The Obligation of Business

Back in February, President Obama let businesses know what he thought. In a radio address rebuke he said,

“If we make America the best place to do business, businesses should make their mark in America. They should se

t up shop here, and hire our workers, and pay decent wages and invest in the future of this nation. That’s their obligation.”

Um…Mr. President, have you talked to the business community lately? In the midst of wrangling over the debt ceiling, the president would like to raise taxes while agreeing to a smidgeon of spending cuts. No need to raise taxes; they are automatically on the way up beginning 2012, reports the Wall Street Journal.

Many tax cuts that were temporarily extended for businesses will expire at the end of tax year 2011. Thus, there is hope for the people who regularly accuse the wealthy (the current definition of “wealthy” is households earning $250,000 or more) of not paying their “fair share.” But as I have mentioned time and time again, many of these wealthy households are small business owners who report pass-through income on their personal income tax returns. So what tax breaks will businesses not expect to find in their New Year’s goody bag? Among them:

  • The depreciation bonus for capital expenditures will fall from 100 percent in 2011 to 50 percent in 2012.
  • Those who purchase qualified business stock and hold it for at least five years currently pay zero capital gains tax; that rate is scheduled to increase to 14 percent.

Businesses have been the target of a bit

of frustration among the voters as well. Some advocates of “fairness” say that since Congress has been generous enough to extend these benefits to them at the expense of the middle class, why are they sitting on piles of cash and doing little to get the unemployment rate down? The answer is…they’re not stupid. Not only will these short-term tax cuts expire for them (and whether they will be extended is anybody’s guess), but more significantly, the health reform law (PPACA) will increase their cost of hiring, according to the National Federation of Independent Business. Furthermore, as NCPA pointed out last year, the bizarre tax incentives of PPACA will discourage firms from growing.

So in light of the tax and regulatory hammer that is about to fall on businesses, what kind of obligation do they really have? The obligation they have is to themselves and this usually means, according to traditional economic theory, maximizing profits. Without sounding elementary here, maximizing profits allows firms to 1) reap a return on their investment that often incentivizes them to invest more, 2) invest more through purchasing capital and hiring workers, which in turn, 3) expands their market for goods through growing their business and expanding their consumer base. And when they stay afloat and free from the heavy hand of government, everybody benefits.

What part of this is so difficult for the White House to understand?

Comments (3)

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  1. Brian Williams. says:

    Right on the mark! The best thing we could do is get out of the way and let businesses make a big, fat profit. That’s what they sometimes call “economic growth.”

  2. Joe Barnett says:

    Some of these tax breaks are available under limited circumstances. It would be better to eliminate them all and lower tax rates.

  3. Kennedy says:

    I’m not sure which is worse: the fact that our President actually said that, or the fact that it does not surprise me in the slightest that our President said that.

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