People start businesses to provide products or services to their customers in exchange for set prices. The price for any product or service is selected by the business owners to provide good value for their customers while providing the owners with enough profit to compensate them for the effort of running that business. Price should be higher than the cost of production but lower than the value customers get from using the product or the service.
Business tax is a cost and when any of the costs of production rises the business has to adjust to the rising cost by either cutting other costs, raising prices or accepting lower profits. Lower profits may drive businesses to close especially newer businesses that still have loans to pay and accordingly too sensitive to any profit loss. Raising prices may cause businesses to lose market share and lose profit when their customers move to cheaper alternatives. So, in reality, the only option that businesses have is to cut their costs to stay profitable and competitive.
A business can cut costs by reducing the costs of labor through relocating some or all of its operations to a foreign nation with lower labor and regulatory costs. It can also cut costs by using different suppliers who produce their products overseas with lower costs and offer lower prices accordingly. Another way to cut costs is to invest capital to automate more processes which reduces production costs.
So the real victims of high business taxes are workers who cannot move to different countries to keep their jobs and end up unemployed. As the Tax Foundation explains in a recent post, labor is the least mobile factor in production so it gets harmed the most by higher taxes.
Regulation is also a type of tax and over the last 30 years, taxes and regulations took a major toll on the American manufacturing jobs. The following diagram shows the growth of manufacturing industrial production in the United States over the past 30 years vs. the drop in manufacturing jobs. The graph uses 1986 as a reference year with value 100:
The diagram shows that the manufacturing output has almost doubled over the last 30 years while the number of manufacturing jobs is about 70% of the level at 1986. What happened over the past 30 years is a combination of all the cost reduction factors outlined earlier. Manufacturing of products such as clothes and small electronics moved overseas to use cheaper labor while the production of higher value products such as cars and industrial equipments became more automated.
Business taxes don’t redistribute the wealth or create a better society, they punish workers and kill their jobs. So when a politician claims that business taxes and regulations are good for the economy, remember all the manufacturing jobs lost in the United States and vote against him or her.
One of the main political myths of modern politics is that the United States should intervene militarily in foreign nations to achieve some high moral goal such as stopping communism, spreading democracy or defending human rights. In spite of the record of failure of this policy, it still persists and many people still repeat the same argument that the world is a dangerous place and intervening makes it less so. Proponents of military intervention always defend the failures of the Vietnam and Iraq wars by citing certain failures in execution but in reality, the whole idea is fundamentally flawed.
The main problem that these people ignore is that war is a destructive activity. It takes resources from the economy and destroys them. So the soldiers who fight in the war are taken from the pool of capable workers and the materials used in producing weapons and ammunitions are taken from the private economy placing stress on the available resources. People who may support a war because they like its public goal will quickly rethink their opinion when they see the coffins of dead soldiers coming back home and the broken of these fallen soldiers, when they see the wounded warriors coming back with life-changing disabilities and when they see taxes or deficits increase to pay for the war. When war extends in time and casualties continue to mount the political pressure will mount to end the war. It is hard for democratic governments to sustain long wars that don’t have a strong cause supported by the majority of the population. The only reason that guarantees sustained support is if the war was defensive.
If we examined the example of the Iraq war, many people liked the idea of removing Saddam Hussein from power in Iraq but not many people continued to like the war when they saw the thousands of dead and wounded and the billions wasted on that war. The same could be said about Korea and Vietnam wars where both lost political support pretty quickly amid mounting human and economic cost. Our foes in these examples fought hard enough to make the war long and costly.
These wars were all failures not only because of the huge human and economic loss but also because the political goal was unnecessary. North Korea and China remained communist countries after the Korean war and Vietnam became a unified communist country after the Vietnam war but that didn’t make communism any stronger and the whole idea was naturally defeated by the weight of its deficiencies, so was it necessary to sacrifice all these lives? The middle east was unstable before the Iraq war and it became even more unstable after the Iraq war under fresh generation of dictators and demagogues.
The only real way to really cause positive change in the world is by being a positive example for other nations. If we abandoned the dreams of nation building and world fixing and focused instead on strengthening our liberties and remove the artificial barriers to our economic growth we will be in a better position to defend against any foe who attacks us. We should only go to war to defend a clear national goal such as our citizens, land or trade routes and when we go to war we should focus on achieving that national goal not on shaping others in an image we like.