Is Our Country Turning Itself Into a Banana Republic?
Throughout the West, countries enjoying the most robust economies thanks to capitalism now demonize that work engine.
As of late, nearly all of Europe, the United States and even Japan have dabbled in socialism. But beyond substantial debt, protest demonstrations over entitlement cuts and increasingly diminished productive capacity, where has it gotten them?
Ironically, capitalism has done more to distribute wealth worldwide than any socialist scheme ever has. Free market critics cry globalization is a capitalist plot to make the rich richer and the poor poorer.
Of course it is. But unlike government organizations such as the World Bank, private-sector globalization has distributed wealth much more evenly around the world, effectively shrinking the gap between developed Western nations and many so-called Third World developing nations.
More than ever, richer nations are experiencing a greater rise in debt levels while many developing countries have the lowest in relation to what they produce annually. Aging populations of the more prosperous countries are becoming less productive but more needy of health care, while the additional burdens related to unemployment, immigration and welfare are spiraling.
No wonder the Office of Management and Budget estimates that the social services bill in the United States alone will climb to $3 trillion by the year 2015.
So married are we to social and entitlement programs that talk of scaling them back frightens nearly every politician in Washington. Why not then do as President Obama urges and increase taxes on the rich and corporations?
The unpopular fact is that the horrid Bush tax cuts resulted in more tax revenue from the rich. Why? Because those tax cuts really did stimulate the economy. In the first two years alone, the number of folks making $1 million annually rose by 60 percent, which added more than $1 billion in tax revenue.
That aside, let's say we do the reverse and increase taxes on the rich and corporations. Before we do, though, consider that the top 1 percent of taxpayers now earn 17 percent of the country's total income but already pay 37 percent of federal taxes.
Moreover, the U.S. sports the highest corporate tax rate, at 39 percent, and has an effective tax rate of 27 percent. Yet while other countries are slashing their corporate tax rates to hang on to businesses, Washington still ponders tax increases.
So how much should we raise taxes? The fact is that if we increased all tax revenue (not just what the rich and corporations pay) by a third, the government would barely cover the projected 2015 bill for social programs.
What would happen then if we did increase taxes on the rich and corporations in our current economic environment? The especially large companies that employ one-fifth of our labor force would flee even faster from this country.
In the past decade, these multinationals have cut nearly 3 million jobs in the U.S. and added well over 2 million abroad. With our high taxes, high employee incomes and high utility and raw materials costs, why would companies expand operations here? Our tax laws already spur them to go elsewhere. Would increased taxes help this situation?
Ask GE. A longtime supporter of President Obama, GE does not pay its "fair share" but instead exploits tax loopholes. For 10 years, GE has averaged an effective tax rate of just 2 percent. How? It expanded overseas. Many corporations have followed its example, and higher taxes would stampede their exodus.
By the same token, consider why foreign investors are shrinking in number. When the U.S. economy was strong and offered a rosy rate of return, investing in this country was attractive. But now we offer only dizzying debt and find loans harder to come by. With other economies doing relatively well, investors in rising Third World countries are stashing their money closer to home. To attract them back, the U.S. would have to raise interest rates - which, unfortunately, would dampen our economy further.
The more the U.S. demonizes capitalism and experiments with socialism, the more we will see this flight of capital. Our tax base will erode, not strengthen, and we will drift further into staggering debt.
Some contend that China, holder of a substantial chunk of that debt, already owns our soul. Given that we lag deplorably behind too many countries in math and science while our children devote themselves to video games and we cater to the entitled, where will we rank on the world stage in five years - or in 10?
Will the next Teflon come from Angola?
Robert A. Taft, of Pinehurst, is president and CEO of USATies Inc., which represents capital equipment suppliers in Third World countries. He was deputy assistant secretary for international affairs under President Clinton. Contact him at email@example.com.
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