And Now for Something Really Competitive

March 7, 2017

I was watching Donald Trump’s speech to Congress the other day (February 28th), and there was one thing that he said in particular that caught my attention. It was this:

“Right now, American companies are taxed at one of the highest rates anywhere in the world.

“My economic team is developing historic tax reform that will reduce the tax rate on our companies so they can compete and thrive anywhere and with anyone.” [1]

Of course, I know that some will want to jump in and say that there’s a difference between tax rates and effective tax rates after accountants work their magic. But it’s “a rock-solid fact that the U.S. corporate statutory tax rate is the highest among developed nations and is significantly higher than the average.” [2] “The United States, with a combined top marginal tax rate of 38.9 percent (consisting of the federal tax rate of 35 percent plus the average tax rate among the states), has the third highest corporate income tax rate in the world, slightly behind Puerto Rico.” [3]

So while there may be a lot of reasons that companies would want to do business in the United States, taxes isn’t one of them. After all, according to the Tax Foundation,

“The U.S. tax rate is 16.4 percentage points higher than the worldwide average of 22.5 percent and a little more than 9 percentage points higher than the worldwide GDP-weighted average of 29.5 percent. Over the past ten years, the average worldwide tax rate has been declining, pushing the United States farther from the norm.”

This, to me, seems a little self-destructive on the part of the United States. As unpopular as corporations are in some circles (even though corporations aren’t just one kind of thing—but people tend to associate the word with large firms, usually of the publicly traded variety), it seems a little backward to incentivize businesses to locate elsewhere. This is especially true in light of the fact that companies don’t even have to locate in developing countries to get better tax treatment. “By region, Europe has the lowest average corporate tax rate, at 18.88 percent (26.22 percent, weighted by GDP).”

So, I’ll give the president this one.

But now that the GOP is rolling out its new healthcare proposal [4], there has occurred to me a way that we could help make American businesses even more competitive internationally. It’s true that the proposed law gets rid of the requirement that large businesses provide health insurance for their employees [5], but maybe we can do even better on that front.

All of Western Europe, Canada, Australia, and Japan provide universal health coverage for their citizens. [6] We don’t do that in the United States, of course. What we do instead is place a large share of the burden directly onto American businesses, who have to provide health coverage for their workforce if they want to attract the best employees. This presents a particular problem for small businesses in the United States. As Forbes contributor William Dunkelberg writes,

“The most severe problem facing small business right now is the cost of health insurance, according to a new release of the NFIB Research Foundation’s quadrennial Small Business Problems and Priorities survey. The survey asked 20,000 members of the National Federation of Independent Business to evaluate each of the 75 potential problems presented to them on a scale of ‘1’ to ‘7,’ ranging from ‘critical problem’ to ‘not a problem,’ respectively. The cost of health insurance is the top problem across all but one of the 54 subgroups analyzed in the study (industry, number of employees, etc.). It is the only problem of the 75 listed in the survey to be evaluated as a ‘critical issue’ by more than half of respondents (52.3%).” [7]

For smaller businesses, the rising cost of health insurance makes it increasingly harder for them to attract the best employees, who will certainly want to have health insurance as part of their compensation package. That wouldn’t be a problem in a country that provides universal coverage.

And, really, universal coverage is good for businesses of all sizes. It makes them more competitive because it saves labor costs. As The Nation reported in 2004,

“In 2002, top executives of the Big Three automakers’ Canadian units joined Basil (Buzz) Hargrove, president of the Canadian Auto Workers (CAW) union, in signing a ‘Joint Letter on Publicly Funded Health Care.’ At a press conference with Hargrove, Michael Grimaldi, president and general manager of GM Canada and a GM vice president, called single-payer ‘a strategic advantage for Canada.’ The joint letter, also signed by Ford’s and DaimlerChrysler’s presidents and CEOs, Alain Batty and Ed Brust, said that while providing ‘essential and affordable healthcare services for all,’ single-payer ‘significantly reduces total labour costs…compared to the cost of equivalent private insurance services purchased by US-based automakers’ and ‘has been an important ingredient’ in the success of Canada’s ‘most important export industry.’ The Toronto Star explained how the CAW used ‘credible corporate data’ to quantify ‘the competitive advantage that [single-payer] provides to the Canadian auto industry. The union compared the hourly labour costs of vehicle assembly in Canada and the United States. The Canadian rate, including wages, benefits and payroll taxes, was $29.90 per hour. The American rate was $45.60. (All figures are in US dollars.) Healthcare accounted for more than a quarter of the difference. It saved Canadian employers $4 per hour per worker.’ Monthly health-coverage costs for Canadian employers average about $50, mostly for items such as eyeglasses and orthopedic shoes; health-insurance costs for US employers average $552, the Washington Post has reported.” [8]  

So if Mr. Trump really wants American businesses to be more competitive on the international front, you’d think he’d take a look at universal, single-payer health coverage. But he didn’t mention it in his speech, and it doesn’t seem to be on his agenda. And the new GOP proposal to repeal and replace Obamacare doesn’t contain anything like it.

I guess they don’t want American businesses to be THAT competitive.

Louis Rose