President Obama is stepping up attacks on Mitt Romney’s business career, the principle selling point for the Republican candidate, with claims that Bain Capital profited by outsourcing jobs. Of course what the President doesn’t want you to know is that his policies have outsourced exponentially more jobs than Romney’s firm could even have dreamed of and that the President’s claims were ironically being made as he tours the nation in a campaign bus that was made in Canada! Apparently its OK for the President to shop abroad for a bus, and by extension the employees who make the bus, but not other people looking for employees abroad.
The thrust of the President’s campaign so far has made the clear that he believes his record is insufficient to earn him reelection and thus the entire focus of his campaign is on vilifying Mitt Romney. Unfortunately the facts are not on the President’s side. Rather than causing outsourcing, by lowering corporate tax rates and making America more attractive to business, Mitt Romney’s tax plans will bring jobs and resources home to the United States, which the current system of double taxation forces offshore. Almost any economist will agree that taxation influences behavior by lowering the incidence of the taxable event when that tax is raised. Lowering corporate taxes will incentivize expanded business activity that will provide for real job growth at home. The cause of outsourcing is noncompetitive labor, regulatory, and tax policies, which cause businesses to face a comparative disadvantage should they choose to produce in the United States.
While the general populace reacts with outrage when companies go over seas, most fail to realize the cause. The business is not unpatriotic, it simply recognizes that it must either relocate or go out of business, because operating in the United States puts it as such a disadvantage it can simply not afford to continue. When Hershey’s chocolate left its long-time home in Pennsylvania to send its factory to Mexico, it wasn’t because Hershey is anti-American, it was because U.S. sugar regulations have Americans paying double the world price for sugar. Faced with the choice of using artificial sweeteners and sacrifice quality (which is why Coke is so much better in Latin America than it is here), close down, or relocate overseas, Hershey chose the latter.
In fact, all this talk about outsourcing raises an important economic issue that Americans should understand. The average American brings home a wage that is exponentially higher than the world average. Thus the real question is why should any company ever produce in the United States when labor costs are exponentially higher. And the answer is that they do so because it is profitable for them to do so. The capital structure accumulated over the last two hundred years makes labor in this country more productive plus close proximity to American markets decreases transportation costs. But there is a point at which our noncompetitive corporate income tax (an effective 39.6%) and regulatory regime impose costs that exceed the benefits of our productive labor force, and it is at this point that outsourcing occurs. Thus it is not private businesses that play the key role in the outsourcing process, it is government!
The key to reversing outsourcing is two-fold. First, remove the barriers to businesses that prevent them from hiring, namely onerous taxation and regulation. President Obama is clearly not fit to fulfill this role, since his tax plan calls for an increase on exactly the individuals and companies the country needs to hire workers. Plus his regulatory administrations are continually promulgating mindless rules to “crucify” oil companies and destroy efficient domestic energy production. This is not a recipe for business or hiring growth.
On the flip side, government can also play a role in making the labor force more productive. Education policy should be left to the states entirely, but some thought should be given to reforming the system in favor of preparing people for work and careers rather than for partying four years in college and ultimately arriving at the same level of education as high school graduates from other times. But the federal government can certainly assist in enhancing productivity by lowering or eliminating the double taxation of saving and investment. The capital gains and dividends taxes should be eliminated and full expensing made available for all firm investment. The boom in business activity and the capital structure would augment the superiority of our labor force and incentivize businesses to further utilize domestic labor sources. President Obama’s policies have been the opposite of that prescription. The healthcare law placed a new surtax on the financial transactions of those making more than $200,000, while imposing a new layer of taxation on the makers of healthcare technology. President Obama wants to make the income tax more progressive, not closer to the consumption tax system that is universally acknowledged to be more economically efficient.
In sum, for the President to deride Mitt Romney’s business record because of alleged outsourcing, he is really identifying the problem as his own liberal policies. Would any rational person continue to stay in a country where he is castigated and beaten everyday? The answer is clearly no. Thus why should we be surprised when businesses pack up and leave when government taxation and regulation batters and bruises them to the point of extinction? For once, government actually is able to solve this problem and it can do so by getting out of the way. Obama’s Canadian bus is a good metaphor for the larger issue here. Even as he condemns Romney’s business past, President Obama is actively doing exactly what he accuses Romney of. His job-killing tax policies and regulations are the cause of outsourcing and the “Made in Canada” sticker on his campaign bus is a visual reminder of this economic truth.