November 2nd, 2011
04:14 PM ET

Big business is good for America

Editor's Note: Gary Hufbauer  is Reginald Jones Senior Fellow at the Peterson Institute for International Economics. Martin Vieiro is a research analyst at the Peterson Institute. The views expressed in this article are solely those of the authors.

By Gary Hufbauer and Martin Vieiro, Foreign Affairs

Even though the Occupy Wall Street protests seem incoherent at times, one main theme is clear: anger at big business. On this count, the occupiers are aligned not only with Hollywood portrayals (predating even the 1941 classic Citizen Kane) but also with mainstream Americans. A majority of respondents to a recent Gallup survey said that they believe big business has too much power. The sentiment held across party lines. The reasons seem simple enough. Business leaders often rank in the top one percent of income earners. Meanwhile, unemployment remains over nine percent - and is much higher among minorities and young people - yet corporations are sitting on trillions of dollars in unspent cash.

But this backlash is based on three common misconceptions about major U.S. corporations. The first is that Wall Street and big business are the same thing. When asked separately about "major corporations" and "financial institutions," the same percentage of Americans, 67 percent, agreed that each cluster had too much power. Discontent with Wall Street is understandable. Its practices led to wild lending and the sale of trillions of dollars' worth of toxic assets to unsuspecting investors. When the house of cards crumbled in 2008, the George W. Bush administration was forced to bail out Wall Street.

But none of this explains why Americans are equally displeased with major corporations. The only non-financial bodies that received bailouts were major automobile companies, but their rescue is not the object of much popular protest. The United States is actually less friendly to business than many other countries are - even the supposedly egalitarian ones such as Canada and Sweden. Washington imposes the second highest corporate tax rate among OECD countries, behind only Japan. And unlike nearly every capital in the world, Washington requires multinationals based in the United States to pay home taxes on profits earned abroad.

Read: The broken contract.

The second misconception confuses large corporations and millionaires. The Republican presidential candidate Mitt Romney's famous words - "Corporations are people, my friend" - are legally correct. Corporate personhood is a long-established legal principle. But Romney was referring to the people who work for and own corporations: the employees and shareholders. And few of them earn incomes of $1 million a year or higher. Indeed, calls for higher taxation of millionaires, including corporate chieftains, should not be conflated with calls for higher taxation of corporations. Raising the effective tax rate on major U.S. corporations would only worsen their global disadvantage.

This would hurt the U.S. economy and do very little to extract money from the pockets of Warren Buffett and his billionaire peers, or, for that matter, from CEOs such as Jeffrey Immelt, the head of General Electric. In fact, if the goal is to tax wealthy individuals, Warren Buffett's plan to ensure that millionaires face higher tax rates on their personal income than middle-class Americans is the way to go. This idea was embraced by President Barack Obama in his mid-September deficit reduction plan. Democrats have it wrong when they seek to raise tax rates both on big business and on wealthy individuals. The Republicans' mistake is to advocate lower tax rates both for wealthy individuals and for big business. The right prescription is to slash tax rates on business and to modestly raise tax rates on the rich.

Read: What Occupy Wall Street gets wrong about inequality.

The third common misconception has to do with the role of big business in innovation. In an earlier era, Americans romanticized the family farm. Today, we celebrate small places with big ideas. It is true that Steve Jobs built the first Apple computer in his garage and that Mark Zuckerberg typed the original lines of code for Facebook in his dorm room. But the genius of Jobs, Zuckerberg, and many others was in turning their ideas into highly competitive global enterprises. Apple now employs 46,000 full-time employees - and it is the combined energy of those employees that delivered the iPod, the iPhone, and the iPad.

At the turn of the twenty-first century, the National Academy of Engineers ranked the greatest achievements of the previous century based on how each innovation improved people's quality of life. Major U.S. corporations - the Edison companies, General Electric, AT&T, and General Motors - played significant roles in the development, production, and distribution of the majority of these achievements.

It is safe to say that without its major corporations the U.S. economy would not be, and would not remain, the largest and richest in the world. Big businesses invest significantly more in research and development than smaller firms. And they are far better placed to capture economies of scale and scope, which is crucial to making U.S. goods and services competitive abroad. Large companies account for more than 70 percent of U.S. exports. The same economies benefit U.S. consumers, too. Despite the vilification of Walmart, for example, the arrival of a Walmart Supercenter to a neighborhood leads to a 25 percent decrease in the average grocery bill for local residents.

Read: Washington's history of financial bailouts.

Beyond R&D performance, sales abroad, and bargains, big business offers what the United States needs most: jobs, and many of the best in the country, at that. The largest firms pay about 50 percent more and provide 10 percent more working hours per week than small companies. These firms provide jobs to almost a third of the American work force.

Although Occupy Wall Street wants to douse big business with vinegar, to ensure economic growth and competitiveness Washington should smother it with honey. To be sure, scared by the uncertain economic outlook, non-financial businesses are stowing away massive cash reserves. If firms saw promising opportunities, they would be more likely to spend this capital and create new jobs through investments in ideas, plants, and equipment. To move that process along, Congress should pass an immediate cut in the federal corporate tax rate, from 35 to 20 percent. Many investment projects that once appeared risky would suddenly look attractive.

Likewise, Washington should promote a whole array of public-private partnerships to refurbish the badly neglected U.S. infrastructure. Successful examples include the design, financing, construction, and maintenance of turnpikes (Austin, Texas), monorails (Las Vegas, Nevada), and light-rail transits (St. Paul, Minnesota, and Hudson-Bergen, New Jersey). Internationally, public-private partnerships reach well beyond hard infrastructure. Cisco Systems launched its Global Education Initiative in 2003. After a successful pilot program in Jordan, educational partnerships are now underway in India and Egypt. Many American school districts could benefit from Cisco's ingenuity.

Occupy Wall Street has galvanized popular opinion, but now is not the time to hobble America's Blue Chip companies.

The views expressed in this article are solely those of the Gary Hufbauer and Martin Vieiro.

Post by: ,
Topics: Business • Jobs • Protests • United States

soundoff (8 Responses)
  1. JohnActon

    Your statement about high the corporate tax rate is in the U.S. is misleading. The rate might be what you said, what is the rate that is actually PAID in the end? Write-offs and loopholes have enabled these companies to game the system and pay a much lower rate than the level that is initially stated. You also forget to mention though how these corporations take advantage of how they pay their taxes based on where they station their companies overseas. Look at the rate Google pays by moving its profits through Ireland for example.

    One thing I agree on is the fact that corporations pay taxes at home and abroad is not a good policy, and that needs some tweaking. You forget to consider the fact that individuals have to do the same depending on how much they earn if they work overseas as well. This has led to some citizens revoking their U.S. citizenship in recent years to avoid paying taxes in the U.S. when they are living in Australia for example.

    But again, the first statement you made about the corporate tax rate is misinformation, and a poor attempt at trying to pass it off as truth. There is a difference between the tax rate and the tax rate paid.

    November 2, 2011 at 4:38 pm | Reply
  2. YOYO

    I agree completely. Occupy Wall Street people are brave and influential but need to grow up, too.
    The difference between OWS and protectors in 1960s and 1970s is that we can't get rid of Wall Street while we could stop vietnam war and reduce racial and gender inequality.
    I hope Mr Obama will stick to his centrist way to support corporate tax cut while raising personal income tax on top earners and eliminate/reduce loopholes and subsidies. Though we have little hope for the super committee to do that.

    November 3, 2011 at 2:09 am | Reply
    • Jorge

      I have mine thanks to Greg.And bleeive me when I tell you that this little baby is worth WAY more than you are being charged.Light, Accurate Powerful and above all it seems to be built like a brick even if you don't use it for serious GPS work, the fact that it will recharge your ipod in the field makes it worth the money in my opinion. It is a great unit. I am pleased to say that I have run it through "the mill" in the past few weeks and it is better than I had hoped.As I am saying on Groundspeak. This may be the best thing to hit the GPS handheld world for a long long time.Fred(in Canada)

      December 29, 2012 at 4:15 am | Reply
  3. j. von hettlingen

    Ireland joined the European Common Market in 1973, the predecessor of today's European Union, but its growth was notable only in 1990's, thanks to its fiscal policy, that attracted marquee firms from all over the world. For over a decade, Ireland was known as the Celtic Tiger.

    November 3, 2011 at 10:11 am | Reply
  4. j. von hettlingen

    Some countries in East and South East Europe want to copy Ireland's success as well.

    November 3, 2011 at 10:13 am | Reply
  5. Surfer George

    I share the frustration and disappointment that the Occupy movement is exhibiting. I understand why it seems so intense and, at the same time, diffused:
    The Capitalist superstructure that seemingly permeates every aspect and element of Society and Government has a strangle hold on the rules of the game, on the rule makers and we feel nearly impotent to do anything of consequence to stop either Business or their servants Congress, The White House – Government

    Congress takes "Campaign money" from special interests to get reelected and does their bidding in exchange, lowering taxes, lowering standards, raising the bar for "little people" to defend ourselves from the onslaught.
    Congress can find their way clear come to agreement and make sure that they have a healthy safe working environment, fully fund their own retirement, provide themselves with EXCELLENT health care, give themselves raises, but they cannot protect us from predatory lending, keep their "Masters" from shipping our good jobs off shore, keep their "masters" from hiring illegal aliens, keep their "Masters" from doing pretty much anything they want to, to improve their already obscene pay scales and bonuses.
    But they CAN find a way to leave us the bill – WITH INTEREST for the destruction created by their masters.

    Is it any wonder we're frustrated to the point of inarticulateness?

    Capitalism as the master of Democracy is fatally flawed. Like all others imprisoned against our will and without hope, some submit, some die and some (many/most) knowing they will die in their current existence revolt. Don't leave us only that choice. Eventually, even the military and police will side with us. Look at History, including the recent Arab Spring.

    November 3, 2011 at 1:36 pm | Reply
  6. Cameron McConnell

    We all need to stop dealing in narrow absolutes and labels. All sweeping movements of change start out diffused with so called unclear purpose. Human rights, womans rights, rights for blacks etc., how is Occupy any different really, than Rosa Parks and the"bus protest"? Not about 1% and 99% math labels, but about right and wrong.

    November 3, 2011 at 4:24 pm | Reply
  7. Walmart Credit Card

    Big business is always good for America.
    Just like Walmart

    May 13, 2019 at 2:00 pm | Reply

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