The first step in this inquiry is to determine exactly what is ‘General Motors Corporation?’  In this case, the question contains the answer. It is a ‘corporation.’ 

The second step is to ask, what is a corporation? This may sound like a silly question. However, I was once employed by the corporation whose founder had asked, what is air? Having asked the key question, he went on to separate air into the components of oxygen, nitrogen and rare gases. The results of his silly question have yielded many human benefits. With hope that I too might generate human benefits, let me answer my own ‘silly question.’

A corporation is a legal invention that allows a business to have a life that does not end with the death of a single human founder. A sole proprietor’s business dies when he or she dies. A legal partnership dies when any partner dies. Today we have new forms of partnerships that survive the death of a partner. Nevertheless, the primary purpose of a corporation is that a business may have life beyond the death of the human owners. A second purpose was and is to limit the liability of each shareholder to the amount of his or her investment. Most large businesses would not exist if they could not be corporations.

Nearly a century ago the US Supreme Court upheld the government’s right to tax the income of every person and business, with some exemptions. The corporate income tax rate began at 1%, and climbed slowly for almost 40 years. When Japan attacked Pearl Harbor in 1941, President Roosevelt raised the corporate tax rate from about 14% to 42%. When North Korea invaded South Korea in 1950, President Truman sent our troops into battle, and raised the tax rate to 52% for large corporations.

After the wars, we made peace with our enemies. We allowed foreign manufactures to sell their products in our country, without paying US payroll taxes. We took on the burden of defending Japan, Korea, and Germany in the Cold War, so they did not have the expenses of providing their own army and navy. For the past 60 years American corporations, mainly manufacturers, have carried the tax burden of defending not only our nation, but the entire non-Communist world.

When WWII ended, America was the greatest manufacturing nation in the history of the world. Our Marshall Plan gave billions of dollars to our former enemies, and rebuilt their nations. General Douglas MacArthur, in charge of Japan, barred American automakers from that nation. Japan’s auto industry, free of competition, flourished. With their home market secure, in time they entered the American market. Operating largely tax free, they have been taking market share from American automakers for 60 years. It seems as if, like the late Rodney Dangerfield, American automakers can’t get no respect in their own country.

This writer has expressed a fairly long view of history, because I have lived through the period in question. Let us step back a minute, and take an even longer view. In our war for independence, 1776, the DuPont family manufactured our gunpowder. While wars are fought my men and women of courage, they would not have been won without the weapons of war produced by our manufacturers. From 1776 to the present day, American manufactures have provided the weapons of victory that are the backbone of our nation.

‘The power to tax is the power to destroy’ is a cliché known to most. What seems lost on some politicians is that manufactures are the geese that lay the golden eggs of our prosperity. Some politicians want to tax, tax, tax every profitable business, even as our economy suffers. Other politicians want tax exemption for people making the most money. This ideological struggle produced the twin evils of budget deficits and trade deficits, conditions that threaten to destroy our nation.

Is it time for a compromise? Is it time to level the playing field? Is it time to abolish the US corporate income tax? Is it time to help working families?

Alan Greenspan, Chairman of the Federal Reserve Board, has power over fiscal policy. He has been raising interest rates steadily. He seems blind to how tax policy can replace fiscal policy to lower interest rates. His blind spot has reduced him to the status of a one trick pony, raising interest rates steadily without confronting budget or trade problems.

Our current tax structure is a holdover from the post WWII era of America supporting the world, because the world could not support itself. America was the surrogate parent to Germany, Japan, and South Korea when they could not stand on their own. If you open your eyes, and look at the cars around you at every stoplight, you see evidence that those nations have grown strong enough to stand on their own. If you look at your fellow citizens in many towns, cities, and states, you see impoverished Americans struggling to keep food on their tables.

America is the greatest nation in the history of our planet. Still, there is room for improvement. We need all Americans to contribute their time, talent, and treasure to the task of restructuring our nation.

Coal miners learned years ago that canaries detect air born poisons before humans. Thus began the practice of taking canaries into coalmines as an early warning system to protect human life. Today, General Motors Corporation is America’s canary, and we are all in one gigantic coal mine. We must care if GM lives or dies. We must worry about the health of General Motors and of all of our manufacturing corporations.

To achieve these goals, we advocate abolishing the U.S. corporate income tax, and abolishing the tax deduction on borrowed money except for home mortgages.

By abolishing the corporate income tax, and abolishing the unlimited deduction for interest on borrowed money for every business, we will lower interest rates. Lower interest rates will lead to closing the budget deficit. 

After WWII, the GI bill provided 4 ½% mortgage loans to returning veterans. That law created the American middle class of homeowners, as we know it today. However, times changed. Big businesses have leveraged their buying power, crowding out smaller borrowers. Limiting the tax subsidy of big borrowers will aid younger families in achieving home ownership.

By assuring lower interest rates, we will allow prosperity to spread throughout the land, much like the GI bill did for WWII veterans sixty years ago. These two steps will bring jobs back to America, thereby helping our nation, and our working citizens, to get out of debt and prosper.

We once built all of our TV sets. We lost that business. We once built all of our own cars. We lost a third of that business. An American corporation, IBM, invented the personal computer. We lost that business. Another American firm, Xerox, invented the photocopy machine. We are losing that business. America is losing businesses at a fearful rate, and we better stop the losses. If General Motors dies, every city and town in America will die a little with it.

If we fail to rise to this challenge, we risk perishing as an independent nation.

That’s New ThinKs for June 2005.
Poppa Kelly - Please forward to all your friends.

Next month: How tax law helps the rich, while crowding out the middle class.
Copyright 2005 by Poppa Kelly