The United States’ 39% marginal corporate tax rate is the third highest in the world and the highest of the 34 industrialized nation members of the OECD.
Regulatory burdens placed on business under the Obama Administration have become staggering – and even more costly. Here are some data points directly from the Competitive Enterprise Institute:
- Federal regulation amounts to nearly $15,000 per U.S. household each year.
- In 2015, 114 laws were enacted by Congress during the calendar year, while 3,410 rules were issued by agencies. Thus, 30 rules were issued for every law enacted last year.
- Many Americans complain about taxes, but regulatory compliance costs exceed the $1.82 trillion that the IRS is expected to collect in both individual and corporate income taxes from 2015.
- Some 60 federal departments, agencies, and commissions have 3,297 regulations in development at various stages in the pipeline. The top five federal rule-making agencies account for 41 percent of all federal regulations. These are the Departments of the Treasury, Commerce, Interior, Health and Human Services, and Transportation.
- The 2016 Federal Register (the daily depository of rules and regulations) currently contains 81,640 pages, the highest page count in its history – and is still climbing. Obama also held the prior record, 81,405 pages in 2010. The 80,000 page mark has been passed in only three previous years (2010, 2011, 2015).
- Of the ten all-time-highest Federal Register total page counts, seven occurred under President Obama.
The above statistics illustrate our unfriendly and costly economic environment for business in the United States. Our corporate tax is unduly and comparatively high and the hidden costs of regulation are even higher – conferring a very real financial constraint onto businesses and choking economic growth. These economic anchors – the direct cost of taxes and hidden costs of regulation – help to explain how the Obama Administration doubled our national debt burden to $20 trillion while never once achieving GDP growth in excess of 3%.
The cost imposed by a high corporate tax rate is generally fairly obvious and direct. Our nation’s corporate tax rate of 39% compares poorly with Europe’s average tax rate of 19% (26% weighted by GDP). And remember, a corporate tax is really nothing more than another input cost to corporations. Taxes increase the cost to produce a given product – and uneven tax rates alter fundamental competitive ability. There is a real reason why U.S. corporations have $2.6 trillion in un-repatriated cash overseas – cash that could be going toward economic investment, production and growth domestically instead of boosting the capital availability and growth of other nations.
In reality there should be no corporate tax at all – and there is a very sound economic argument for just such a position but that will have to wait for another time.
Regulatory costs are less obvious but just as much of an economic drag – in some ways more so, as their very complexity can be a barrier to small business growth. This governmental policy approach – rule by regulation – is not only foolish, inefficient and extremely wasteful, it is unsustainable. The burdens fall across all sectors of business but not equally so. Small businesses face a greater regulatory burden simply due to their smaller scope and scale – they cannot afford the legal and compliance staffs that larger companies can shoulder. Said another way, this staggering level of regulation is choking off the largest source of new job creation – small companies. President Obama has rightly stated that small businesses are the backbone of the economy – one has to wonder at his treatment of them.
Larger corporations, while having the ability to absorb increasing regulatory effects (to a point), obviously feel the financial burden as well – it drives them to look elsewhere for economic opportunities and to delay or cancel domestic expansion. And like taxes, regulations are an input cost – one that puts all American corporations on an uneven economic footing versus their less regulated international rivals.
The recipe for improving our economy has always been simple – get government out of the way. Reduce regulations, cut taxes and allow American productivity to be unleashed. President-Elect Trump – and his administration – understand this simple fact.
Two days ago, Softbank CEO, Masayoshi Son, Japan’s second richest man, appeared in the President-Elect’s press room – also known as Trump Tower Lobby – to announce a massive $50 billion investment in the United States along with an expected 50,000 new jobs. Softbank is Japan’s second largest telecom company and is the majority owner of Sprint. When asked what had prompted him to come, Mr. Son responded, “I just came to celebrate his new job. This is great. The US will become great again.”
Yesterday, U.S. Steel CEO, Mario Longhi, told CNBC he could be looking at restoring up to 10,000 jobs in the United States. During the interview Mr. Longhi stated, “when you see in the near future improvements to the tax laws, improvements to regulation, those two things by themselves may be a significant driver to what we’re going to do.” Longhi continued “I have not felt an environment of such positive optimism, where forces are converging to provide for a better environment in quite a while.”
I include the quotes from both men as they illustrate a broader point.
Business leaders look for operating environments that are conducive to generating positive returns on their investments. We live in a big world and CEOs can pick and choose where best to invest their corporate dollars. Simply re-visit the data points listed above to see what type of environment our economy has been laboring under the last eight years. Additionally, Business leaders want at least some insight into intent and direction from an administration. Businesses plan and invest capital for the long term. Businesses dislike uncertainty above all else. Chief Executives want an element of stability – and the ability to have confidence that decisions made today will have relevance tomorrow. President-Elect Trump has clearly telegraphed his administration’s direction through his 100-day plan and his well-noted intention to cut taxes and reduce regulations. These intentions are being reinforced daily through Trump’s actions and his cabinet appointments.
And business leaders are responding.
As are the financial markets. The Dow closed yesterday at its highest ever level, as did the S&P 500, the NASDAQ and the Russell 2000 – and the Russell 2000 has outperformed the other indexes. Why? Because the Russell 2000 is comprised of smaller companies that will benefit to an even greater degree from much-needed regulatory relief.
Get ready for more company announcements like the ones noted above – the kind of announcements we have not seen in a long time. President-Elect Trump is laying the foundations of growth through the application of reduced governmental burdens.
And the American economy is going to respond. Get ready for quite a ride. It’s gonna be a great eight years.
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