No backpedaling on tax loopholes

By Arnold Hiatt  |  April 9, 2005

I HAVE KNOWN and admired Governor Romney for a long time -- ever since I became
a limited partner in Bain Venture Capital. I found him to be an astute investor
with a profound understanding of the dynamics of a company and what made it
successful.

I believe it was that same understanding as well as his commitment to fiscal
responsibility that led him to initiate a bill that would have closed
unproductive loopholes in the tax laws and recovered $170 million in lost tax
revenues for the Commonwealth.

Subsequently, he filed a second bill that would reduce the amount of recovery of
lost taxes by only $85 million, reportedly because of extreme pressure from
antitax groups.

I had occasion earlier in the week to testify in behalf of Governor Romney's
original bill. I came not as an economist to speculate on what tax policy will
or will not do, but as a businessman to talk about what makes a company grow and
create more jobs.

I had served as president and CEO of the Stride Rite Corp. for 22 years. During
that time, the market value of Stride Rite went from $40 million to $1.2
billion. This growth rested solely on the quality of the product and service
that we provided to our consumers, both here and abroad.

And quality, in turn, was a reflection on the kind of management and workforce
that we assembled here in Massachusetts. At no time did our growth depend on tax
breaks, which we did not seek or receive.

Tax considerations never played a part in our growth or decision making. As a
matter of fact, without the kind of tax avoidance that Governor Romney wanted to
do away with, the Stride Rite Corp. was able to perform in the 99th percentile
of all companies listed on the New York Stock Exchange in terms of financial
performance.

As every good businessman knows, including Romney, the soundness of a company
and its sustainability does not rest on finding tax loopholes in the law. It
rests on the fundamentals -- the innovative products and services in a market
you know and understand.

It's true that not all businessmen think alike. I listened carefully to some of
the opponents of this bill at the hearing of the Joint House-Senate Committee on
Revenue and I found them to be eloquent and logical. But I remembered hearing
those same arguments when a tax increase was considered by the administration of
the first President Bush: Jobs would be lost. Industry would lose its
competitive position, etc. It was equally compelling, but wrong.

After the Bush and Clinton administrations passed two separate tax increases,
our economy enjoyed the greatest boom in its history. I believe the same
rhetoric was used many years ago when Social Security or minimum-wage increases
wereabout to be passed.

Many business associations are opposed to the governor's original bill, but I
suspect that they're opposed to taxes of any kind without thinking through the
consequences of that opposition. If they did think it through, they would want
to pay their fair share for better schools and fire and police protection and
all the services provided by the Commonwealth with our tax dollars.

Ultimately, most good people believe in a level playing field.

Romney, the principal architect of the original bill until he changed his mind,
and I are not alone in believing that tax dollars lost through tax avoidance
weaken our economy by undermining our greatest natural resource -- our workforce
-- and by depriving our children of the good education and health care that only
government can provide.

As low-cost jobs go overseas, retraining our workforce can go a long way with
the $170 million that would otherwise serve no useful purpose.

Think how much more effectively those dollars could be invested in other
programs like early education for all preschool children, or smaller classrooms,
or support for our community colleges.

Romney showed political courage in proposing the first bill as a major step
forward in fostering economic development for the Commonwealth. I urge him to
restore his support.

Arnold Hiatt is chairman of the Stride Rite Foundation.