Thomas Friedman is fearful that the Senate bill countering China's Rimini devaluation could pass the House and "trigger a trade war." The United States was founded in a trade war -- the Boston Tea Party. We continued the trade war when President George Washington repudiated free trade on July 4, 1789, by signing the Tariff Act for manufacture to build the nation's strong economy. Globalization has turned the trade war into an economy war; i.e. competing for trade, research, technology, development, production, and jobs. The people are frustrated that every country is competing in globalization except the United States. Corporate America has a sweet deal in China -- no labor, safety or environmental concerns; profits are predictable; no legacy costs; the VAT on exports is rebated, and, if profits are reinvested off-shore for more profits, no corporate tax. Corporate America doesn't want to have to come home and go to work. Wall Street, the big banks and Corporate America cry "free trade," "trade war" for fear that our government will compete in globalization and cut off their China profits. They want Congress to do nothing, and Congress obliges. So Corporate America develops a closed market in China as it cries "free trade," "trade war," back home.
Steven Rattner's column in the New York Times is headlined "Manufacturing jobs won't come back." Germany, South Korea, and Japan have manufacturing motor vehicle jobs "coming back" all over the South. They use their value added tax to destroy Detroit -- trade war! Wake up, Washington! Stop the sing-song of no manufacture. A strong nation has to have a strong manufacture. Stop borrowing for mortgages and student loans. Compete in globalization. Stop begging Russia for helicopters and enforce our trade laws like the Defense Production Act. Protect the steel, motor vehicle, computer, and machine tool industries like Ronald Reagan. Get Corporate America creating jobs in the United States instead of off-shore. Take the tax benefit to off-shore jobs and give it to Corporate America to on-shore jobs; i.e. cancel the corporate tax and replace it with a 6% value added tax. Last year the corporate tax produced revenues of $194.1 billion. A 6% VAT for 2010 would have produced $700 billion. A VAT taxes consumption -- the more you spend the more you pay. Since the rich spend more, they pay more. Since the poor spend most of their money on food, health and housing, exemptions of $70 billion leaves $630 billion to pay down the debt. The VAT releases $1.2 trillion in off-shore profits to invest and create jobs in the United States. Congress can limit the repatriation of profits to jobs -- no bonuses. The VAT promotes exports, creating jobs. Since the VAT is self-enforcing, much of the I.R.S. can be eliminated, cutting the size of government. There are no loopholes in the VAT, so we have instant tax reform, eliminating the tax lobbyists, Grover Norquist, and pledges never to pay for government. The tax lobbyists will howl: "Too complicated; doubles the state sales tax." All false. In fact, replacing the federal corporate tax of 35% with a 6% VAT is a tax cut. The VAT is simple and effective. That's why 141 countries use a VAT to compete in globalization.
The people have lost control of their government. Wall Street, the big banks, and Corporate America are the biggest contributors to the re-election of the Congress, and their lobbyists have seized control. Lyndon Johnson couldn't lead the Senate today. To return control to the elected representatives, we need to limit spending in campaigns. Congress limited spending in campaigns in 1973. President Nixon signed it into law, but the Supreme Court equated money with speech in Buckley vs. Valeo, reversing the law. Now with its decision in Citizens United, giving political speech to corporations, the 2012 election will be bought. A Constitutional amendment is necessary: "Congress is authorized to limit or control spending in federal elections." In 1973 Strom Thurmond and I were limited to so-much per registered voter. The amendment is permissive, allowing later Congresses to limit as they see fit. This will take time, but Occupy can get Congress to pass a Joint Resolution amending the Constitution this year. The States are ready to ratify.
In the meantime, Occupy can pressure Congress to enact the VAT solution, which cuts taxes, eliminates lobbyists, gives instant tax reform, cuts the size of government, provides billions to pay down the debt, and creates millions of jobs. And President Obama can start enforcing our trade laws.