The National Conservatism Annual Conference was held July 8-10. The conference was filled with numerous talks, including Missouri Senator Joshua Hawley. Senator Hawley’s Monday evening address covered a wide range of topics, including corporate tax rates.
Senator Hawley lambasted “Republicans of the Bush-Romney era” who prioritized “libertarian economics and corporate interests.”
“Their fusionist faith has become one of note:” the Senator lamented, “money first, people last.”
Senator Hawley continued, “We are about to have a grand debate about extending tax cuts. Perhaps we should start with this question: Why should labor ever be taxed more than capital? They should not be. Why should families get less tax relief than corporations? Families should always be first.” This is nothing new for Senator Hawley. In the past he has also supported increasing taxes on some companies that pay employees less than $15 per hour.
While Senator Hawley’s concerns about Americans struggling financially are genuine, it’s not the fault of corporations. Getting the government out of the way will help get America back to work and raise the standard of living.
Senator Hawley is correct that Americans are feeling the screws tighten. Many families and business owners are concerned about inflation and are concerned about the future. He was also right to call out Republicans for supporting bailouts.
However, his claim that, “The free market is valuable exactly to the degree it sustains the things we love together. Otherwise, it’s just cold profit,” is sorely mistaken.
Profit may appear cold but the alternatives to the profit motive are far worse. As the late economist Walter Williams put it, “Capitalism is relatively new in human history. Prior to capitalism, the way people amassed great wealth was by looting, plundering, and enslaving their fellow man. With the rise of capitalism, it became possible to amass great wealth by serving and pleasing one’s fellow man.”
Philosopher James Otteson concurs with Williams that by seeking profit through cooperative market exchanges, a business owner serves others. Entrepreneurs are called to “seek ways to benefit themselves only by benefitting others…” Otteson comments, “…they must put others’ needs, desires, and well-being on par with their own.” A business is successful when it accounts for its customers’ needs and wants and meets those desires at a price customers are willing to pay. When a voluntary exchange is made, both parties do so because they would be better off than if the exchange had never happened.
Consider further that the profit motive drives business owners to invest, research, and grow, providing opportunities for work in the form of hiring additional employees. Cooperative exchanges driven by the profit motive yield anything but “cold” results.
Profits, however, are not easily gained. Research shows that the survival rate of businesses is dramatically low. In 2021, Economist Timothy Nash, Rep. Lisa McClain, Ashley Wright, and I found that about 20 percent of small businesses fail within the first year. In two years, that failure rate increased to 23 percent. Of all businesses started in 2013, less than 35 percent made it to their 10th anniversary in 2023.
As of January 2024, the average net profit margin for an American business is 8.54 percent. To put it another way, on every dollar in sales a business earns 8.54 cents. If a business owner had invested in the S&P 500 instead of dealing with the stress of running a business, he or she would have had a 26.06 percent return (more than triple the average net profit margin on their business). Some small businesses, such as grocery stores, have net profit margins below 2 percent. For small businesses, a single month’s performance can make or break the business.
If an entrepreneur can beat the odds and successfully earn profit, he or she has found a way to effectively serve others. Now imagine taxes on businesses are increased. Those net profit margins become thinner, the survival rate of businesses will begin to plummet, and businesses will lose the ability to serve others.
Business owners will try to cut costs elsewhere before passing the costs on to their customers. They’ll try limiting inventory, shortening business hours, and even downsizing staff. Everyone will be worse off. Increasing corporate tax rates will also create a barrier to entry for new businesses, reducing competition and allowing existing businesses to capture larger shares of the market. Higher corporate tax rates will bring about exactly what people like Senator Hawley fear: the control of the market in the hands of a few key players by means of force.
Of course, the answer to lower corporate tax rates is not to raise personal income tax rates. As Peter Earle and I showed, government growth comes at the cost of prosperity for American citizens. We found that since 2000 government growth has rapidly outpaced private sector growth. Furthermore, government financing its spending with debt means fewer opportunities for private investment as well as higher tax burdens on future generations. We implored readers to consider what they could have done with the money the government had taken from them in taxes.
Instead, the government must scale down. Reducing spending stops high tax rates and unsustainable debt growth that plagues us as well as our children and grandchildren. Reigning in the Federal Reserve so that it focuses solely on controlling the money supply instead of credit allocation, social policy, or environmental policy, will help stop the rapid erosion of the dollar’s value. Shrinking the federal code of regulations (which currently regulates everything under the sun) removes barriers for Americans looking for work.
Look at results, not intentions. Allowing the profit motive to work results in “people first” more often than when using the heavy hand of government.
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