We’ll take the Ashley jobs trade-off any time

Ron Wanek, Founder, Ashley Furniture

Ron Wanek, Founder, Ashley Furniture

More on the gubernatorial out-sourcing brouhaha:

The Republican attacks on Mary Burke over the offshoring of jobs aren’t just about Mary Burke. There is no issue if Trek weren’t compelled to produce bicycles in China, Vietnam and other counties to stay competitive — like every other manufacturer of bikes.

The underlying issue, the major issue, is how American manufacturers, and service providers as well, deal with the global economy. We can wish the world economy hadn’t change from the 1950s and 1960s, when U.S. business was dominant in the aftermath of World War II. But we all know that would be delusional. The world economy is a far different place today, a far more competitive arena

Let’s chalk up the political point-making as opportunistic at best, cynical at worst and silly for sure. Take U.S. Sen. Tammy Baldwin’s Monday e-mail as an example. Sounding like Gov. Scott Walker on Burke, the Democratic senator called out-sourcing it “a slap in the face to our businesses, our workers, our taxpayers that big corporations get tax breaks for shipping jobs overseas.”

Baldwin is a smart person with law degree; she must know there are no such breaks. (I checked with our tax accountants to see if our company was missing those “breaks.” We aren’t, because there are none.) Further, Baldwin offers no solutions, even as she says a group of like-minded Democrats are trying “to do something about it.”

If you want to torture the language of business, you could make the case that lower tax rates in other countries are a “break” compared to the sky-high 34% corporate rate paid here to the federal government. Most countries have dropped their rates into the teens.

Wouldn’t the logical response from the politicos be to drop the U.S. corporate rate?

Walker has done a dollop of that by dropping the top personal income tax rate in Wisconsin from 7.75% to 7.65%. That reduction helps most of the state’s companies that are organized as pass-through entities, of which Trek is one. (Note to Walker campaign staff: Trek does pay corporate taxes; they pay them at the owner level, not the corporate level. That’s the case for a large majority of state firms.)

Walker also helped by signing a phase-out of the state’s corporate tax for manufacturing and agri-business. Baldwin and her friends ought to follow suit. The combination of high federal and high state corporate income taxes is a crippler for American businesses trying to compete with overseas companies.

Instead of ideologically bashing companies that are “inverting” – moving their headquarters to low rate countries – President Obama should get pragmatic, not his strength, and follow suit as well. Cut the federal rate to at least 25%. Isn’t one-quarter of business earnings enough?

The bigger point, though, is that American companies have an imperative to be global players to survive. Let’s take the example of Ashley Furniture Industries in Arcadia, Wisconsin.

From small company beginnings, Ron Wanek got Ashley rocking and rolling in the 1970s. An early move was to take his management team to China to show them the new realities of global business. The Waneks are very private, but he was quoted in a North Carolina newspaper recently when he presided over a plant expansion there. He said, “When I took our executives over to show them what we were up against, they became physically sick. “

His answer was to adapt. Ashley off-shored components to Asia, including Taiwan, but still did much of the assembly of the upholstered furniture in Arcadia. It’s hard to ship bulky furniture. The combination worked, and Ashley was off to the races.

Today it is, by one account, a $4 billion business with as many as 20,000 employes. It vertically integrated by opening more than 500 retail stores in 123 countries. It reportedly does 40% of its production in China and Vietnam, but 60% here. Gov. Walker visited Whitehall, Wisconsin in March to celebrate the expansion of an Ashley plant there that added 300 jobs.

Politicos from either side of the aisle could decry the 40% that Ashley finds necessary to import. They could pass laws or imposes tariffs or other tax penalties to prevent the offshoring of jobs by Ashley – or Trek – but that would be self-defeating for Wisconsin to say the least. We have a big chunk of Ashley’s 20,000 employes here. We should take that 60-40 trade-off all day, every day.

Without a competitive cost structure, businesses don’t grow and they could go down. Don’t tell me it can’t happen. I have written the obituaries on a good number of good companies that didn’t adapt to the new world economy. Darwin didn’t say the fittest species survived; he said the most adaptable survived. That applies in business.

Logic says that you can’t bash imports (another word for out-sourcing or off-shoring) if you are at the same time applauding exports. One country’s exports are another country’s imports.

At the very least, the politicians should look at the trade balance of a company before whacking it. Are they exporting more than importing? Are they growing jobs here? If so, aren’t their owners the good guys?

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  • Bob Dohnal

    Thanks John. I like to put these up on Wisconsin Conservative digest so more will see it.

    • JohnTorinus

      Go for it. And, thanks.

  • Bob Dohnal

    We are going to do that book, Kurtz, Tommy and myself. It will be the political history of Wisconsin from LaFollette’s run for prez till act 10. We have incredible history and need to get it done before we are all dead. Think of good stories, you have been around for awhile. Is your dad alive?

    • JohnTorinus

      My dad passed in 1985, but I am still vertical.

  • Waring Fincke

    John. How about a compromise. All corporations bring their hqs back and pay us taxes and then we lower the corporate rate?

    • JohnTorinus

      If it were a simultaneous transaction, fine.

      Reductionist logic: I don’t think West Bend should help any company with a plant in Town of Barton.

  • jhinwb

    Not sure how many companies pay the full rate, but I understand it’s less than 20%. Some of the most profitable corps. pay zero or even get large refunds. In the 50’s and 60’s corps. paid on average 39% of federal tax income. Today it’s about 8 or 9%. At the same time there is talk of lowering income tax in favor of a regressive sales tax.Top rates for individuals has come down considerably too. The reason for some of the wealth inequality? Is there any doubt the powerful money interests have something to do with this. I recall when the state of Wisconsin instituted the first sales tax. It was touted to be something charged on things that were NOT necessities. Today even toilet paper is charged. The added sales tax in Washington Co. has been so lucrative that it has spawned a 10 year multi-million dollar building spree that has provided nothing short of plushness and big maintenance budgets all around. The county garage Rolf’s Rd. would boggle most everyone’s mind with it’s vast size alone. With all that sales tax income it was easy to spend lavishly.

    The real problem with “free” trade is that what we expect as normal, like pollution control and minimal respect for workers in the US does not exist in China, Bangladesh, Vietnam or in the many other slave labor factories our i-phones and shirts are made.

    • JohnTorinus

      I agree with almost every point you make.

      A measure to lower the corporate rate ought to include a minimum rate for all corporations. The biggest companies use battalions of lawyers and accountants to work down their tax bill. Other companies pay the top rates. The minimum rate could be, say, 10% federal.

  • Steve Derryl

    I completely agree with the intent of the article. I take issue with the “President Obama should get pragmatic, not his strength.” I’d argue he’s been forced to be pragmatic from day 1 on economic and international issues: the proof is that he’s angered both liberals and conservatives on health care, foreign policy intervention, and trade agreements. That’s how we end up with a healthcare law directly out of 90’s Republican’s playbook, proxy interventions and drone strikes in troubled areas, and fast tracked free trade agreements to limit special interest manipulation. I’m not saying any or all have been as effective as a different route, but all have been spurred by a very pragmatic “what can I actually get done” mentality. As for lowering the corporate tax rate, I’ve wondered why we couldn’t lower it to say like 10% (help keep multi-nationals here, and not punish small businesses), and then have a national Internet sales tax (to help level the playing field for brick-and-mortar). Just a suggestion for a study, I don’t know of any that include an Internet sales tax.

    • JohnTorinus

      I would agree that a higher consumption tax would be an excellent trade-off for lower corporate taxes.
      In the end, the consumer pays the corporate tax any way. That tax gets passed through in prices. It’s just another cost of doing business.

  • widgeon

    John:

    I agree with Steve D. re the Issue of Obama being pragmatic or not .

    One thing you didn’t mention is the preferential treatment Ashley got from Tommy T. They were allowed to build and expand into floodplains and wetlands in clear violation of the state laws and constitution. Later on that proved to be a poor decision when they were flooded out. many folks talk about creating a “level playing field”, but Ashley was given the upper hand as political payback.

    • JohnTorinus

      Small potatoes issue, though a real issue, in the greater scheme of things, ie 20,000 jobs.
      Wasn’t there mitigation involved in the land deal?

      • widgeon

        Wrong, John. It is a big issue when you violate the state constitution for private gain. And how do you say no to the next guy? The plant could have been built anywher, as Ashley learned the hard way. This was strictly political payback by TGT.

  • Bob Keith

    Oh for God sake,Torinus; your apologist rhetoric for jobs going to China et cetera is fatiguing. Never once in your years of making excuses for the last 10 years of America’s abysmal economy, have you addressed the beleaguered working rabble left behind by these disturbing global policies. Well, I live, work, and struggle to survive in “your” new norm economy. And, probably to your new economy chagrin, I can actually connect a couple of complete sentences. Your apologist melody embracing the destruction of any semblance of dignity for someone trying to survive in this American economic mess over the last few years, seems to me to come from the same part of the brain that apologists in Nazi Germany used in the 1930s, to belch excuses to explain how it was best to move six million Jews to…, “better territories.” And I do not use “anonymous” as a cover. Guys like you do not, and I absolutely repeat, do not, scare a beat-up working guy like me. Somebody needs to call you out. Bob Keith.

    • JohnTorinus

      You, sir, are over the top. Nazi comparisons. Gimme a break.

      The second phrase is not a complete sentence.

      John Torinus. USMC retired.

      • Mike

        Hey John you act like your new world economy is so wonderful and necessary. As a consumer like myself who has no other options at time but to buy products made in China, I find it appalling. Most of these products made in China are nothing but throwaways. There is absolutely no quality put into the product. In other words they are nothing but junk! If this is what a company has to do to survive, I would rather see them close the doors instead of selling the crap they put on the shelf from China. The worst part is when something goes wrong with the product, the companies consumer service line will tell you that it can’t be fixed. Example: I bought a new refrigerator and only being 7 years old, it had a short in one of the wires in the back of the unit. I was told nothing could be done to fix it. I was told I would be better off purchasing a new one. If I were you I would not be bragging up your new world economy since it it is nothing but a total joke!!!