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Is Obama a good CEO of America, Inc.?

October 24, 2012

By Robert A. Green, CPA

Forbes Version: "Is Barack Obama The Right CEO For America, Inc.?".

Not intending to be political, I want to frame President Obama’s tax-rate hike plans on upper-income taxpayers in business terms that most people can understand. Some pundits say tax-rate hikes are justified, arguing that “trickle-down economics” or “supply-side economics” doesn’t work. While many Americans don’t fully understand those misused concepts, they do understand good business decision making.

The CEO of America, Inc. should use basic good business judgment
Pundits, the media and even Gov. Romney’s campaign focus on his business record as CEO of Bain Capital and Bain & Company. President Obama argues that Romney’s record put profits over people and being a CEO doesn’t translate well for the job of President, or CEO of America, Inc. On the other hand, many CEOs in America are concerned that President Obama’s tax and regulatory policies are not good for their businesses.

To add jobs, our President should also think like a CEO
Look at the conundrum America faces in terms of adding new jobs, improving the economy, reducing debt and building its future. It’s helpful to view these issues through the green-eye shades of businessmen.

If your company's business is down, and it's running low on its credit line to finance ongoing losses, would you as CEO a) raise prices on your best customers to finance losing customers, or b) improve your value proposition for customers, restructure your business and model and rein in costs? Very few CEOs would feel it’s a good idea to raise prices on their best customers during tough economic times. When President Obama insists on letting the Bush-era tax rates expire on the upper-income only, that’s a price hike on America’s best tax customers, which includes small businesses. The President also says we remain in tough economic times and that small business is the key to job growth. Put in these terms, how can he justify this tax hike?

Fix the value proposition, don’t raise prices (taxes)
As a successful businessman, Mitt Romney knows that if you want to raise revenue, you need to improve your value proposition to increase sales volume and win even more good customers. In some cases, you need to lower prices (tax cuts), and offset that with a reduction in overhead and cost of goods sold, so you maintain profits on the bottom line. Profits are the mother’s milk of stock prices and jobs, too. Non profitable businesses don’t pay income taxes.

Together with excellent customer service, this type of change to your value proposition raises revenue, profits and taxes. It also saves jobs and with success and growth, it generates more new jobs. Rising companies lead to a growing supply chain, which lifts all boats. As President and CEO of America, Inc., why not listen to and work closely with the other American CEOs?

Customers walk and taxpayers use tax avoidance
President Obama knows that taxpayers want to run away, using tax avoidance, from his tax-rate (price) hike plans, and that’s why he is berating CEOs and the upper-income to shame them into tax-hike compliance. While those verbal attacks may help beat populist drums on the campaign trail, it won’t raise tax revenue.

The President knows this and that is why he is also proposing to beef-up enforcement and policies to further block tax avoidance schemes. As an unintended consequence in behavioral economics, Obama's tax hikes and tax avoidance policies will lead to even more tax avoidance by big business and the upper income. That means tax revenues will go down.

Section 482 transfer pricing says companies can’t just shift profits offshore; they must consider where the operations are located. As a result, companies will move operations and jobs abroad. Super rich people have homes around the world, and companies have officers around the world, and they can and will change their tax domicile from high-taxing states and the U.S. to Switzerland, Singapore and other more tax friendly jurisdictions. Switzerland’s cantons make global tax deals like a carpet bazaar, saying you name your global income and let’s agree on a flat tax amount we both like.

Small business bears the brunt
President Obama is really picking on small business with his tax-hike policies. Small businesses can't move operations or assets as easily as big business to offshore jurisdictions. Big companies can easily grow and move operations offshore.

Conversely, while Mom and Pop businesses on Main Street may have some foreign sales, most of their employees and assets are located in America. They bear the brunt of transfer pricing rules. But, where there is a will, some will find a way to offshore some profits. Most businesses can ring-fence intellectual property and house it offshore with minimal operations.

It’s bad business to keep spending money you don’t have
President Obama's questionable America, Inc. CEO skills don't stop with tax-price hikes on good customers. He seems equally committed to big-government spending programs and pork-barrel sausage-making deals. While the President and his party may call these spending programs “investments” for the future, most businessmen and accountants would not classify them as such, but rather expense it to operations, adding to the red ink.

The federal government burned through its debt-financed cash very quickly, and there are few long-lasting benefits. Meanwhile, the debt adds a huge tax burden on our children and grandchildren.

How many CEOs have the luxury of using Keynesian-deficit spending?
Even though it's dangerous, many pundits and politicians want to double down on Keynesian-deficit spending. When a business is in trouble, rather than giving the CEO a blank check to spend even more money, shouldn't the board of directors bring in a firm like Bain & Company to help restructure, modernize and fix it, first? Wouldn’t the former strategy lead to throwing more good money after bad?

For example, has Obama's green energy program disappointed because the President didn't throw enough billions in subsidies, stimulus and tax breaks at it? Or has it disappointed because customers don't want green energy enough yet with "not in my backyard" obstacles?

Or, is another contributing reason that China stole market share with unfair trade practices? Should an American President compete with China by matching China’s state-dictated central-planning model, or with the free-trade and free-market economics that made America great? When government picks winners and losers, it’s often corrupted by losers to pick them.

Good businesses use austerity, growth and vision
Chancellor Merkel of Germany leads the push for austerity measures in Europe, with even the center-right government of Prime Minister Cameron in the UK adopting austerity measures, too. State and local governments are now using austerity to keep their budgets in balance, since they can’t run deficits and must balance budgets. So isn't it time to hire a CEO for America, Inc. who understands how to use austerity and has a vision for a successful free-market future?

While government is not the same as business, our President can be better by thinking like a CEO rather than against CEOs.

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