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Tax and Regulatory Complaints Historical Red Herrings

September 30, 2010 By Myles Spicer, Guest Author

The conservative answer to our state and national budget problem is lower taxes and less government interference in the private sector.

These two bugaboos have been long standing red herrings of conservatives who like to blame government for our financial ills.  Indeed, this mantra of government intrusion into the capitalist system goes back not years, not decades, but even back to the early 20th century when Theodore Roosevelt eloquently and effectively attacked those who abused the capitalist system and ran amok among lack of regulatory reform.

For years conservatives have claimed corporate taxes inhibit growth. On the state level, Minnesota's halcyon years of business growth occurred when we were considered a "high tax" state.  In fact, we have been in the grips of a "no new taxes" administration for eight years, and there is simply no evidence that it has stimulated business.  Much is made of our South Dakota neighbors, which levy virtually no corporate taxes and modest other taxation. Historically, Minnesota gave birth and currently has 21 Fortune 500 companies; South Dakota has none!  We had even more; but Wells Fargo left us for California, another high tax state. This is not to say more taxes stimulate business, but merely to point out, the correlation between taxation and business development has never been proven and conservative proposals ring hallow.

Perhaps limited and targeted tax breaks for the right incentives may prove useful in tough times, but the flip side is there actually might be a slight correlation between fair taxes and business development in the long range, for a very sound reason. Businesses need and demand much more than low taxes to flourish. They need solid infrastructure; accessible transportation; a skilled workforce (i.e. an educated populace); and in many cases access to learning and research facilities. Those come primarily through state and local investment.

I have owned several small businesses during a 50-year career and can state unequivocally not once did I make a strategic decision based on taxes alone. Taxation never deterred me from growing my business, adding employees, seeking new clients and revenues, and business expansion. The premise is simple: you make money, pay your taxes, and live in a progressive community with good schools, modern roads, public safety, and friendly amenities. That's exactly what most of us want as citizens.

Further, conservatives are naïve to believe corporations (especially the largest ones) are really taxed excessively when the fact is they have a myriad of tools to largely escape maximum taxation - in the most egregious cases, some pay no taxes at all.  The fact is most small businesses are Sub-S corporations, which pay no corporate income taxes at all under the IRS code. 

As for regulation, I am not sure how conservatives can claim government is too intrusive, when this year alone we have had a massive egg recall (lack of food regulation); an incredibly disastrous oil spill (lack of environmental protection); a tragic mine disaster (mine safety). This is on top of the banking industry's continued abuse, which brought our economy to its knees (lack of financial oversight); and health insurance companies' abuse that resulted in inferior health care at outrageous prices (hopefully now somewhat ameliorated by the health care reform bill). 

Even worse, we have adequate regulatory laws in many cases. However, conservative tax reducing, shrink government policy renders watchdog agencies deficient through underfunding and inadequate staffing. It is a deceptive and self-fulfilling strategy. Make government smaller, and then complain it does not work.

We all wish to have fairer taxes, effective regulation, and efficient government but progressives and conservatives differ on how they're structured in practice. To the conservatives' end, there is absolutely no empirical evidence that lower taxes and less regulation will solve our financial distress or stimulate business - the issues are far more complex, further reaching, and international in scale than these two simplistic solutions.  They are, in fact, simply historical red herrings.

Myles Spicer is a former ad agency owner living Minnetonka. 

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