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Sen. Fritz Hollings

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Doing Something Real

Posted: 08/10/11 05:01 PM ET

In 1993 we cut spending and raised taxes on everything -- including Social Security -- giving the country eight years of its strongest economy and giving President Bush a balanced budget in 2001. President Bush put the country on borrowing and steroids to the tune of $5 trillion, and President Obama has kept us on $4.5 trillion of steroids for his first three years. President Obama's deal keeps the government on $7 trillion of steroids for the next ten years. It's time to get off the steroids and pay for government.

We keep stimulating to create jobs. President Bush proved tax cuts don't create jobs. Stimulation doesn't create jobs. An infrastructure bank program would be good if we had the money. It calls for more steroids, and the roads needing repair also need to be widened. Getting the rights-of-way for the roads, and architects to redesign bridges is too slow, too weak. We've got to do something strong, something real. Corporate America invests and creates jobs -- but now in China. We have got to make it profitable for Corporate America to create jobs in the United States.

We continue in hot wars everywhere and ignore the cold war -- the economy war. Globalization is nothing more than an economy war with production looking for a country cheaper to produce. Every country competes for investment, research, technology, production and jobs except the United States. Wall Street and Corporate America want to keep the China profits flowing and the president and Congress want to keep the contributions flowing. So you don't hear much about the economy war. But now is the time to fight.

We can get into the economy war by taking the tax benefit to off-shore jobs and give it to Corporate America to invest and create jobs in the United States. Eliminate the corporate income tax and replace it with a 6% value added tax. Since the average corporate tax is 23%, reducing it to 6% amounts to a tax cut. The corporate tax is not rebated on export, but the VAT is rebated, promoting exports. Immediately, the corporate CEOs and tax lawyers will howl. It puts their loophole games out of business. The VAT gets rid of loopholes, tax lawyers and lobbyists, and since the VAT is self-enforcing, we can eliminate some of the Internal Revenue Service. Last year's corporate tax produced $194.1 billion in revenues, whereas a 6% VAT for 2010 produces $700 billion in revenues. Exemptions for the poor of $70 billion still leaves $630 billion to pay down the debt. And spending cuts can produce more billions to pay down the debt. With the corporate tax cancelled, $1 trillion in off-shore corporate profits becomes immediately available to invest and create jobs in the United States. So cutting taxes with a VAT takes the government off steroids, allows Corporate America to make a profit in the United States, stops the hemorrhage of off-shoring jobs, promotes exports, cuts the size of government, produces billions to pay down the debt and creates million of jobs.

But the Grover Norquists will howl: "It's too complicated," "it's regressive," "it's a money machine." With computers the VAT is easily installed and administered. 140 countries compete in globalization with a VAT and don't find it "regressive" or a "money machine." Strong economies like Germany, China, and Brazil, all have a VAT. Germany uses its 19% VAT to build windmills in Charleston, S. C. Manufacturing the parts at high cost in Germany so there is no tax, shipping the parts at 3% cost, assembling the parts at 3% cost, Germany produces windmills in the U. S. 13% cheaper than any domestic production. Since the costs of a VAT are typically higher for small business, many countries, including the United Kingdom, exempt some small businesses from the VAT. But a Government Accountability Office study in 2008 showed that the administrative cost for a VAT was lower than administering the income tax.

Now that you've hit the ball, follow through with two things. First, enforce our trade laws like President Kennedy enforced the War Production Act in 1961 to save the textile industry; like President Nixon imposed a 10% surcharge on imports in 1971 when our trade deficit was a miniscule of what it is today; like President Reagan imposed a 45% tariff on motorcycle imports in 1984, saving Harley-Davidson. Finally, fix the vote against any override of a veto against the continuation of the Bush tax cuts and announce that you will veto any bill that continues the Bush tax cuts.

If President Obama does these things now, he and the country can recover. But some will oppose recovery.