Wednesday, November 16, 2011

Mackey speaks and it's worth it to listen

Some time ago, the CEO of Whole Foods--John Mackey--found himself in a bit of a dust up. He had the audacity to take issue with Obamacare in an opinion piece in the WSJ. The response to his well-reasoned arguments was a call form the progressive left to boycott his stores. The boycott didn't really go anywhere, didn't do much of anything, aside from getting a little press, due to a "Boycott Whole Foods" Facebook page (which topped out at less than 20,000 "likes").

Now, Mackey is at it again, in a piece that will likely stir similar responses from the same places. This time, however, he's taking aim squarely at the Federal Government, questioning it's expansion and spending wholesale. Mackey argues that the real cause of economic slowdown is a decrease in economic freedom, and he's got a pretty good point:
So why is our economy barely growing and unemployment stuck at over 9%? I believe the answer is very simple: Economic freedom is declining in the U.S. In 2000, the U.S. was ranked third in the world behind only Hong Kong and Singapore in the Index of Economic Freedom, published annually by this newspaper and the Heritage Foundation. In 2011, we fell to ninth behind such countries as Australia, New Zealand, Canada and Ireland. 
Note how this claim is supported by the Nile Gardiner piece I spoke of before. Gardiner quotes from this article in the WSJ, authored by Johnny Munkhammar, a member of the Swedish Parliment. Mr. Munkhammar argues--in direct contrast to the progressive left--that the success of Sweden is all about increased economic freedom, not socialist policies:
By the late 1980s, though, Sweden had started de-regulating its markets once again, decreased its marginal tax rates, and opted for a sound-money, low-inflation policy. In the early 1990s, the pace quickened, and most markets except for labor and housing were liberalized. The state sold its shares in a number of companies, granted independence to its central bank, and introduced school vouchers that improved choice and competition in education. Stockholm slashed public pensions and introduced private retirement schemes, keeping the system demographically sustainable. 
These decisive economic liberalizations, and not socialism, are what laid the foundations for Sweden's success over the last 15 years.
Mackey offers a littany of fixes and adjustments to create more economic freedom, chief among these being substantial tax reform:
In addition, tax reform is essential to jobs and prosperity. Most tax deductions and loopholes should be eliminated, combined with significant tax rate reductions. A top tax rate of 15% to 20% with no deductions would be fairer, greatly stimulate economic growth and job creation, and would reduce deficits by increasing total taxes paid to the federal government. 
Why would taxes collected go up if rates go down? Two reasons—first, tax shelters such as the mortgage interest deduction used primarily by more affluent taxpayers would be eliminated; and secondly, the taxable base would increase considerably as entrepreneurs create new businesses and new jobs, and as people earn more money. Many Eastern European countries implemented low flat tax rates in the past decade, including Russia in 2001 (13%) and Ukraine in 2004 (15%), and experienced strong economic growth and increased tax revenues.
This is, perhaps, the hardest pill for those with a progressive viewpoint to swallow: that revenues do not simply increase in direct proportion to an increased tax rate. The wrong-headed assumption that they do is at the heart of the "tax the rich" policy, currently so prevalent among Democrats, liberals, and progressives (led, of course, by the current administration). The reason for their failings on the issue--aside from the ease of invoking class warfare for political points--is their lack of understanding with regard to the role of incentives, something I have noted before.

Really, the time is long past to clean up the tax code. It's thousands and thousands of pages long, and to what end? Every Congress considers new tax laws, new tax breaks, and new taxes. Sometimes, simplification is the best answer, for no other reason. In this case, simplification would also likely increase revenues and lessen the government's reach, both good things, positive things.

Mackey has plenty of other suggestions, as well. All are worth reading, especially since they emanate from someone firmly grounded in reality, when it comes to the economy and doing business therein.

Cheers, all.

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