wall Street Journal reveals America’s competitive disadvantages.  Hong Kong, ranked No. 1 in the Index has an economy that is growing at an astounding 7 percent. The U.S. GDP growth in the first quarter of 2012 was only 1.9 percent. Hong Kong has a zero tariff rate. Their corporate tax rate is only 16.5 percent, compare to our corporate rate of 35 percent. Their regulatory environment is highly supportive of business efficiency.  Here at home, 106 major federal regulations have added more than $46 billion in new costs for Americans. This is four times the number and five times the cost of George W. Bush’ s major regulations. Hundreds more regulations are winding through the regulatory pipeline as a result of Dodd-Frank and ObamaCare that will take full effect in 2014.

It’s not hard to find evidence of what to do to help the economy to grow. What’s hard is to act on the evidence.




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