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Sen. Fritz Hollings

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No Longer Free Press

Posted: 06/27/11 01:08 PM ET

The trouble with this country is that the press no longer reports the news. Today, the press and media compete to entertain, reducing their coverage to the politics of the news. Reporting is like covering a sporting event -- who's up; who's down. No longer is there an in-depth story of the budget or paying for government.

We increased the debt $5 trillion by refusing to pay for tax cuts, wars, prescription drugs, and government under President George W. Bush. Under President Obama we increased the debt $4.5 trillion by refusing to pay for tax cuts, wars, prescription drugs, stimulus and government. The Congress hasn't paid for government in eleven years, increasing the debt $9.5 trillion. Now that the Congress wants to pay, it can't cut trillions to pay for trillions in tax cuts. Now that it wants to pay for wars, it can't cut trillions to pay for wars. Now that it wants to pay for prescription drugs, it can't provide prescription drugs by cutting prescription drugs. The nation's budget is only for $1.2 trillion and spending cuts alone would require eliminating the nation's budget for years.

The target is not entitlements like Medicare, which is in surplus until 2024, and Social Security, which is in surplus until 2036. General government is broke. The task is to stop borrowing and pay for government. The target is $9.5 trillion to obtain a balanced budget like we gave President Bush in 2001.

Long-term plans with few cuts first, to maintain growth, is a non-starter. We learned from Gramm-Rudman-Hollings that long-term plans are a put-off for later Congresses to do the cutting -- which doesn't happen. The same with closing loopholes. Every time the Senate Finance Committee starts closing loopholes, it closes some but opens others, for a loss of revenue. Starting with a deficit this year of $1.6 trillion and cutting $4 trillion in ten years requires borrowing trillions during the ten years, and you end up where you started. Spending cuts alone won't do it. It takes cuts and taxes -- substantial tax revenues. But the press never covers paying for the government that's broke. The press makes people think that the budget can be balanced by cutting $9.5 trillion from entitlements.

Globalization is nothing more than a trade war with production looking for a country cheaper to produce. Our principal competitor, China, subsidizes its production, controls its market, requires foreign investment to surrender technology, and uses every trick in the book. It takes an industrial policy to compete in globalization. Talking of free trade is ridiculous. We have an industrial policy in our trade laws but don't enforce them. We wouldn't be begging Russia for helicopters for Afghanistan if we enforced the War Production Act of 1950 like Jack Kennedy did in 1961. Imposing an import surcharge like Richard Nixon imposed in 1971, when our trade deficit was a miniscule of our trade deficit today, would immediately create jobs and growth. Ronald Reagan obtained restraint agreements on steel, motor vehicles, computers, and machine tools, and imposed a 45% tariff on motorcycle imports to save Harley-Davidson. Enforcing our trade laws would create millions of jobs. The press never mentions this.

The principal weapon in this trade war is a value added tax which is rebated on export. It's not complicated -- easily installed and administered with computers. It's self-enforcing so we can reduce the Internal Revenue Service and get rid of the tax lawyers and lobbyists in Washington. One hundred thirty-six countries compete with an average VAT of 15%. Our corporate income tax is not rebated, so U. S. exports are levied the U.S. corporate tax and a VAT when reaching destination -- 17% in China; 19% in Germany. The VAT is also used to put U.S. manufacture out of business. Germany has a windmill plant in Charleston, S. C. It produces the parts at high cost in Germany, ships them at 3% cost, assembles the parts at 3% cost, and with its 19% rebated, it produces windmills 13% cheaper in Charleston than any U. S. production. The press never mentions this.

Time magazine has Fareed Zakaria list five ways to create jobs; The Nation magazine cites "13 Bold Ideas For A New Economy;" and Newsweek has former President Bill Clinton list "14 Ways To Save America's Jobs." None mention competing in globalization or fighting in the trade war. None mention industrial policy. None mention the U. S. policy of getting rid of jobs with a tax benefit for off-shoring -- or repealing the tax benefit. Clinton mentions enforcing the trade laws, but, rather than enforcing, President Clinton eliminated trade laws with NAFTA, giving most-favored-nation status to China, and joining the World Trade Organization. The press never mentions this.

President Obama states: "America, it is time to focus on nation building here at home." We can give it a good start by cancelling the corporate income tax, averaging 23%, and replacing it with a 6% VAT. This cuts taxes, promotes exports, creates jobs, provides billions to pay down the debt, and rebuilds America. Last year, the corporate tax brought in $194.1 billion, whereas a 6% VAT for 2010 brings in $700 billion. With $70 billion exemptions for the poor, this leaves $630 billion to pay down the debt. Spending cuts will provide billions more to pay down the debt and have a vote on the debt limit. Now Corporate America can repatriate a billion dollars in off-shore profits to create jobs in the United States.

We've been proposing the VAT approach for years, but the press never mentions it. When the press finally wakes up and reports how we can win this trade war, how we can rebuild America, it will probably report that those for the VAT approach "were ahead of their time." Not at all. We have been trying to catch up with 136 countries. It's because the free press is no longer.