- The Washington Times - Friday, October 29, 2010

ANALYSIS/OPINION:

Just weeks after Obamacare was signed into law earlier this year, Secretary of Commerce Gary Locke was questioning the $100-plus million Form 8-K write-downs announced by corporations such as Caterpillar Inc., Deere & Co., Boeing Co. and AT&T to account for their anticipated higher costs of health care. The commerce secretary even referred to AT&T’s $1 billion write-down as being “minor” - perhaps reflecting a government perspective jaded by trillion-dollar bailouts and deficits.

Qualifications for the secretary of commerce should include understanding how to get the economy going. Mr. Locke’s past record of public service tells a different story. Prior to joining the Obama administration, he had served two terms as governor of the state of Washington, commencing in 1996. For much of those eight years, he was at odds with Washington voters on taxes and fiscal issues, having specific problems with the state’s two biggest private-sector employers - Boeing and Microsoft Corp. It was widely reported that Mr. Locke was in large part responsible for the state’s business climate, which led Boeing to move its headquarters to Chicago. His faux pas that led to Microsoft’s quiet move of its most significant divisions out of Washington has gone largely unreported.

When Microsoft’s revenue took off in the 1990s, the Washington state business and occupation (B&O) tax began taking an increasing chunk out of the company’s bottom line. Most of Microsoft’s revenue came from outside Washington state, and Bill Gates decided to try to strike a deal with Mr. Locke to lower the state’s B&O tax take.

Microsoft’s four good-faith attempts to negotiate a B&O tax cut with Mr. Locke were rebuffed. In the end, Microsoft stated clearly its intention to move operations out of the state if a middle ground could not be found. Mr. Locke flatly refused to respond.

Microsoft then moved the bulk of its licensing revenue operations to Nevada, starting in 1997. The Microsoft Licensing Group in Reno includes Commercial Operations, OEM Operations, Entertainment and Devices, Online and Worldwide Credit Services - which together are responsible for more than $30 billion in annual revenue. The state of Washington could have had half a loaf of Microsoft’s licensing revenue taxation, but its governor miscalculated and made a choice that resulted in having none. Why is this an important story now?

The global economy is recovering, even booming in some countries. But the United States remains mired in a stagnant economy with one of the highest unemployment rates in the developed world. Jobs are leaving the country for the same reasons they left the state of Washington and continue to leave with Boeing’s recent transfer of the 787 Dreamliner assembly to lower-cost, nonunion labor in South Carolina. The stakes are very high. The new reality is that in order for the United States to stay competitive, macro-level policy from Washington, D.C., needs to learn from the mistakes of the micro-level in Washington state.

Consider that nearly a dozen Standard & Poor’s 500 companies based in the United States were in the process of or had recently completed the relocation of their headquarters overseas as Mr. Locke was being sworn in by the Obama administration. Corporate executives cited excessive tax, labor and regulatory burdens as the primary reasons for leaving America.

Fast-forward to today. The Obama administration still disparages business, seeks to add Environmental Protection Agency regulation of energy to the regulations just imposed on health care and financial institutions, seeks ways of raising corporate taxes on foreign profits, and seems unwilling to spend the political capital necessary to enact the free-trade pacts already negotiated with South Korea, Colombia and Panama. Meanwhile, other nations create tax havens to attract business and race ahead in securing free-trade agreements. This year ushered in free-trade agreements between China and 10 Southeast Asian nations, a market zone that affects 2 billion people.

The United States cannot afford to stay on its present uncompetitive path. All pending American free-trade agreements should be enacted promptly. Reversing course on any and all tax increases and reducing regulatory burdens are vital to restoring business confidence, increasing investment and job creation.

The upcoming midterm elections should provide a teachable moment on these matters for the commerce secretary and his boss. But at least voters can hit the brakes and stop further damage. Voting is easy. The hard part will be to stay engaged and hold elected officials accountable as never before.

Scott S. Powell is a visiting fellow at Stanford University’s Hoover Institution and a managing partner at RemingtonRand Corp. and Alpha Quest.

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