President Obama and Elizabeth Warren. Both dangerously out of touch about business economics. (Photo by Mark Wilson/Getty Images)
President Obama and Elizabeth Warren. Both dangerously out of touch about business economics. (Photo by Mark Wilson/Getty Images)

On July 13th the president said the following, during a speech in Roanoke, VA

"If you’ve got a business — you didn’t build that.  Somebody else made that happen."

A few months earlier, Elizabeth Warren, 63, running for the Senate from Massachusetts made the following quote. After you read her quote I will explain how, both she and the president's thinking, is part of the basic problem with today's economy.

“There is nobody in this country who got rich on their own. Nobody. You built a factory out there — good for you. But I want to be clear. You moved your goods to market on roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn't have to worry that marauding bands would come and seize everything at your factory... Now look. You built a factory and it turned into something terrific or a great idea - God bless! Keep a hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.” ― Elizabeth Warren

The President's Flawed Thinking

The president also said, that along the way to your success, you had help. I have no quarrel with that. Successful entrepreneurs often need great teachers, mentors and advisers. But I do take exception to the statement that, "you didn't build that. Somebody else made that happen." Sorry Mr. President you could not be more wrong. Someone took a risk, perhaps mortgaged their home, got a bank loan, put everything on the line to open, what they hoped, would be a profitable venture. Without the entrepreneurial spirit that business never sees the light of day.

Elizabeth Warren's Flawed Thinking

Elizabeth Warren is pleased that factories are built but she is under the mistaken impression, like the president, that the business would not exist without government coming to the rescue to build the roads, provide fire and police protection and the education of the workforce. Once again, she along with the president, are ignorant of a basic understanding of who pays for what.

Who Pays For What

Let's walk through a step-by-step process about how money is generated for the government that pays for Elizabeth's roads, fire, education and police.

Step One: A company opens and generates a dollar.

Step Two: Portions of that dollar pay for the cost of doing business, the payroll for any employees, and a profit for the owner.

Step Three: Part of the dollar pays the FULL paycheck of the employee - then taxes, Medicare, unemployment etc. are taken out in the employees name.

Step Four: The business then pays the ENTIRE tax bill for the employee AND the business out of the dollar collected and sends it to the government. At the end of the year the employee receives a W-2 telling the government the amount of taxes the business paid FOR each of its employees from the dollars it earned. Every month the business sends all the taxes it collected to the government for the previous month. Smaller businesses (like mine) pay a quarterly estimated tax.

Step Five: The government uses the tax dollars generated solely by the business, along with business tariffs, business fees, business fines, and other business taxes to run the government. All revenue generated in one-way or another, by businesses.

In short, business generates the dollar the employee uses, from his take home pay,  to go down and pay the fee for a fishing license. The taxes the business collected pays the person who issues the license, the printing of the license, and any other costs involved with the fishing license. Business covers the entire tab, from start to finish, for the fishing license.

What If That Dollar Never Happens?

If that dollar is not generated by that business, then there are no business or payroll taxes. No portion of the dollar can be sent to Uncle Sam, because that dollar doesn't exist. As a result of that dollar not being generated, there are no taxes to collect so, no bridges get built, no roads, no social security, no Medicare, no Medicaid, no military, no police, no fire, no education, no fishing license, no nothing. Until business generates that dollar government can't operate. Its income would completely dry up.

We do not pay for the roads or bridges, business does, and private enterprise pays all the taxes to build and maintains them. We do not pay for the fire or police, business does. Every month the business sends in their taxes and the taxes they paid in your name. Would you prefer to take home 100% of your pay and write a check back to your employer at the end of each year. How well would that work out for ya? Think the money would be there at the end of the year?

What About The Worth of Employee Labor

Isn't it the employee's labor that produces that dollar? In part yes, and they are paid part of what they, and the company agree on, for fair compensation for their labor. Except, of course, when the employee is sunning on a beach somewhere on PAID vacation.

How much labor is the employee generating to pay for those 2-3 weeks each year? Multiply that by each employee to see how much more the business has to generate to still pay the entire tax bill of that employee and still keep the doors open. Don't forget personal days off and sick days with pay. Some companies are stuck with up to a month of paid labor with no employee doing anything.

Some Final Thoughts

The problem we face is that politicians want to raise taxes because it's a faster way to gain income than building strong businesses that could fully fund every entitlement program they can think of. Increasing taxes give someone a fish for a day; business generates the taxes to provide the fish for a lifetime. The more people that know how to fish, the less need there is to give someone a fish.

Government just has to get out of the way. And no, I'm not talking about deregulation; I'm talking about more support from Congress by letting the free market system work the way the founders intended. They wanted a country where private enterprise could prosper — not make millionaires out of politicians.

How do you think Ford, Nissan, BMW and Toyota feel about the government subsidizing General Motors, — a direct competitor? Does that seem fair to you? Why should Chevrolet make it when the Desoto and Studebaker didn't?

Why are businesses setting up overseas under governments that offer nowhere near the freedoms the United States does? Because government taxes, regulations and other restrictions are making it impossible to headquarter in the United States and still be competitive in the global market.

Our economy would be much stronger with more companies with fewer employees, than it would be with fewer companies with many employees. Relaxing restrictions on new businesses would go a long way to reducing the 8.2% unemployment rate we've all been enjoying for the past 44+ months.

If the president and Ms. Warren could just somehow grasp where and how revenue is generated, and who generates it,  perhaps we could all start working our way out of this mess. Unfortunately, I doubt that will happen any time soon. Business will continue to handle the heavy lifting to fund everything. The question is — for how long?

More From KMMS-KPRK 1450 AM