Times are tough today for profits.
In many respects, it’s harder to be a successful entrepreneur today than ever before, thanks to a growing tax burden, a host of stifling regulations at all levels of government and the expanding threats of litigation or prosecution for a host of seemingly innocent activities.
The irony, of course, is that economic freedom — variously called capitalism, the profit motive, entrepreneurship or business — is essential to creating jobs, providing needed products and services, and generating prosperity for everybody. The rising tide can indeed lift all boats, but first it must be allowed to rise.
In this special report, The Examiner has brought together in a three-part series appearing today, Friday and Sunday nine experts on the present and future health of economic freedom in America.
Today, former U.S. Attorney General Edwin A. Meese warns that your next business meeting may have to be held in prison, thanks to a bewilderingly complex trend of criminalizing conduct that has never before been considered even remotely illegal.
U.S. Chamber of Commerce President Thomas Donohue says that anti-profit politicians and activists often are beating up the goose that lays the “golden eggs” of jobs that pay the taxes and support the causes that make American life both prosperous and compassionate.
Finally today, Sen. Jim DeMint, R-S.C., calls on Congress to try a new approach — making the burdens on entrepreneurs lighter rather than continuing to heap on more taxes, red tape and mandates. – Mark Tapscott, Editorial Page Editor
Jail could be the location of your next business meeting
By Edwin Meese
A recent brochure from the National Federation of Independent Business Legal Defense Fund depicts a businessman, dressed in a jail-type orange jumpsuit, sitting opposite his lawyer in a prison visiting room. The caption reads, “This could be your next business conference!”
It’s no joke. Increasingly, businesspeople in the United States are being targeted by Congress, federal enforcement agencies and government prosecutors.
Newly created crimes attach serious penalties to conduct that has never before been considered a criminal offense. That means average “law-abiding” Americans can now find themselves facing criminal investigation or even prosecution. Moreover the protections traditionally available to safeguard those charged with crimes have been greatly eroded.
Traditionally, English and American law required proof beyond a reasonable doubt of two fundamental elements to convict a person of a crime: The defendant must have committed a particular type of act forbidden by law (usually something that practically all civilized society has considered inherently wrongful), and there must have been the intent to commit the act. These substantive requirements limited the government’s power to punish. For example, they assured that unintentional or unknowing acts would not result in criminal conviction.
Yet over the past few decades, an unprecedented expansion of criminal law has, in certain criminal statutes, largely eliminated these substantive checks on government power. Today criminal law covers many areas of conduct that are neither inherently wrongful nor committed with any wrongful intent.
Accompanying this expansion of criminal law is the tremendous growth of government regulation that has taken place since the 1930s. How bad is it? So bad that no one can tell for sure how many federal crimes are on the books.
But this much we know: In addition to some 4,500 specific crimes designated by Congress, there are an estimated 10,000 regulations, promulgated by executive branch regulatory agencies, each of which carries a criminal penalty for violation.
The sheer volume of the criminal law ensures that it is virtually unknowable by citizens and government officials alike. As a result, almost anyone — especially those in business — can find themselves inadvertently on the wrong side of the law.
Nowadays making a mistake on a government-mandated form, failing to comply with obscure environmental regulations or even running afoul of highly dubious foreign regulations can get you arrested.
Even worse, managers can be convicted if a person under their general supervision commits a crime — even if the offending act was done without the manager’s knowledge or against the manager’s explicit instructions.
When a spectacular case makes news headlines, too frequently Congress will carelessly pass a new law. Usually, it’s unnecessary. Often, it’s so broadly worded that it can just as easily imperil the innocent as punish the guilty.
But the multiplicity of criminal offenses isn’t the only thing that might ensnare the unknowing businessperson. The way these laws are sometimes enforced, the failure to observe procedural safeguards and overzealous prosecutions combine to increase the potential that innocent people in the business community will be trapped by the criminal justice system.
In some cases, business executives have been coerced into waiving the attorney-client privilege, which is an important bulwark against miscarriages of justice. Some have been treated like “Mafia kingpins,” subjected to Racketeering-Influences Corrupt
Organizations, (or RICO) prosecution for matters that have nothing to do with the original purpose of that law, which was supposed to pertain to criminal syndicates.
Multiple charges under separate counts are brought for essentially the same act. Counts of “money-laundering” are added to unrelated charges, thus increasing the possible sentence. The purpose of these tactics is to coerce a plea, regardless of guilt.
Most prosecutors are conscientious and fair. But for some, the temptation of a vast array of possible crimes and the availability of overreaching tactics is too great. Forgetting that their primary responsibility is to see that justice is done, they will seek a conviction at the expense of justice.
Overcriminalization and over-zealous prosecutions constitute a troubling expansion of government power. As such, they pose a great threat to individual liberty. Without limits protecting citizens from the haphazard application of criminal punishment, law becomes a tool of oppression rather than protection.
That is why the Heritage Foundation has a major project going forward to correct the “overcriminalization” of the law and to restore the procedural safeguards and traditional concepts of justice that have long protected the innocent and have ensured the liberty of the American people.
Edwin Meese, former U.S. attorney general, is chairman of the Center for Legal and Judicial Studies at the Heritage Foundation.
Everybody wins when profits are plentiful, free to grow
By Thomas J. Donohue
Beating up on corporate profits has become the sport of choice for a growing number of politicians and anti-business activists.
Many Americans are receptive to these attacks, but they may want to think again.
After all, Webster’s dictionary defines profit as “the excess of returns over expenditure in a transaction or series of transactions.” By that definition, companies are not the only ones seeking profits. Virtually all Americans are profit seekers, and there’s nothing wrong with it.
Most of us try to earn as much money as possible by getting additional education and training, seeking the best available job with regular raises, and making smart decisions when we buy stocks and homes. We are working for the best possible return on our investments. America’s top companies and our more than 20 million small businesses are trying to do the exact same thing.
It may bother some idealists that the nation’s economic success is fundamentally based on self-interest. But guess what, it works!
The potential to earn and keep “returns over expenditure” inspires individuals and businesses alike to work harder, take reasonable risks and be more productive.
This profit motive has created a powerfully dynamic and innovative economy. The American economy is not without flaws, and it has its ups and downs. But no other system ever devised has created greater opportunities and higher standards of living for so many people.
Profitable companies create jobs. They develop the investment capital to expand, invent new products and technologies, and compete throughout the world. Profitable companies often pay dividends, and over time, their stock prices go up, building wealth in union pension funds and 401(k)s alike.
Some critics understand the need for profits, but they complain about profits that are “too high.” Yet who is in the best position to fairly define whether a profit is too high — politicians in Congress, activists with an ax to grind or the free marketplace?
If you are one of the many Americans selling items on eBay, when the bidding closes, you don’t take the second-highest offer because you think that the winning bid is too high. You gladly accept the best return that this freewheeling online marketplace provides.
Or think back to the halcyon days of the housing boom (and may those days someday return!) when many Americans sold their homes at extraordinary prices. On a percentage basis, their profits far exceeded those of industries that have recently been criticized for “excessive” profits. I doubt that many home sellers said to their would-be buyers, “You are offering me too much. It wouldn’t be fair. Please give me less.”
Of course, we must have clear rules and high ethical standards even in a free enterprise system. The business community understands and supports this. In our country, we have rules to control monopolies and unfair business practices. We have laws to protect workers, investors, the environment, and public health.
And we have corporate tax rates that are among the highest in the developed world to generate the revenues that help provide government services, defend the nation, and care for the less fortunate.
For companies that play by the rules, making a profit is the ultimate social responsibility — not something to be ashamed of. Profits create jobs, finance breakthrough research and development, fill government tax coffers and pay health care and pensions for tens of millions of American families.
Profit-making businesses also contribute billions of dollars annually to charitable causes and finance countless social projects in their communities.
Instead of dragging our most profitable companies down, a smarter strategy is to adopt policies that help all Americans succeed in a tough global economy. We can do this by improving our schools and training our workers for 21st- century careers, and by producing more domestic energy and rebuilding our infrastructure, which would create hundreds of thousands of good-paying jobs.
While the vast majority of Americans benefit from trade, we should also provide a “hand up” for workers who have been hurt by global competition.
We must never forget just how powerful the profit motive is as a catalyst for economic growth and prosperity. It inspires hard work. It pushes us forward. It finances the future. It empowers dreams. Americans should be proud to have an economy that rewards — not punishes — success. We must never lose our drive for profits.
Thomas J. Donohue is president and chief executive officer of the U.S. Chamber of Commerce.
Congress should be unleashing entrepreneurs
By Sen. Jim DeMint
“America is another name for opportunity,” wrote Ralph Waldo Emerson.
For generations the United States has been a fertile ground for economic growth and opportunity, attracting the best and brightest from all over the world. From the Ford Model T and Coca-Cola to the iPod and online successes like Google and Amazon,
Americans have made innovative ideas accessible to the masses, creating new jobs and wealth for millions.
Unfortunately, Congress has spent the last several decades decreasing the American entrepreneur’s ability to compete in today’s global marketplace with higher taxes, new regulations and ever-growing piles of bureaucratic red tape.
One example of this growing problem is the Sarbanes-Oxley legislation enacted in 2002 in an effort to tighten the reins on major corporations caught in accounting scandals. This was a typical congressional knee-jerk overreaction, and now thousands of smaller companies face heavy financial burdens that are stifling their ability to create jobs and grow our economy.
As The Wall Street Journal has noted, in 2000 before Sarbanes-Oxley, “nine out of every 10 dollars raised by foreign companies through new stock offerings were done in New York, … But by 2005, the reverse was true: Nine of every 10 dollars were raised through new company listings in London or Luxembourg.”
The Journal’s James Freeman recently wrote that Sarbanes-Oxley regulations can increase the costs of a company going public on the New York Stock Exchange by $5 million.
Legislation like this is always passed in the name of helping the “little guy,” but as former Massachusetts Gov. Mitt Romney has said, “You don’t help the wage-earner by attacking the wage-payer.”
Washington cannot continue to attack businesses without eventually hurting the millions of Americans employed by them and encouraging companies to take jobs overseas.
Government regulations cost Americans $1.1 trillion in 2004, or some $10,172 per household, according to a study for the Small Business Administration.
Last year, even as taxes and mandates on business continued to skyrocket, Senate Democrats refused to permanently ban Internet taxation.
Even more troubling is the prospect of a Democrat majority in Congress backed by a Barack Obama presidency. Having spent most of my life as a small-businessman, I fear this would usher in a whole new era of business-crippling legislation.
For starters, Sen. Obama has said he supports the Employee Free Choice Act, which, hypocritically, denies employees the freedom of a secret-ballot vote to join a union.
This would be especially detrimental to small businesses struggling to get off the ground and severely restrict job creation.
According to the U.S. Labor Department, from 2002 to 2007, jobs boomed in states that guarantee citizens the right to work outside of union membership, growing employment by an average of 9.6 percent. But in Michigan, where workers are forced to join unions, jobs declined by 5.2 percent during the same period.
On top of that, Obama promises to further discourage job creation by raising the federal minimum wage and forcing employers to provide benefits he deems necessary. He’s called for increasing taxes on income, dividends and Social Security.
Although he’s never run a business himself, Obama will have the audacity to tell hard-working Americans how to run theirs — revoking their freedom to do what they think is best.
Studies show that lowering taxes on labor or capital — or both — lead to higher levels of economic activity. Under Ronald Reagan, America became known as the corporate tax leader — cutting federal rates from 46 percent to 34 percent in 1986.
Unfortunately, over the last decade, America has stood still while Europe has moved aggressively to attract business, and today our corporate tax rate is more than 10 points higher than the European average of 24.2 percent. U.S. businesses deserve a chance to compete on a level playing field.
This is all a far cry from what the Founders initially envisioned would be the American experience. They knew the strength of the American economy would come from the hard work and ingenuity of its people.
Entrepreneurs spur fresh ideas, additional job opportunities and innovative products and services. And they knew that government had to get out of the way of entrepreneurs for our nation to prosper.
In his first inaugural address, Thomas Jefferson said: “Still one thing more, fellow citizens — a wise and frugal government, which shall restrain men from injuring one another, shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned. This is the sum of good government. …”
If there is anything to be learned from our current economic crisis, it is that less government interference is needed, not more. With the explosion of the Internet, a new frontier of American opportunity has emerged, along with the liberal impulse to regulate it.
Congress should learn from past blunders and take a hands-off approach to online commerce, while at the same time working to undo the economic damage caused in other industries by rampant regulation and overtaxation.
When entrepreneurs are given the chance to succeed under free market principles, we all win. Sometimes less really is more.
Sen. Jim DeMint is a Republican from South Carolina.
America’s top 10 most profitable companies
Company, 2007 Profit
1. Exxon Mobil, $40.6 billion
2. General Electric, 22.2
3. Chevron, 18.7
4. JPMorgan Chase & Co., 15.4
5. Bank of America Corp., 14.9
6. Microsoft, 14.0
7. Berkshire Hathaway, 13.2
8. Wal-Mart Stores, 12.7
9. AT&T, 11.9
10. ConocoPhillips, 11.9
SOURCE: FORTUNE MAGAZINE