With the rapid and uncontrolled growth of government, it has now expanded into nearly every arena of life and living, including those formerly considered out of bounds to its federal micromanagement, such as private business. This week we will take a look at business regulation.
Historically the economic system in America that produced our unrivaled prosperity is known as a ‘free-market’ or ‘free-enterprise’ system. By definition this is a system in which prices and wages are determined by unrestricted competition between businesses, without government regulation [Dictionary.com, “Free Market”]. It is an economic system that allows supply and demand to regulate prices, wages, etc. rather than government policy [www.thefreedictionary.com/free+market]. Throughout world history the nations and peoples that have adopted this system have risen, while those who embraced government-regulated economic systems have consistently become poorer. Central to this economic system is the profit incentive. If an individual sees that hard work can be profitable, he/she will invest the time, skill, and labor necessary to produce and sell innovative, life-improving products. It is the public and not the government that chooses winners and losers in business and bestows profits on the good ones.
In today’s political/social atmosphere those who have good products and are making a profit are considered to be evil and greedy. Many who for whatever reason are not willing to invest what it takes to make a profit are angered by these successful people. The beauty of this country is that we are all…or at least used to be…able to take advantage of the free-market either through our investment in education, skills, talents, or forward thinking. Making a profit is not sinful and in fact encouraged to maintain self-responsibility. The Bible teaches that profit-makers are to be economically rewarded, thus encouraging them to do even more. In Luke 19:11-26 Jesus tells a parable of how the master called his servants together and gave each of them an investment, telling them, “Do business with this until I come back” [v.13]. When the master later returned to check on their progress, the first reported a tenfold profit return and the second a five-fold; the third showed no profit at all but openly expressed his disgust and fear in doing anything to make the money grow. The master took the investment from the third servant and gave it to the one who had been most productive. The message of Jesus’ story is clear: those who show increase and make profit are to be rewarded, but the unproductive are not. In America today it is just the opposite: the government uses punitive taxes to take profit away from profit-makers and then bestows generous benefits on the incompetent and unproductive. At the time of the American founding such a policy was vigorously opposed. Thomas Jefferson explained: “To take from one, because it is thought that his own industry and that of his fathers’ has acquired too much, in order to spare others, whose fathers have not exercised equal industry and skill, is to violate arbitrarily the first principle of association, “the guarantee to everyone of a free exercise of his industry [hard work], and the fruits [profits] acquired by it”. [Thomas Jefferson, The Writings of Thomas Jefferson, vol. 14, ed. Andrew Lipscomb, Washington DC: Thomas Jefferson Memorial Foundation, 1903, pg. 466].
Founding Father Charles Thomson went even further in pointing out that taxing profits actually encouraged idleness, for if someone knew that the fruit of his own hard work was going to the government rather than himself, then what was his incentive to work harder, longer, or more? [Charles Thomson, letter to Benjamin Franklin dated September 24, 1765, as quoted in The American Quarterly Review, vol.18, 1835, pg. 92]. Benjamin Franklin attested: “There cannot be a stronger natural right than that of a man’s making the best profit he can.” [Benjamin Franklin, The Works of Benjamin Franklin, vol. 1, 1835, pg. 251]. When people are allowed to retain their profits, they have an incentive to work harder and produce more. This infuses wealth into the entire community. These profit-makers might be considered those crew members of our ‘ship of state’ who have studied the situation and offered the ‘navigation crew’ a plausible route to avoid the impending ‘shoal waters’. The ‘nav crew’ figures what do these ‘engine room guys’ know about navigation and so the ‘navigators’ continue running around aimlessly on the ‘bridge’…congress…while the ‘ship of state’ plows on toward the ‘shoal waters’, all the while the waters getting rougher and rougher…debt pilling up.
Ignoring the lessons of the Bible, history, and common sense, America now taxes long term profits…through what is called capital gains tax…and does so at a higher rate than any other free country in the world. Currently the average capital gains tax for American business is 28.7%, but throughout the rest of the industrialized world, the rate is 18.2% [Kyle Pomerleau, “The High Burden of State and Federal Capital Gains Tax Rates”, Tax Foundation, February 11, 2014]. This tax makes it more expensive for businesses to operate and takes from them the capital that they need to expand and hire new employees. Thus, both productivity and employment fall when business capital is taxed. Today the government and not the people regulate business. For example, if you make a simple decision to hire your neighbor to work for you in a small business out of your garage…even if it is just a lemonade stand…that decision will place you under the authority of regulations such as the National Labor Relations Act, the Age Discrimination Act, the Equal Pay Act, the Civil Rights Act of 1964, the Equal Employment Opportunity Act, the Americans With Disabilities Act, the Minimum Wage Act, and many others. The government has enacted 38,000 new federal regulations in the past decade [Penny Starr, “Under Obama, 11,327 Pages of Federal Regulations Added”, CNSNews.com, September 10, 2012], and 81,000 since 1993 [Santarelli, “Overreach?”]. It now issues a new regulation at the average rate of one every three hours…twenty-four hours a day, seven days a week. For the first nine months of 2012, the cost to implement these regulations was $1.8 trillion [Michael Bastasch, “More Than 1,600 Pages of Regulations Added to Federal Register Last Week, Cost $1.8 Trillion per Year”, The Daily Caller, September 11, 2012]. For a small business of twenty or fewer employees…these provide 80% of American jobs…the average cost to comply with federal workplace regulations is $7,645 per employee [Karen Dennison, “Can Small Business Survive the High Costs of Regulations?”, eZineArticles.com, August 19, 2008]. These costs are passed on to consumers in the guise of higher prices for cars, food, lodging, clothing, services, and everything else. 83% of small businesses say that the cost of these regulations prevents them from expanding their operations and hiring more employees [Russell Huebsch, “The Disadvantages of a Small Business Complying With Government Regulations”, Houston Chronicle, August 4, 2014.
Remember the nearly $1 trillion that the government spent in 2008-2009 to bail out the four private industries of insurance, real estate, banking and auto? Those were among the most heavily government-regulated industries; those that operated under a full free-market system did not need a bailout [Peter Wallison, “Why Do We Regulate Banks”, American Enterprise Institute, August 1, 2005; and Andrew Beattie, “How Governments Influence Markets”, Investopedia, August 14, 2014].
In past discussions we addressed how financial problems damage so many families. It is the church that is called upon to try to recover many of these families; families that can longer function as God intended because of financial stress. Much of this stress is brought upon us by a government that wants to control all phases of life…and replace God… and in doing so is driving this ‘ship of state’ further and further in to ‘shoal waters’ where recovery may not be possible. Because this is such a complex problem and there is so much more to look at, we will continue to look at business regulation again next week.
– Bob Munsey