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Archive for the ‘Big business’ Category

There’s an article today in the Wall Street Journal showing how already-established companies and their union allies will use the coercive power of government to thwart competition. The article specifically discusses efforts by less competitive supermarkets to block new Wal-Mart stores. Not that Wal-Mart can complain too vociferously. After all, this is the company that endorsed a key provision of Obamacare in hopes its hurting lower-cost competitors. The moral of the story is that whenever big business and big government get in bed together, you can be sure the outcome almost always is bad for taxpayers and consumers.

A grocery chain with nine stores in the area had hired Saint Consulting Group to secretly run the antidevelopment campaign. Saint is a specialist at fighting proposed Wal-Marts, and it uses tactics it describes as “black arts.” As Wal-Mart Stores Inc. has grown into the largest grocery seller in the U.S., similar battles have played out in hundreds of towns like Mundelein. Local activists and union groups have been the public face of much of the resistance. But in scores of cases, large supermarket chains including Supervalu Inc., Safeway Inc. and Ahold NV have retained Saint Consulting to block Wal-Mart, according to hundreds of pages of Saint documents reviewed by The Wall Street Journal and interviews with former employees. …Supermarkets that have funded campaigns to stop Wal-Mart are concerned about having to match the retailing giant’s low prices lest they lose market share. …In many cases, the pitched battles have more than doubled the amount of time it takes Wal-Mart to open a store, says a person close to the company. … For the typical anti-Wal-Mart assignment, a Saint manager will drop into town using an assumed name to create or take control of local opposition, according to former Saint employees. They flood local politicians with calls, using multiple phones to make it appear that the calls are coming from different people, the former employees say. …Former Saint workers say the union sometimes pays a portion of Saint’s fees. “The work we’ve funded Saint to do to preserve our market share and our jobs is within our First Amendment rights,” says Jill Cashen, spokeswoman for the United Food and Commercial Workers Union. Safeway declined to comment. …Mr. Saint says there is nothing illegal about a company trying to derail a competitor’s project. Companies have legal protection under the First Amendment for using a government or legal process to thwart competition, even if they do so secretly, he says.

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Another local government in California is contemplating bankruptcy. That’s hardly big news, though, since many California jurisdictions have been bled dry by greedy public sector unions and the city of Vallejo already has thrown in the towel. What is amazing, though, is that the government unions are trying to get the state to pass a bill barring bankruptcy. This is eerily akin to the part of Atlas Shrugged where government officials torture John Galt in hopes of trying to force him to produce. The political thugs in Atlas Shrugged were desperate because people no longer were producing anything they could steal. The pathetic politicians and government workers – both in Ayn Rand’s book and in California – obviously don’t understand that parasites should not be so greedy that they kill the host animal. Here’s a Reuters excerpt:

Antioch’s leaders earlier this month said bankruptcy could be an option for the cash-strapped city of roughly 100,000 on the eastern fringe of the San Francisco Bay area. …But cost-cutting measures may not be enough to keep Antioch’s books balanced, so its city council is openly discussing bankruptcy. …Orange County Treasurer Chriss Street would not be surprised if more local governments across the Golden State sound a similar alarm. …Despite its stigma, bankruptcy has paid an important dividend for Vallejo: It has forced public employee unions to the negotiating table, providing city leaders an opportunity to rein in compensation, which city officials said accounts for more than three-quarters of Vallejo’s general fund spending. City Councilwoman Stephanie Gomes said the effort has led to concessions from three of four city unions. Like Vallejo, Los Angeles is suffering from weak revenue at the same time the cost of its pensions and other retirement benefits are rising. Former Mayor Richard Riordan said those factors put the government of the second largest U.S. city on track to declare bankruptcy between now and 2014. …Talk of municipal bankruptcy has not escaped California’s politically powerful public employee unions. A number of them are pressing the legislature to pass a bill that would require local governments to get the approval of a state board before filing for bankruptcy. Since the board could be stacked with union-friendly appointees, bankruptcy pleas could be rejected or delayed. “It’s a horrible bill,” Levinson said. “If you don’t have the bankruptcy outlet, what do you do? If you can’t pay your bills what do you do?”

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It is now fully apparent that General Motors did not pay back any money to taxpayers, and certainly did not pay back the full amount, as stated in the reprehensibly dishonest ads produced by the company. The Obama Administration took part in the lie, which exposes an additional reason why it was a terrible idea to give the company a bailout. For all intents and purposes, taxpayers paid for the GM ad, and the purpose of the ad – at least in part – was to help the Obama Administration. Welcome to corporatism (the nice way of saying it) and national socialism (the not-so-nice way of saying it). Here’s a great video from Reason.tv explaining GM’s gross prevarication:

The good news is that others are now aware of the Obama/GM scam. Here’s an excerpt from the New York Times:

G.M. trumpeted its escape from the program as evidence that it had turned the corner in its operations. “G.M. is able to repay the taxpayers in full, with interest, ahead of schedule, because more customers are buying vehicles like the Chevrolet Malibu and Buick LaCrosse,” boasted Edward E. Whitacre Jr., its chief executive. …Taxpayers are naturally eager for news about bailout repayments. But what neither G.M. nor the Treasury disclosed was that the company simply used other funds held by the Treasury to pay off its original loan. …It’s certainly understandable that G.M. would want to spin its repayment as proof of improving operations. But Mr. Grassley said he was troubled that the Treasury went along with the public relations campaign and didn’t spell out how the loan was retired. “The public would know nothing about the TARP escrow money being the source of the supposed repayment from simply watching G.M.’s TV commercials or reading Treasury’s press release,” Mr. Grassley said in a speech on the Senate floor last Wednesday, saying that “many billions” of federal dollars remained invested in G.M.

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Sleazy political behavior does not necessarily require a bag of money being handed to a politician in a deserted parking garage. Sometimes it is blatantly visible. A good example is the European version of “cap-and-trade” climate legislation. While the legislation produced lots of criminal activity, it also enabled big European companies to game the system, pocketing lots of unearned money thanks to their lobbying power. The House-passed version of the “cap-and-trade” bill in America makes many of the same mistakes, with favors to various campaign contributors and special interests. The Wall Street Journal editorial excerpted below is a good indication of the type of nonsense that will happen in the United States if the bill is approved by the Senate:

Democrats are promising to apply themselves to the task of imposing legislative curbs on carbon. So it’s a good time to see how a prototype cap-and-trade scheme, the European Union’s Emission Trading System, is faring. …Last week, spot trading on the ETS ground to a complete halt for three days after a scandal erupted over players gaming the system. In this case, the government of Hungary admitted to reselling “certified emission reduction” credits that companies had already relinquished, or “spent.” …This is just the latest in a string of embarrassments that have plagued the system almost from the beginning. European authorities admitted last year that in certain countries, 90% of the trading volume was taken up by value-added tax fraud. Sandbag, a British advocacy group, reported in February that metals firms ArcelorMittal, Salzgitter, U.S. Steel, and Corus were just a few of the companies that had been granted more emission permits than they needed. In ArcelorMittal’s case, according to Sandbag, those spare permits amounted to €202 million in asset value in 2008. Last year, Corus announced it was closing a steel plant in Britain and laying off 1,700 workers, for which the company reaped a windfall in carbon allowances. …the ETS is a cautionary tale in how quickly environmental policy engineering degrades into rent-seeking for the fortunate few.

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This column by Tim Carney in the Washington Examiner should make every honest person nauseous. It explains how the big pharmaceutical companies are Obama’s biggest allies. This is well know inside the beltway, but average Americans don’t understand that Obamacare is largely a giveaway to powerful interest groups. Two observations are worth making. First, the pharmaceutical companies are going to get screwed over once the bill passes. The budget numbers will look terrible and the White House, under pressure to do something (besides just higher taxes), will stab the companies in the back by imposing price controls. Second, even though this will be bad for healthcare since it will undermine research on new drugs, I will take a certain perverse satisfaction in that result. Heck, I think opponents of government-run healthcare should have offered amendments to tax and regulate the industry during debate on the healthcare bills. Companies that climb into bed with government deserve all the bad things that happen to them:

As they whip for the health care bill, Democratic leaders pack a mean one-two punch of populist rhetoric and the hefty financial backing of the drug industry. …drug industry lobbyists, according to Politico, spent the weekend “huddled with Democratic staffers” who needed the drug lobby to “sign off” on proposals before moving ahead. Meanwhile, we learn that the drug lobby is buying millions of dollars of ads in 43 districts where a Democratic candidate stands to suffer for supporting the bill. The doctors’ lobby and the hospitals’ lobby are also on board with the Senate bill. …Of all the single-industry lobbies in Washington, the largest is the Pharmaceutical Researchers and Manufacturers of America. PhRMA spent $26.2 million on lobbying last year — that’s nearly three times as much as the insurance lobby, America’s Health Insurance Plans, which spent $8.9 million. If you include individual companies’ lobbying, pharmaceuticals blow away the competition, beating all other industries by 50 percent, according to data at the Center for Responsive Politics. Given this Big Pharma clout, it’s unsurprising that the bill Obama’s whipping for — Senate bill — has nearly everything the drug companies wanted: prohibiting reimportation of drugs, preserving Medicare’s overpayment for drugs, lengthy exclusivity for biotech drugs, a mandate that states subsidize drugs under Medicaid, hundreds of billions in subsidies for drugs, and more.

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The new budget from the White House contains all sorts of land mines for taxpayers, which is not surprising considering the President wants to extract at least another $1.3 trillion over the next ten years. While that’s a discouragingly big number, the details are even more frightening. Higher tax rates on investors and entrepreneurs will dampen incentives for productive behavior. Reinstating the death tax is both economically foolish and immoral. And higher taxes on companies almost surely is a recipe for fewer jobs and reduced competitiveness.

The White House is specifically going after companies that compete in foreign markets. Under current law, the “foreign-source” income of multinationals is subject to tax by the IRS even though it already is subject to all applicable tax where it is earned (just as the IRS taxes foreign companies on income they earn in America). But at least companies have the ability to sometimes delay when this double taxation occurs, thanks to a policy known as deferral. The White House thinks that this income should be taxed right away, though, claiming that “…deferring U.S. tax on the income from the investment may cause U.S. businesses to shift their investments and jobs overseas, harming our domestic economy.”

In reality, deferral protects American companies from being put at a competitive disadvantage when competing with companies from other nations, and therefore protects American jobs. This video has the details.

The American Enterprise Institute just held a conference last month on deferral and related international tax issues. Featuring experts from all viewpoints, there was very little consensus. But almost every participant agreed that higher taxes on multinationals will lead to an exodus of companies, investment, and jobs from America. Obama’s proposal is good news for China, but bad news for America.

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The late George Stigler, winner of the Nobel Prize in economics, is famous in part because of his work on “regulatory capture,” which occurs when interest groups use the coercive power of government to thwart competition and undeservedly line their own pockets. A perfect (and distasteful) example of this can be found in today’s Washington Post, which reports that the IRS plans to impose new regulations dictating who can prepare tax returns. Not surprisingly, the new rules have the support of big tax preparation shops such as H&R Block and Jackson Hewitt, which see this as an opportunity to squeeze smaller competitors out of the market. The IRS and the big firms claim more regulations are needed to protect consumers from shoddy work, but this is the usual rationale for licensing laws and other government-imposed barriers to entry and the Institute for Justice repeatedly has shown such rules are designed to benefit insiders rather than consumers. Tax preparers do make many mistakes, to be sure, but that is a reflection of a nightmarish tax code, and the annual tax test conducted by Money magazine showed that even the most-skilled professionals – such as CPAs, tax lawyers, and enrolled agents – were unable to figure out how to correctly fill out a hypothetical family’s tax return. But since the IRS routinely makes major mistakes as well, perhaps the moral of the story is that we need fundamental tax reform, not IRS rules to create a cartel for the benefit of H&R Block and other big firms. Would any of this be an issue if we had a flat tax or national sales tax?

The Internal Revenue Service plans to test, register and screen people who get paid to prepare tax returns, stepping into a virtually unregulated business on which millions of Americans depend for crucial financial services. …the moves could increase the cost of having tax returns prepared. …Starting with the 2011 tax season, the IRS plans to require paid preparers to register with the agency.  …The new testing and education standards will exempt certified public accountants, lawyers, and tax practitioners known as “enrolled agents,” who are cleared to represent taxpayers in dealing with the IRS… Tax prep giants H&R Block and Jackson Hewitt expressed support for the requirements announced Monday. Under the new rules, H&R Block “won’t be competing against people who aren’t regulated and don’t have the same standards as we do,” said Kathryn Fulton, senior vice president for government relations. …Citing a gap in the agency’s plan, Fulton said the IRS should impose the same rules on unpaid preparers of tax returns. …In field tests, the IRS noted Monday, tax-return preparers often gave bad advice. In a 2006 study in which employees of the Government Accountability Office posed as taxpayers and visited outlets of tax prep chains, all 19 preparers made mistakes, the IRS reported. …It is unclear how much of the blame rests with the tax code’s confusing nature, a perennial target of politicians’ criticism. Do regulated professionals such as CPAs perform better than their unregulated counterparts? The IRS commissioner said the agency does not have the data to answer that question.

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One of the dirty little secrets of Washington is that Republicans and Democrats have more in common with each other than either party has with ordinary Americans. Tim Carney has an excellent (but depressing) column in the Washington Examiner exposing how both Democrat and Republican lobbyists are raking in big buck from General Motors, even though the car company only exists because of massive government subsidies. As Tim writes, this scam redistributes wealth from you and me to well-connected millionaires:

If you’ve flown into Ronald Reagan Washington National Airport and your plane took the northern approach coming down the Potomac, you may have looked out the window at the five-, six- or seven-bedroom homes on both the Maryland and Virginia sides of the river, with three-car garages and swimming pools. Thanks to the Obama administration and General Motors, your tax dollars are now subsidizing the millionaire lobbyists who live in these neighborhoods. GM, the failed carmaker whose $400 million in monthly losses is borne mostly by U.S. taxpayers, has in recent months hired high-priced K Street lobbyists to petition Washington for subsidies, special tax breaks and other government favors on top of the $52 billion in aid the Treasury has already provided. …GM has since rehired two of its old K Street firms, the Duberstein Group and Greenberg Traurig, and picked up new representation in the firm GrayLoeffler. Rounding out GM’s K Street quartet is the well-connected Washington Tax Group, which began representing the company in 2007 and kept its affiliation with GM over the summer, according to a search of the House and Senate lobbying databases. …Among the four firms, 18 lobbyists are registered to represent GM, including many wealthy and well-connected revolving-door players from both parties. Former Reps. William Gray III, D-Pa., and Jim Bacchus, R-Fla., are both on GM retainer, as are fabled Republican and Democratic operatives Ken Duberstein (White House chief of staff under Ronald Reagan) and Michael Berman (counsel to Vice President Walter Mondale and campaign aide to every Democratic presidential nominee since LBJ). …GM, of course, is still owned mostly by the federal government and is still losing money — $1.2 billion in the third quarter. That means the company’s expenses are the taxpayer’s expenses. That means you are paying these lobbying fees. Put another way, the Obama administration, through GM, is transferring wealth from average Americans to millionaire former public officials. …I contacted the White House and the Treasury Department to ask whether the administration found this arrangement appropriate, but neither returned my calls and e-mails. None of the lobbying firms returned calls or e-mails, either. …The auto bailouts of Presidents Bush and Obama teach us once again that when government gets bigger, it’s the well-off who fare the best.

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Since Senators engaged in open extortion and bribery to enact Reid’s government-run healthcare plan, it is hardly newsworthy that Washington is riddled with Corruption. But the magnitude of sleaze is probably far greater than most people realize. There is a new study from a couple of academics at the University of Michigan, who found significant relationships between lobbying and bailout money, as well as a greater chance of getting bailouts depending on a bank’s ties with either the Federal Reserve or key members of Congress. Hopefully, people across America will draw the obvious conclusion and realize that big government is inherently corrupting, as discussed in this video. Reuters has the details on this latest example of big government and malfeasance:

U.S. banks that spent more money on lobbying were more likely to get government bailout money, according to a study released on Monday. Banks whose executives served on Federal Reserve boards were more likely to receive government bailout funds from the Troubled Asset Relief Program, according to the study from Ran Duchin and Denis Sosyura, professors at the University of Michigan’s Ross School of Business. Banks with headquarters in the district of a U.S. House of Representatives member who serves on a committee or subcommittee relating to TARP also received more funds. Political influence was most helpful for poorly performing banks, the study found. “Political connections play an important role in a firm’s access to capital,” Sosyura, a University of Michigan assistant professor of finance, said in a statement. Banks with an executive who sat on the board of a Federal Reserve Bank were 31 percent more likely to get bailouts through TARP’s Capital Purchase Program, the study showed. Banks with ties to a finance committee member were 26 percent more likely to get capital purchase program funds.

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Even though the politicians in Washington have already flushed $887 billion down a rathole, Obama and the Democrats talking about another “stimulus.” I didn’t bother to post this CNBC clip six months ago, but it is completely appropriate given the current debate.

Some of the points may sound familiar to those who watched my recent video. The common theme, of course, is that government is too big, and the Bush-Obama policies are turning America into a welfare state.

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There are many reasons to dislike the statist economic policies emanating from Washington, and high on the list is the way big government lures companies into mooching off taxpayers rather than earning money honestly. If CEOs at least had the dignity to be embarrassed about their plunder, that would provide a bit of solace, but that is rarely the case. The head of General Electric is parroting inaccurate left-wing talking points and trumpeting corporatist policies. It’s not clear whether he believes this nonsense or is merely trying to please his political masters. The FT reports:

Jeffrey Immelt, General Electric’s chief executive, said on Wednesday his generation of business leaders had succumbed to “meanness and greed” that had harmed the US economy and increased the gap between the rich and the poor. …“We are at the end of a difficult generation of business leadership … tough-mindedness, a good trait, was replaced by meanness and greed, both terrible traits,” said Mr Immelt… “Rewards became perverted. The richest people made the most mistakes with the least accountability.” …“The bottom 25 per cent of the American population is poorer than they were 25 years ago. That is just wrong,” he said. “Ethically, leaders do share a common responsibility to narrow the gap between the weak and the strong.” GE wants to win a large slice of the infrastructure projects funded by governments around the world in an effort to kick-start their economies. Mr Immelt said business should welcome government as “a catalyst for leadership and change”.

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Kudos to David Farr, CEO of Emerson Electric. Speaking recently at a conference, Farr actually told the truth about how big government is crippling American manufacturing. In response, an Obama bureaucrat at the Commerce Department actually had the chutzpah to claim that the White House is trying to help companies by (this is not a joke) creating a multi-trillion dollar healthcare entitlement! With this type of nonsense from Washington, no wonder Mr. Farr is angry. His best line (and one that other business leaders should copy) was “…My job is not to shrink and roll over for the U.S. government.” Here are excerpts from the Bloomberg report:

Emerson Electric Co. Chief Executive Officer David Farr said the U.S. government is hurting manufacturers with regulation and taxes and his company will continue to focus on growth overseas. “Washington is doing everything in their manpower, capability, to destroy U.S. manufacturing,” Farr said today in Chicago at a Baird Industrial Outlook conference. “Cap and trade, medical reform, labor rules.” …Companies will create jobs in India and China, “places where people want the products and where the governments welcome you to actually do something,” Farr said.  …“What do you think I am going to do?” Farr asked. “I’m not going to hire anybody in the United States. I’m moving. They are doing everything possible to destroy jobs.” …“This attack isn’t supported by the facts,” Kevin Griffis, a spokesman for U.S. Commerce Secretary Gary Locke, said today in an e-mail from Singapore, where they are attending the Asia-Pacific Economic Cooperation meetings.  “This administration has made a significant commitment to U.S. manufacturing, including reforming the country’s health insurance system to bring down costs and make American companies more competitive globally,” Griffis said.

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That’s the question posed by the Wall Street Journal’s editorial page, which discusses how companies often get seduced into supporting big government – or, in some cases, are active proponents of bigger government since they’ve learned how to milk the system. In the long run, of course, statism saps an economy’s vitality, which is bad for workers, investors, and consumers:

One lesson that Democrats learned from the failure of HillaryCare in 1994 is that they had to buy the silence, if not the outright support, of the business class. They’ve done this brilliantly by peddling the illusion that ObamaCare will “lower costs” for employers. But slowly as the legislative details become clear, it is dawning on executives of businesses large and small that reform is boiling down to a huge tax increase to finance a gigantic new entitlement. …With only a few exceptions, drug makers and health-care providers have shown that their priority is rent-seeking from government, which means that any last-minute push back will have to come from the other six-sevenths of the economy. The Chamber of Commerce and National Federation of Independent Business have finally figured out they were being taken for a ride. And now even the Business Roundtable, the association of CEOs from the largest companies, is engaged in a furious internal debate about the way forward. The Roundtable has been vaguely supportive but restive. But last week Roundtable president John Castellani was informed in a contentious conference call that many of his members will quit if the organization isn’t more assertive against ObamaCare. …The larger issue for business is the productivity and competitiveness of the U.S. economy. Democrats are about to pass the largest entitlement expansion in more than four decades when federal spending is already at unprecedented levels. The “pay or play” tax on employers and the hike in payroll taxes on top earners in the House and Senate bills are merely teaser rates. The long-term pressures created on the federal fisc would require enormous tax hikes that would depress capital investment and economic growth, to say nothing of the Roundtable’s priority of reducing U.S. corporate tax rates that are among the world’s highest. The tendency among business groups is usually to conciliate and speak the language of consensus—especially with Democrats running all of Washington and able to do great harm to anyone who doesn’t cooperate. And no doubt the Roundtable is hearing from the CEOs of companies like Pfizer, Wal-Mart and General Electric that are deeply invested in more government control of the economy.

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