Who Really Builds A Business

Who Really Builds A Business?

Recently, our President made the comment that if you are an entrepreneur and own a small business, you didn't build it yourself.  He made the comment in an attempt to show the importance of infrastructure and other government services such as public schooling.  Instead, he gave us a revealing glimpse into his world-view and the role he believes our government plays in job creation and the private sector.
Mr. Obama argues that if it weren't for infrastructure like roads, rail, and ports, then private businesses would not be able to so easily transport goods and services and would therefore not exist.  He also puts forth the theory that teachers are a motivating force that spark the entrepreneurial spirit of kids that go on to become tomorrow's business owners.  I will show that Mr. Obama suffers from an inability to properly assign causality to these issues and how that effects his policy that has restrained growth while in office.
Let's start with the argument that teachers are the motivating force behind entrepreneurs and therefore the U.S. economy.  For the record, my dad is an eighth grade math teacher and I have the ultimate respect for what these public servants do on a daily basis.  However, it is a leap too far to say that teachers are the causal factor in an individual's decision to pursue a business venture of their own creation.  After all, entrepreneurs have existed long before public schooling, and many autodidacts have gone on to be fantastic titans of industry.  Andrew Carnegie did not have a teacher that showed him how to create steel and told him to use it to transform the history of our country and cities across the world.  Steve Jobs wrote to two other entrepreneurs, Hewlitt and Packard, to ask for the parts necessary to build his own computer without the poking or prodding of a teacher.  Don't get me wrong; teachers do a great deal to inspire children and young adults to pursue their dreams and expose them to dreams they may not have even thought of on their own, but they do not create entrepreneurs out of mindless drones.
Now let us move on to the idea that without infrastructure, industry would cease to exist.  Again Mr. Obama is putting the cart in front of the horse here.  Before there were ports, roads, electrical grids, or railways young enterprising men and women came to the new world for a chance to create their own destiny. Let's look at the flow of capital as further evidence of whether the government creates industry or industry supports government and infrastructure.  In order for the government to build infrastructure, they need revenue.  Where does this revenue come from?  It comes from a couple sources; individuals through the individual income tax and businesses through the corporate income tax.  If all the businesses in the U.S. were to board up their doors tomorrow and not employ a single person or sell a single good or service there would cease to be revenue for the government to function.  If the government instead were to tear up all the roads, rail, electrical grids and everything else under their complete control, businesses would adapt and continue to exist.  Would it be a difficult transition?  Yes.  Would it be the end of entrepreneurs?  No.
This doesn't even mention the fact that the government is using capital that was created and accumulated by the private sector in order to create the infrastructure that exists today.  Before the government built roads, pioneers cleared paths and used horses and other beasts of burden to transport goods.  Before airports were even dreamed of, the Wright brothers used their entrepreneurial spirit to claim the sky as their own.  The private sector has always found a way to meet demands that exist in the market, regardless of whether infrastructure existed or not.  Infrastructure and governments don't create businesses.  Businesses create the capital that allows a government to exist.
I'm a big fan of analogies so I want to give a few that I think show the error in Mr. Obama's line of thinking.  Without medicine, there would be no doctors.  Without machines, there would be no mechanics.  If it weren't for books, trees would disappear from our planet.  It doesn't work in any of these relationships, and it doesn't work the way Mr. Obama asserts no matter how loud he shouts it.
What does it mean for us that we have a President that believes the car drives the driver?  Perhaps the most obvious implication is the role the government plays in our lives.  If our leaders believe they exist only because we allow them to and they thrive because of our success, then individual freedoms, property rights, contract law and all the other necessities of a successful free market are protected.  When we have a President like our current one, we see things like the auto sector failed bailout where contract law is completely nullified in order to serve the interests of a particular group that helped the President gain office.  We see things like the individual mandate where the government says they know what's best for you much like a parent would for a three year old.  We see things like Solyndra where resources are taken from the free market and given to a special interest group that tries to create a product that isn't technologically efficable at a price that the free market wouldn't support.  Perhaps Solyndra would still be in business if every home owner with electricity was required to buy their product.
The issue isn't that Solyndra failed, it is that it failed with money that was given to them unilaterally by a government that took the money from those who created it in the first place.  The issue is that our President believes this is how advances are made in the private sector - only with the help of government subsidies and handouts will businesses succeed.  Only by taxing businesses in order to build more infrastructure will businesses be able to generate larger profits.  Only by exerting more goverment control will we all be free to prosper.
In four months we will choose who our President will be for the next four years.  We will also be selecting our congressmen and senators.  Perhaps more importantly, we will tell our government officials who we think we are and who they are in the causal relationship of society and government.  Do we believe we are subjects that exist because of the benevolence of the ruling government, or do believe that we are sovereign individuals who work, toil, sweat, and bleed to create a better life for ourselves and those we will leave behind and the government exists only because we say it does.

How the Real Debate Over Contraception Should Have Sounded

Unless you have been living under a rock lately, you’ve undoubtedly heard the controversy started by Rush Limbaugh when he called a female law student a slut and prostitute because she supported the mandate from the White House that would require employers to provide a health insurance plan that covers female contraceptives.  Now let me be clear, because I don’t want to spend my whole post talking about how Rush Limbaugh is an idiot; Rush Limbaugh is an idiot.  Clear enough?  Ok, let’s move on to what I really want to talk about.

This latest outburst by Limbaugh is just another example of how the Republican Party and Republican media fails to effectively frame an argument that otherwise could be a very valid one.  The GOP has an addiction to appeal the moral and religious base when making arguments instead of forming a legitimate argument based on affordability and individual liberty. 

The sad part about this fact is it doesn’t just apply to Rush Limbaugh.  While discussing his views on contraception, Rick Santorum said he didn’t support it because it gives individuals “a license to do things in the sexual realm that is counter to the way it should be.”  This argument assumes either A. that only unwed women are using contraceptives or B. that the use of any type of contraceptive is counter to the way things “should be.”  It completely ignores that married couples use contraceptives as a way to plan families.  It also doesn’t address the fact that even if it is morally wrong to have pre-marital sex, the government cannot and should not legislate morality.

Let’s now move on to the legitimate argument the Republican Party should have made when this debate started.  The mandate would require that employers have to supply a health insurance plan that would cover contraception regardless of religious belief.  Given that at our country’s most core belief is the freedom of religion, this debate should have been over before it even started.  The idea that the government can dictate anything to a religious organization should repulse us to the point that this mandate should have been a non-starter.

Now let’s look at the individual liberty argument.  Even if the employer were not a religious organization, the government should not be regulating businesses at this level.  Some may argue that government currently regulates businesses with waste disposal requirements and air quality requirements.  The reason these regulations exist is because they directly affect all members of society without the ability for individuals to avoid the adverse effects.  This is not true of the contraceptive argument.  Clearly, there is no legislation requiring that employees choose the insurance provided by the employer.  Although it would be more expensive, individuals who desire a health insurance policy that pays for contraceptives could shop for one on the open market. 

The choices don’t end here either.  Women could look for other options than merely their insurance provider for affordable contraception.  Interestingly enough, the Wall Street Journal reported that Miss Fluke could have purchased her birth control for around $9 a month instead of the $3000 per year that she claimed from a local retail store.  That is the price without any health insurance.  Women could also require that their sexual partner wear a condom like the years before the creation of the birth control pill.  And if none of these options seem viable and a woman still does not want to get pregnant, she could abstain from having sex.  Obviously, the choice of an employer not to provide a health insurance plan that provides free contraceptives does not directly impact the entire society and even fails to impact their own employees in an unavoidable manner.

The icing on the cake could be the affordability argument.  While many on the pro-mandate side would argue that this does not cost the taxpayer any government money, we can see that this just isn’t true.  If the government requires this of all employers, they too need to provide this option for their employees whose wages are paid by tax revenues.  Also, if private companies have to provide this option, they have less money to hire new employees or provide raises.  This, in turn, reduces the wages that are paid by the company and tax revenue collected by the government.  In a time when our government is running deficits over a trillion dollars a year and at least 8.3% of Americans are out of work, this is a mandate we simply cannot afford.

The biggest obstacle the GOP should have faced during this debate was the predictable attempt by the Democrats to cast the GOP as the heartless party that doesn’t care about women’s rights.  This would need to be balanced by the arguments that the GOP believes women should have the right to choose the best contraceptive method for them as individuals and businesses have the same right to choose the best health care options for their employees.  It is not a heartless viewpoint, but one that requires individuals to be responsible for the choices they make, and does not pretend to know the best option for them.  The GOP could even go as far as to say they know the birth control pill was not the option that all women would choose, and that the government was essentially promoting the pill as the best option when this should be a decision made at the individual level with the input of a medical doctor.

Taxes and income inequality.

Tonight, President Obama is going to talk about income inequality and how unfair the tax code is as it stands right now because the wealthy pay less on income that comes from investments.  I'm going to spend a few minutes showing why this is fundamentally untrue and a dangerous stance for our businesses if this fallacy is accepted.
Let's first talk about the differences in how our tax code treats income.  The income that most of us get in our paycheck is what I will refer to as regular income.  The percentage of taxes you pay on this depends on how much money you earn in regular income and can vary from 10% for the lowest earners to 35% for the highest earners.
The income that comes from investments (capital gains and dividends) is treated separately by our system.  If you have held a stock for over 60 days and that stock pays a dividend, it is considered a "qualified" dividend and you pay a lower rate on this income.  This rate is 0% for the lowest two income brackets and 15% for everyone else currently.  Capital gains are similar.  If you held a stock for over a year and then sell it, the profits are considered long term capital gains and are taxed at the same rate as qualified dividends.  It should be noted that any ordinary dividends (stock being held under 60 days) and short term capital gains (stocks bought ad sold within one year) are taxed at the same rate as regular income.
Now at first glance it may seem unfair that someone who held a stock for a few years and made a million dollars on it pays a lower tax rate than someone who earns $35,000 from their job, but let's explore that a little more thoroughly.  First, we should note that any money used to buy stock has already been taxed once.  Therefore, if someone earned $35,000 they would pay 25% on their ordinary income.  If they then invested some portion of that money and sold it two years later for a one million dollar profit, they would then pay 15% on that one million dollars.  It's plain to see that this is not unfair, because they already paid their fair share on their ordinary income and shouldn't be punished for investing in a successful business.
If we go even further into this we can explore what this money was used for during the time it was invested.  The main purpose of stock markets is for public companies to raise money needed to start or build businesses, and in turn, create jobs.  People who buy stock hope that the company will generate profits which will be passed on to them via higher stock prices or dividend payouts.  It is the business profits that are passed on to the stock holder that are taxed at this "lower" rate than regular income.  However, businesses in the United States currently pay 35% in corporate income taxes before any of the profits are paid to shareholders.  So in reality, the effective tax rate on any profits from business that are passed on to individuals is 44.75%  (35% plus 15% of the remainder).  Hopefully, it is clear now that the individuals who already paid their fair share on ordinary income, took some of what was remaining to promote a successful business that created jobs for more people, and then paid taxes on profits that had already been taxed once have paid their fair share.
Now let's talk about the ramifications of having higher taxes on investment income.  Since this is pretty elementary, this part will be rather short.  If you increase the taxes on interest income, you lower the incentive for individuals to invest.  If you lower the incentive for individuals to invest, you decrease the ability for businesses to raise money to start and expand businesses that create jobs.  If you have less businesses creating profits and jobs, not only does your economy lag, but your tax revenue falls as well.
I understand our country is searching for alot of answers on how to balance the public welfare with individual liberty, but I can guarantee the answer is not to tax investment income higher.