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Sen. Fritz Hollings Headshot

Best Government Money Can Buy

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The president made a powerful inaugural address, referencing the Declaration of Independence by intoning several times "We, the people." The people reacted warmly to "We the People," little realizing that campaign contributions have caused the people to lose control of their government. The lobbyists who contribute now control. The lobbyists used to contribute to the Speaker or Leader for results in the House or Senate. Today, the money goes direct to the Congressman or Senator. The lobbyists work together, wheel and deal, and votes are fixed long before the Roll is called. Lobbyists know the particular lobbyist that can influence a particular Senator and even tell the Leader or Speaker when to call the vote. The Speaker, the Leader, the president no longer can lead.

Congress saw the threat of "the office" being bought and in 1973 limited spending in campaigns. President Nixon signed it into law, but the Supreme Court in Buckley vs. Valeo reversed the law with the need for money in campaigns escalating beyond reason. Congress has tried for thirty years to limit spending; McCain-Feingold; public financing, etc. but the Supreme Court reversed this and, getting worse, even gave corporations unlimited power to contribute. Only a Constitutional Amendment empowering Congress to limit or control spending in federal elections will remedy this dilemma.

Lobbyists are very helpful. Senators learn the best arguments for or against an issue from the lobbyists. But limiting spending in campaigns will limit the lobbyists influence; the people will regain control of their government and the Senator will have time for his work. For Congress to pass such an amendment and for the States to ratify will take time -- more time than you think. Congress has learned to buy the office. It knows that being in the middle of the lobbyists in Washington -- fundraising morning, noon and night -- it has the advantage of raising money in campaigns. I got a bipartisan majority vote to amend the Constitution but not the 2/3 required for a Joint Resolution. In my last two years, (2003-04) I couldn't get a Joint Resolution up to vote for the amendment.

In the meantime, we can have instant tax reform and close all loopholes by eliminating the Corporate Tax and replacing it with a 7 percent Value Added Tax. The 2011 Corporate Tax produced revenues of $181.1 billion. A 7 percent VAT for 2011 would have produced $872 billion. With spending cuts, Congress can balance the budget in two years rather than ten. One hundred-fifty countries compete in globalization with a VAT -- average 15 percent -- which is rebated on exports. The Corporate Tax is not rebated. An entrepreneur in the U.S. can start production, develop the market and be making a profit in two or three years but he has to pay the 35 percent Corporate Tax and is levied a 17 percent VAT when his exports reach China. A competitor producing the same product in China exports to the U.S. tax free and can put the entrepreneur out of business. This 52 percent difference destroys manufacture in the U.S.

Let me emphasize that this is a tax cut. Rather than absorbing a 35 percent Corporate Income Tax on each stage of production, this requires only a 7 percent VAT to be absorbed. A Sales Tax must be paid; a VAT may be absorbed or passed on. The multinationals have so many loopholes in the Corporate Tax that they pay very little tax. The Main Street merchant or small business pays the full 35 percent. The VAT tax cut gives small business a break. Cancelling the Corporate Tax releases over $1 trillion in offshore profits for Corporate America to repatriate tax free and create millions of jobs. Last time this happened few jobs were created. Congress must restrict the repatriation for research and jobs. Make it a 10 percent VAT, cancel the payroll tax and get the economy going.

The president and Congress act like they want to get the economy going but the best actors are not in Hollywood, they are in Congress. They want to get the campaign going. Wall Street, the big banks and Corporate America want to keep the China profits flowing. So, Congress cusses China and Wall Street, the big banks and Corporate America contribute to the president and Congress to do nothing. And the president and Congress do nothing.

It takes private investment to develop a strong economy. The VAT tax cut will encourage Corporate America to invest in America but it must have certainty that its investment will be protected. Globalization is nothing more than a trade war with production looking for a country cheaper to produce. The United States was born in a trade war -- the Boston Tea Party. Our Founding Fathers showed the way to win this war by adopting an industrial policy -- The Tariff Act of 1787. This protectionism worked so well that Edmund Morris writes in Theodore Rex that after a hundred years the Colony was "$25 billion richer" than the Mother Country. We passed the Defense Production Act in 1950 to be sure to have on hand the material necessary to defend the country. Today we've offshored defense production in support of NATO so that, like Boeing, we are "grounded." We are begging Russia for helicopters for Afghanistan. The president must enforce the Defense Production Act and the president and Congress must develop an industrial policy to protect those items necessary for a strong economy. President Reagan protected steel, motor vehicles, computers and machine tools in 1984. If President Bush and Obama had protected motor vehicles, like President Reagan, the Detroit bailout would not have been necessary.

This Off-Broadway show of "the best government money can buy" must stop. Climate change and energy sources can wait. President Obama's legacy is a VAT Tax Cut to stop deficit spending and an industrial policy to protect production necessary for a strong economy.