Why Good Politics is Not Always Good Policy

Why Good Politics is Not Always Good Policy

It’s been an interesting transformation in me with relation to left leaning views and right leaning views.  One of the reasons I was too left leaning before I started in business was because I did not understand the pains of business.

I try to stay away from politics as much as possible, however. Not because I hate it but because it interests me too much and wastes a lot of time.

No matter how much I try to be away from it, though, I cannot ignore election season.

What caught my attention was the President’s State of the Union Address and his views about outsourcing. Read this:

“If you’re a business that wants to outsource jobs, you shouldn’t get a tax deduction for doing it.”

Now there is no specific tax deduction for using outsourcing except that you declare it like any other business expense. This holds true for companies like ours which doesn’t really outsource work but sends to our subsidiary overseas.

In an election year this kind of statement can get a lot of votes, but if he is really able to implement it businesses will either shut down or move complete operations overseas.

Let’s take a practical example. Say a company spends 15% of it’s revenue outside the U.S. The company’s net profit is 3%. Now if you tax this 15% at the standard corporate tax rate of 40%, the company will make a net loss of 3% rather than profit.

If you think this company will stop using foreign labor and use domestic labor, then 15% spent will actually become 50%, and the company is again in the loss bracket.

I personally like our President. But sometimes it takes running a business to know the pains of business.