Another Fraud On The Public – Government Creates Jobs

We often hear that government has created or saved millions of jobs.   On October 21, 2012, The New York Times contained an article titled, The Myth of Job Creation, in which they discussed the presidential debate between President Obama and Mitt Romney. In particular, they addressed the exchange “about the offshoring of American jobs” where Mitt Romney interrupted President Obama and stated that “Government does not create jobs.”

The New York Times continued, “Except that it does, millions of them—including teachers, police officers, firefighters, soldiers, sailors, astronauts, epidemiologists, antiterrorist agents, park rangers, diplomats, governors (Mr. Romney’s old job) and congressmen (like Paul Ryan).”

The Times ended their article as follows: “The government does not create jobs?  It most certainly does.  And at this time of state budgetary hardship, a dose of federal fiscal aid to states and localities could create more jobs, in both the public and private sectors.”

On the following day, Professor John T. Harvey, an economist from Texas Christian University, wrote an article for Forbes titled, Of Course the Government Can Create Jobs!.    His mantra, “I want to explain how things work, not what you should believe.”    The professor stated, “Why would someone embrace such a questionable characterization [i.e. that government does not create jobs]?  Because their true goal isn’t to generate a scientific understanding of the manner in which the macro-economy operates, but to make a moral statement.”

Professor Harvey’s conclusion: “But, one thing is clear: the government creates jobs, and lots of them.  In fact, the private sector needs them to do so.  Don’t forget, the rules of accounting tell us that if the government is in deficit, then the private sector must be in surplus . . . ”   The professor should probably go back and brush-up on his principals of economics and let the accountants explain the “rules of accounting.”

What Professor Harvey and The New York Times are doing is described by the late Dr. Will Durant, a renowned historian awarded the Pulitzer Prize and Medal of Freedom, “Education has spread, but intelligence is perpetually retarded by the fertility of the simple. . . ignorance lends itself to manipulation by the forces that mold public opinion.  It may be true, as Lincoln supposed, that ‘you can’t fool all the people all the time,’ but you can fool enough of them to rule a large country.”

The late Henry Hazlitt explains the problems associated with the creation of jobs by government and the propaganda spewed by the likes of The New York Times and Professor Harvey , in Economics in One Lesson.   Mr. Hazlitt states, “many of the ideas which now pass for brilliant innovations and advances are in fact mere revivals of ancient errors, and a further proof of the dictum that those who are ignorant of the past are condemned to repeat it.”

In Chapter I, The Lesson, Mr. Hazlitt explains, “certain public policies . . . would benefit one group only at the expense of all other groups.  The group that would benefit by such policies, having such a direct interest in them, will argue for them plausibly and persistently.  It will hire the best buyable minds to devote their whole time to presenting its case.  And it will finally either convince the general public that its case is sound, or so befuddle it that clear thinking on the subject becomes next to impossible.”    Mr. Hazlitt continues, “In addition to these endless pleadings of self-interest, there is a second main factor that spawns new economic fallacies every day.  This is the persistent tendency of men to see only the immediate effects of a given policy, or its effects only on a special group, and to neglect to inquire what the long-run effects of that policy will be not only on that special group but on all groups.  It is the fallacy of overlooking secondary consequences.  In this lies the whole difference between good economics and bad.  The bad economist [e.g., Professor Harvey] sees only what immediately strikes the eye; the good economist also looks beyond.”

Mr. Hazlitt explains in Chapter IV, Public Works Mean Taxes, why government does not create or add any new jobs.   His example is a bridge costing $10 million resulting in taxpayers losing $10 million that they could have spent on other things that they needed most. “Therefore,” wrote Mr. Hazlitt, “for every public job created by the bridge project a private job has been destroyed somewhere else.  We can see the men employed on the bridge.  We can watch them at work.  The employment argument of the government spenders becomes vivid, and probably for most people convincing.  But there are other things we do not see, because, alas, they have never been permitted to come into existence.  They are the jobs destroyed by the $10 million taken from the taxpayers.  All that has happened, at best, is that there has been a diversion of jobs because of the project.  More bridge builders; fewer automobile workers, television technicians, clothing workers, farmers.”

“But then we come to the second argument.  The bridge exists.”    Mr. Hazlitt continues, “It is, let us suppose, a beautiful and not an ugly bridge.  It has come into being through the magic of government spending.  Where would it have been if the obstructionists and the reactionaries had had their way?  There would have been no bridge.  The country would have been just that much poorer.  Here again the government spenders have the better of the argument with all those who cannot see beyond the immediate range of their physical eyes.  They can see the bridge.  But if they have taught themselves to look for indirect as well as direct consequences they can once more see in the eye of imagination the possibilities that have never been allowed to come into existence.  They can see the unbuilt homes, the unmade cars and washing machines, the unmade dresses and coats, perhaps the un-grown and unsold foodstuffs. To see these uncreated things requires a kind of imagination that not many people have.  We can think of these nonexistent objects once, perhaps, but we cannot keep them before our minds as we can the bridge that we pass every  working day.  What has happened is merely that one thing has been created instead of others.”

Government is incapable of creating any net new jobs; at best, any job created by government in the private sector destroys another job in a different industry, which results in government picking winners and losers.   And, any job created in government or the public sector, not only displaces private sector jobs, but, continues to destroy wealth through taxation to pay for the wages, benefits, and retirement programs for government employees.

There is a famous story about Nobel Laureate Dr. Milton Friedman, which illustrates the absurdity of job creation by government.   Dr. Friedman was touring “a giant Chinese infrastructure project of some kind, in which the workers were using old-fashioned shovels and picks and wheelbarrows.  Curious, Friedman asked his guide why they weren’t using bulldozers and other heavy machinery.  The answer was: ‘We care about creating jobs for our people.’  To which Friedman responded: ‘Then why not use spoons?’”

Excessive government regulation and taxation puts a strangle-hold on the creation of private sector jobs and wealth.   As stated by Lawrence W. Reed,  “central planning [e.g., government programs to create jobs,] is an exercise in arrogance and futility. . . .”   Because government has gotten into the business of determining winners and losers, we are no longer governed by the rule of law—we are governed by men.   If we could get Hazlitt’s book, Economics in One Lesson, into our public schools and in the hands of most voters, we may be able to vote out-of-office the politicians with “good intentions and good will who wish to reform us” through central planning, thereby destroying our wealth and impoverishing our nation.

Dum spiro, spero—While I breathe I hope.

-Robert G. Beard, Jr., J.D., LL.M., C.P.A.

Another Fraud On The Public – The Corporate Income Tax

Recently the Citizens for Tax Justice (CTJ), or, as I like to refer to them as, Citizens for Tax INJUSTICE, conducted a study of 288 Fortune 500 companies and stated that 26 of them paid no federal income tax in a 5-year period.   Reuters jumped on this and stated, “Many of the most profitable U.S. corporations paid little or no federal income tax from 2008 to 2012, according to a five-year study issued . . . by a . . . tax activist group.”   To Reuters credit, they did mention the fact that several of the companies singled out disputed the CTJ study.   The spokesman for General Electric stated that the CTJ “inaccurately uses the current tax provision—a book accounting number—to make definitive statements about our U.S. income taxes.  This is not the same as the cash income tax that we pay for a given year.”   According to the spokesman, “For each year cited by [CTJ], GE paid income taxes in the U.S., as well as billions in other state, local and federal taxes in the U.S.”

Ignoring the fact that the CTJ’s study may be flawed, as indicated by the GE example, this study is being used by the CTJ, at least several large media organizations, and some politicians, arguing that many U.S. corporations are not paying their fair share of taxes.   In 2007, one of Candidate Hilary Clinton’s proposals included a “strategic energy fund” which would be funded “by taking away the tax break for the oil companies.”   At least one Democratic Senator is on the record stating, “It’s time for the big corporations to pay their fair share [of income taxes].”

Before proceeding to the real fraud perpetrated on the public, it is easy to dispute the broad conclusions reached by these individuals and groups.   When these socialists state that many of the most profitable corporations paid little to no federal income taxes, this seems to suggest that at least most of the Fortune 500 companies fall into this category.   The CTJ study singled-out 26 companies, which represents about 5% of the Fortune 500 or 9% of the 288 companies studied.   To be considered many or most, I would suggest that the typical person might envision at least 80%-to-90% fall into this category, not less than 10%.   In addition, we also know that at least one company (General Electric) should be removed from the 26 companies singled-out, further reducing many, to a few.

And, in spite of what many politicians have said, the major oil companies (e.g., ExxonMobil and Chevron) do not receive any additional tax breaks greater than most other businesses; and, they pay more income taxes than most other corporations.

The real fraud perpetrated on the public is that Americans are led to believe that corporations actually pay income taxes in the first place.   Think about it, how can property or an inanimate object pay taxes?

In the February 22, 2014 issue of The Economist, far from a conservative or libertarian magazine, they stated: “The big question is whether it makes sense to tax corporate profits at all.  A company is a legal entity; if it is taxed, it must pass it on.”   Corporations do not pay taxes, only individuals pay taxes.   When a corporation is taxed, either: (1) the stockholders absorb the tax, through a reduction of dividends and/or company value; (2) employees are penalized, by cancelling raises or bonuses and not hiring new workers; and/or (3) customers pay the tax through an increase in the cost of the products or services purchased from the corporation.   Contrary to what we hear from the media, academia, and the politicians, it is the middle-class and poor that suffer from taxes imposed upon corporate profits.

The Economist has even taken the position that “the rich world needs to cut red tape to encourage business.”   The cost of government regulationrepresents another tax or fee ultimately absorbed by the middle-class and poor.   The regulatory and tax environment that exists today keeps the middle-class and poor from being able to start new businesses; they are unable to compete with the entrenched large corporations who have huge armies of attorneys and accountants, which are necessary in today’s over-regulated and over-taxed environment.

Only consumers, workers, and investors pay taxes, not corporations.   The corporate income tax and regulatory environment is a hidden stealth tax that negatively impacts poor and middle-class Americans.

If enough people begin to understand this fraud, the politicians expounding these types of untruths, whether they are outright lying or just plain ignorant, may be voted out of office.

Dum spiro, spero—While I breathe I hope.

-Robert G. Beard, Jr., J.D., LL.M., C.P.A.

Financial Independence = Freedom & Prosperity

Financial independence has nothing to do with retirement. In fact, nobody should ever retire. According to Dr. David Eifrig, Jr., “too many people work and save all their lives only to retire and discover they are bored… literally to death. Many succumb to depression and disease (even terminal illness) because they are unprepared for the mental shift in retirement. In fact, a shocking study in 2005 (The Retirement Millionaire Manifesto), showed people who retire at age 55 die twice as fast as those who keep working.”

Colonel Harland David Sanders (1890-1980), at age 65, after his restaurant failed because of reduced customer traffic from the newly completed Interstate 75, took $105 from his first Social Security check and began visiting potential investors that may be interested in becoming franchisees. About nine years later he sold the Kentucky Fried Chicken corporation for $2-million to a partnership of Kentucky businessmen. This sale did not include his Canadian franchises. One year later he moved to Mississauga, Ontario to oversee his Canadian franchises; and, he continued to collect franchise and appearance fees in both Canada and in the United States. He also created several charitable trusts that to this day continue to donate money to various groups that specialize in women’s and children’s care. Colonel Sanders was 90 years old when he passed away.

The Colonel Sanders story illustrates several important lessons: It is never too late; learn from your mistakes, never give up, adapt and prosper. Also, this is an excellent example of turning a negative event, i.e., the failure of a business, into something much more beneficial. After all, there are no problems, only opportunities. Colonel Sanders took this negative event—the failure of his business— reevaluated his situation and made changes. The changes he made greatly improved his life and the lives of many others, who are continuing to this day to benefit from his success.

Therefore, your goal should be financial independence and not retirement. Financial independence allows a person to work less, participate in more leisure activities, change careers, start new businesses, organize and contribute to charitable causes, etc.. Furthermore, the quicker you become financially independent, the more freedom you have to do as you so please.