Our Ineffective National Industrial Policy: Employer Taxes, Unions, and a Lesson for Procurement

This is the second half of Thomas Kase’s rant. Click here for Part 1, on natural resources regulations.

Taxes and regulations

Fact: we have the highest employer taxes in the world.

I think we should use the term “employer” instead of “corporation” much more; maybe that’ll get people thinking about what companies actually do. Tax employers => you get fewer employers, more unemployed (nice job Congress). Why do we even have any corporate taxes? The companies all have owners; any money they take out gets taxed. What’s the public interest in double taxation of employers?

Even the Europeans have caught on. Look at what they’re doing in the UK, taking their tax rate to 20% - or less than half the average statutory rate in the US (which is what small firms face). No wonder leading US firms keep their earnings overseas, as well as take tax-optimized value-add strategies into consideration regarding products as well as where to locate various levels of operational support (not low-level transactional functions either).

Then you have the current rumblings about the federal minimum wage laws – especially scary in a country as large as the USA. It’s widely proven that raising minimum wages disparately impacts young people and minorities, as it takes away low-skill and entry positions. The federal minimum wage will not be much of an issue in NYC or other major cities with high costs of living, but it will hurt those in areas with lower cost structures. It doesn’t take a genius to figure out that you will revisit your automation, offshoring, and hiring decisions whenever a cost driver is increased substantially. Expect a rural impact with fewer non-city job opportunities and greater pressure on cities.

Let’s turn to the destruction of our (the world’s actually) health care sector – aka the “Patient Protection and ‘Affordable’ Care Act” – which we have written about in the past. Making life further complicated for small companies are the IRS rules around aggregating ownership across companies when deciding who meets the full-time employee triggers. This from the same federal government that runs the SBA, which supposedly supports the creation and growth of new small businesses!

Next from the federal regulatory circus is the EPA and their ongoing attempts to redefine what is water. Really, there is no end to this “logic” – the humidity in the air around us would appear to be fair game to these regulators. Certainly we can expect roof design and down spout regulations before long. And our water quality is getting much better. Just like air quality, we’re getting closer to preindustrial quality levels – so why the expanding power grab?


My perspective comes from having grown up in the most unionized country in the world (Sweden), then working in Japan, a country with effectively no trade unions. I also had firsthand visibility into heavy union industries in the US (Michigan and automotive) and saw the gradual manufacturing shift to the South (I was involved in early projects at Toyota’s Kentucky plant) and then the ongoing influx of firms to Georgia, Alabama, Tennessee.

We have all see what unions ultimately create. Take for example the fall of Detroit. Unions are a bit cuckoo in more ways than one, taking over the nest and starving or otherwise killing their nest mates as quickly as they can. The Administration’s renewed efforts to increase union enrollment despite Detroit is alarming – do we not learn anything from history? Much as I like being in the South, the auto sector did not invest down here because of the education level of the workforce – it was the lack of stifling unions, the right-to-work laws. Look at the cost of cars built in Europe versus in the USA – Mercedes and Toyota only build their high-end vehicles in the old country; the rest are built in the Americas. We do not need more or stronger unions in any section of our economy.

Procurement angle

You just can't ignore the short and long term impact of these issues. When you pick strategic suppliers, when you decide where to build new plants and where to place your centers of excellence, you want them to be in locations that are conducive and supportive of business and growth – in places where bureaucrats and union officials will not capriciously rewrite the rules of business overnight. This is about risk management as much as it is about short-term financial stewardship.

"We suck less" is not a good industrial policy – we are long overdue for a best of breed approach. We already have some of the best property rights, due process, and other corporate laws in the world – why can't we be best at the rest? No need for the Feds to tell us what to make, just get out of the way so we can perform.

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First Voice

  1. Aaron Powell:

    Well written, Thomas. It reminds me of a quote sometimes attributed to a couple of other Thomas’s (Jefferson and Paine), but more famously expounded by Henry David Thoreau in his essay Civil Disobedience:

    “That government is best which governs least.”

    In the same paragraph, Thoreau goes on to say something very much akin to what you have written:

    “Government is at best but an expedient; but most governments are usually, and all governments are sometimes, inexpedient.”

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