The reality of the fiscal cliff was brought home this week by the closing of snack-food giant Hostess. Following a standoff with unionized employees who voted to reject an 8 percent decrease in pay and benefits because it was “draconian,” Hostess announced it cannot stay in business any longer. As a result, roughly 18,500 people will lose their jobs and take a 10 percent decrease in pay and benefits. Nicely done, union.
But really, 8 percent wage and benefit cuts are draconian? The union deals Hostess had were apparently so complex that drivers of Wonder Bread trucks couldn’t even transport other products on their routes, which sounds like the very definition of draconian.
When a company is that constricted, exactly how are they supposed to produce a quality product or run efficiently, let alone innovate and improve? The short answer — they can’t.
This stricture of business, caused by union contracts, government regulations and taxes, will only get worse as the fiscal cliff approaches.
We’ve already seen a number of companies lay off employees or restrict working hours because of the expected costs of the Health Care Act, which will soon be implemented, and because of anticipated tax hikes.
Yet, companies like Papa John’s are somehow racist for doing this?
Let’s think about that for a moment.
Company X owns a company in Anytown. Their presence employs many people. They pay property tax that helps Anytown keep up their infrastructure and helps pay for the school system. Their product also draws tourists from other cities, bringing in more business to other businesses in Anytown. Everyone profits.
The president decides to raise tax rates and institute a new health care policy that will raise the rates for employers.
Anytown has two choices. They can continue without any change in the benefits or pay of their employees, which drives up the cost of doing business. This cost is passed on to consumers and investors, who, in response, probably take their hard earned money elsewhere. This leads to declining profit margins for Company X, cut backs in pay and quality of product, and possibly bankruptcy. The employees lose their jobs. Anytown loses a part of its tax base and a big business draw to the area.
Or, they can fire a few employees, cut back on benefits a little and continue to keep the cost of business low so that they can sell a quality product at a low price. Only a few people are adversely affected.
Is that really race based? Or is it a reaction to a president who insists on mocking traditional capitalist principles as “trickle down fairy dust” and continues to push Keynesian policies that have been discredited time and time again?
But, should we really expect intelligence and honesty from people who painted Bain Capital as “vulture capitalists” because some of the companies they invested in failed?
Brief economics lesson — media-venture capitalists invest in companies that are either going through or are on the verge of bankruptcy. Sometimes, they’re too far gone to rescue. But, the jobs would have been lost regardless of Bain’s involvement.
As the fiscal cliff approaches and the Democratic leadership continues to asininely trumpet tax hikes on the wealthy as some sort of magic solution, this only gets worse.
The tax hikes on the “wealthy” includes those who make $250,000 a year. Many middle class families fall into this bracket, as do business owners.
Historically, when taxes are increased, the revenue received from the top bracket goes down because people stop investing and making riskier business decisions. Revenues actually go up when tax rates are lower. This happened under both Reagan and Kennedy. But, why would we want to take lessons from history?
The layoff announcements are not a response to Obama’s reelection on the basis of race. They’re a response to his economic policy. Although Obama pretended that Bush was responsible for the first four years of his presidency, the reality is he passed economic stimuli claiming it would aid business. And when that didn’t improve the business climate, he advocated raising taxes. His plan for the next four years? More of the same. And that’s exactly what we’ll get — four more years of a stagnant economy.