On Cronies

“It has been said that politics is the second oldest profession. I have learned that it bears a striking resemblance to the first.” Ronald Reagan (1911-2004), 40th President of the United States

As someone who believes in the ability of the individual to triumph over adversity, one of the greatest things that frustrates me are those that fail to reach their potential by choice. All of us have trials & tribulations that we have to conquer – none of us are immune to the unfairness of life. Although we want to believe the best in folks, we sometimes find that they often succumb to one of the most consistent things in the human psyche – the willingness to take a short cut. Some call it corruption, some call it laziness, but no matter what you call it, we all have to fight it, either within ourselves, or within others.

As many of you have probably guessed based on my past writing, I never begrudge someone who gets rich from hard work. The success an individual gains from their personal toil and sacrifice are merely the fruits of one’s labor, and it should never be given to another unless by personal choice.. However, when an individual or company tries to avoid hard work by using a shortcut, the whole natural order of things come tumbling down. The shortcut I refer to today is what some call “crony capitalism”.

America became an economic powerhouse because most of our businesses used to focus on creating and making things that the public wanted to buy. The found a need and they created something to fulfill it. If the public wanted it, then they succeeded, if they did not then they failed. But America was the land of opportunity, and failure was never seen as a shameful thing, but merely a road bump. Americans keep trying because everyone used to have the same chance, the same opportunity.

All that changed during FDRs era of the New Deal. For the first time, government stepped in and determined what was important and worthy of support. For instance, price fixing seemed like a good idea at the time in order to stabilize the market, and some of the big corporations were all for it and even helped set the price points. Until of course it was discovered that the lack of competition killed small businesses, who happened to be the big corporations greatest competitors. Capitalism never works if the mighty muscle of government decides who will get subsidies and who will not, what regulations will be in place for certain industries and not others, and who will be taxed and who will not. Only politically favored groups, persons or industries reap the benefits of crony capitalism.

Before you fall off your chair and think that I have gone all progressive please hear me out – I don’t have a problem with big businesses being successful. What I have a problem with is big business structuring their whole industry around the priorities of government (and not their customers) in order to be profitable, and who spend millions of dollars on lobbying in order to get subsidies and exceptions to the tax law when they fulfill this goal. This is not being successful through hard work, sacrifice or innovation; this is taking a short cut.  For instance, GE did not pay one dime in taxes last year, yet made over $14 billion dollars in profit, $9 billion of which was overseas. Ironically, GE’s CEO Jeffrey Immelt is the chairman of President Obama’s Council on Jobs and Competitiveness. Does anyone else think that his cozy relationship with Washington has benefited Immelt, his company and his stockholders? They certainly did not benefit the American taxpayer or those whose jobs went overseas.

And before one shouts the tired refrain of “tax the rich!” or “tax those evil corporations!”  we must take a step back. Microsoft used to spend $0 on lobbying, because they were focused on growing their business by making a product that the public wanted. All that changed when the government stepped in with lawsuits in an attempt to control their industry. Now they spend millions on lobbying just like GE. But not all corporations have the deep pockets of a GE or a Microsoft to spend millions on lobbying for favors, so those that don’t will be the only ones that suffer with a corporate tax increase.  American corporate taxes are the highest in the world, and those politically non-favored corporations will continue to pay them until they have to lay people off, send jobs overseas, or even close their doors. This is why raising taxes on big corporations and the rich will never work – those that are politically well connected will always be able to carve out loopholes for themselves. The only way to get back to fairness is to remove the perversion of crony capitalism: take away the subsidies, regulation exceptions (like healthcare waivers) and tax loopholes that benefit only the elite few. Make taxes a simple percentage of profit and let the chips fall where they may. It will not just force a business to succeed on its own merit, but it will make it that much harder for politicians to use the public purse to help fill a future campaign war chest.

How much money do you think corporations would save if they did not have to pay for tax lawyers or lobbying? How much more could their pour into their business and create jobs if their tax burden was simple, fair and consistent? Crony capitalism is not capitalism at all; it is political favoritism. If we continue to allow our government to pick the winners and losers in our tax structure, the taxpayer will always end up being one of the losers.

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