I was a cow

This week President-elect Donald Trump made a deal with the CEO of Carrier Corp., a U.S.-based HVAC company, to stop the transfer of about a 1,000 American jobs to Mexico by applying a simple, tested formula: Trump promised to reduce the company’s taxes by about $7 million.

If you’ve never owned a business, the significance of this formula might pass right by you. I’ve owned several businesses, and one of the first lessons I learned is that local, state, and federal taxes are the biggest threat to a business’ profitability other than paying too much for the business in the first place. To wit: At one time I owned apartment houses in a semirural county in another state. The property tax rate in that little county was higher than what I used to pay in California (California!) and what I was paying at the time in Northern Virginia—and both of those places have hugely higher personal income rates than the citizens of the little town where I had my apartments. And by the way, this state also demanded that I pay PERSONAL income tax to it although my home was in Virginia.

When this state kept raising the property tax, I had three choices: 1) raise the rents (greedy landlady); 2) quit maintaining the buildings and grounds (slumlord); or 3) sell and set up shop elsewhere (bye bye landlady).

That’s because corporate taxes are a tool the government uses to hide its rapacious tax collection habits from ordinary consumers. The American corporate tax is a bit like the European value-added tax (VAT). It's designed by government to hide its existence from the consumer. Corporations DO NOT pay taxes—they merely collect them on behalf of the IRS. People pay taxes. When corporate tax rates rise corporations merely increase the cost of goods and services to cover the increase. YOU, the consumer pay the tax when you purchase the goods or services. As long as every manufacturer is paying the 35 percent corporate income tax—that is, all competitors are domestic—American manufacturers face an even playing field because they all price their products and services more or less the same. They all build the 35 percent tax rate into the cost, and the consumer is no wiser.

But with the onslaught of cheap Asian imports creating stiff price competition, American manufacturers face an impossible situation. They cannot compete with the bargain-basement prices generated by very low labor rates (and lower corporate tax rates) from across the globe and continue to pay the 35 percent American corporate income tax—the second highest in the world. So to stay viable, these companies move their operations to where labor rates are low (Mexico, Asia, etc.). That’s the only way they can stay in business.

That’s what I did. I sold my apartment buildings and started investing in a business-friendly state. I spent the entire 5 years I owned property in that other state feeling like a cow waiting to be milked. Never again.

All levels of government, local to federal, reduce taxes to create incentives for business to move into their neighborhoods. It’s the first and surest way to attract business to a locale. Tax incentives are used for all kinds of social engineering too. Governments lower or even eliminate taxes on certain merchandise to encourage you to buy (medicine/food/clothing in some states). The flip side to this: They tack on outrageous taxes to encourage you not to buy (alcohol and tobacco, for example). They know that tax incentives affect the movement of money, either in or out of our pockets.

So I ask you: Why doesn’t Congress wake up and slash the corporate tax to bring business back to America? They know what works.