THE BLOG

Building China's Economy Instead of Ours

01/30/2013 03:32 pm ET | Updated Apr 01, 2013

The United States is the most competitive country in the world. We compete in sports, business, medicine, law, and academia -- even religion. Everything, but globalization.

Globalization is nothing more than a trade war with production looking for a country cheaper to produce. Our country was founded in a trade war (The Boston Tea Party) and the Founding Fathers immediately instituted an industrial policy (The Tariff Act of 1787) to build a strong economy. They didn't send federal aid for policemen, firemen and teachers. Private investment built the economy and the government protected investment from predatory practices. It worked so well that Edmund Morris finds in Theodore Rex that after 100 years the colony was "$25 billion" richer than the mother country. Harry Truman protected military industrial projects with the Defense Production Act of 1950 and in 1984 Ronald Reagan protected steel, motor vehicles, computers and machine tools. In globalization you must protect a developed economy or you will be drained dry.

In 2006, the Princeton economist Alan Blinder estimated that for 10 years the U.S. would offshore an average of three to four million jobs a year. But Paul Krugman, of The New York Times, and Martin Wolf, of the Financial Times, think that we are not spending or stimulating the economy enough. It's not stimulation. We've stimulated the economy $10 trillion in the last twelve years and are borrowing and stimulating another trillion this fiscal year. It's not lack of confidence in the economy. It's lack of money. We are offshoring payrolls. Offshoring is the culprit. In a special report on outsourcing and offshoring, The Economist cites the Harvard Business School study that found last year "many firms are still deciding against basing activities in America."

For 10 years now we have heard how the economy needed "growth." Instead, the economy needs government. As The Economist special report finds "America's government is not making the countries business environment attractive enough for companies to want to come back." How to make it attractive? With an industrial policy of competitive taxation and protection of production from predatory practices as the Forefathers did.

Instead, President Obama is quoted in the New Republic: "We know how to fix our economy, we've got to make sure: that we have the most competitive workforce in the world, that we have a better education system, that we are investing in research and development, that we've got world-class infrastructure, that we're reducing our health care costs, and that we're expanding our exports" -- everything but an industrial policy of competitive taxation and protection. Now comes the Brookings Institute calling for Congress to establish twenty "manufacturing universities." We established manufacturing skills fifty years ago that's now making the "ultimate driving machine" for BMW and the Dreamliner for Boeing (the faulty battery is produced in Japan).

The president and Congress can easily establish a "business environment attractive enough for countries to come back" by enforcing our trade laws to protect production and by eliminating the 35 percent corporate income tax which is not rebated on exports and replacing it with a 7 percent value added tax which is rebated. This closes all loopholes, giving instant tax reform. It produces billions to pay down the debt: 2011 corporate produced $181.1 billion in revenues whereas a 7 percent VAT for 2011 would have produced $872 billion. This tax cut releases over $1 trillion in offshore profits to be repatriated tax free by Corporate America to invest and produce millions of jobs. It gives small business a break. The multinationals have so many loopholes that it was reported that GE and 3M paid none. The Main Street merchant pays the full 35 percent and I've talked to many who would take the 7 percent VAT tax cut in a New York minute.

One hundred fifty countries compete in globalization with a VAT. Not having a VAT is killing manufacture in the United States. An entrepreneur can start a business, develop the market and be making a profit but he has to pay the 35 percent corporate tax and when his exports reach China a 17 percent VAT. A competitor can produce the same product in China and export tax free to the United States. This 52 percent difference is putting many out of business.

I've sent Vice President Biden the VAT tax cut so the president would know and to each of the Senators, Republican and Democrat. But the VAT tax cut is treated "top secret." Wall Street, the big banks, and Corporate America want to keep the China profits flowing so they contribute to the president and Congress to do nothing and the president and Congress do nothing. It's amazing. The political pundits -- Matthews, Scarborough, O'Reilly et al -- constantly look for controversy -- not a peep about competing in globalization; not a peep about creating an attractive environment to bring Corporate America home; not a peep about the VAT tax cut or enforcing our trade laws; not a peep about building China's economy instead of ours.