One Troop

In his imposition of tariffs on imported tires from China, President Obama stated: "We are not going to see a trade war." We have been in a trade war since World War II, when Japan closed its domestic market, subsidized its manufacture, and sold its exports at cost, making up the profit in its closed market. Japan, with its closed market, has Toyota No. 1 as GM, in an open, free trade market, goes bankrupt. Thirty million now unemployed didn't just lose their jobs in this recession, but to the off-shoring of production and jobs by Corporate America for a bigger profit. Globalization is nothing more than a trade war with production looking for a cheaper country to produce. Competition in this trade war is cut-throat. Japan prevents its advanced technology from being patented for fear that China will rip it off. After fifty years of free trade agreements, just read the 547-page 2009 National Trade Estimate Report on Foreign Trade Barriers that sixty-three countries have against U. S. exports. "Free trade" is a fraud!

Of course, the President knows we are in a trade war. But Axelrod tells him that he has to call for "free trade" to get the contributions from the bailout and bonus crowd - Wall Street, the big banks, the financial houses, the National Association of Manufacturers, the Business Roundtable, etc. Larry Summers has the Obama administration concentrating solely on finance with no attention to production, jobs, and the economy. Newsweek reports: "It took $19 trillion in public funds to save the financial system." But the greedy financial system wants to save only the jobs of the investment community. They are openly hostile to saving jobs of the production community. They and their economists call for "free trade, don't start a trade war," in which we are presently AWOL. The bailout and bonus crowd could care less about the economy. They act as a fifth column in the trade war.

Banks get rich financing off-shored operations. Since 1973, Chase Manhattan has made most of its profits off-shore. Accordingly, David Rockefeller in The New York Times calls for "fast track" and states: "...our economy is richer as a result of globalization." Rockefeller and the banks are richer -- but the economy is poorer.

A command decision must be made to come in from the cold in the trade war - and trade. Stop whining "free trade," which Henry Clay said: "... never existed," "it never will." Since government industrial policy is the "comparative advantage" in globalization, the United States must develop an industrial policy to protect our economy. It will be measured. It must tend to open markets and against monopolization. And it must guarantee the production of those materials essential to our national security. But we need to return to our founding principles as a "Yankee trader."

For now, we can solve the problems of our fiscal and trade deficits by eliminating the corporate income tax and replacing it with a 3% value added tax. This actually cuts taxes, raises more revenue, and the United States begins to fight in the trade war. An additional 1% VAT over ten years will pay $1.3 trillion for health care, and 1% more brings in revenue to start paying down the debt. With the average corporate tax at 27%, the 5% VAT cuts taxes by 22% for domestic sales and eliminates taxes (which are rebated) for Corporate America's exports. China has a 17% VAT. Today, U. S. production pays an average of a 27% corporate tax and, when its export reaches Hong Kong, China adds its 17% VAT -- for a total of 44%. The 5% VAT immediately removes the 44% tax advantage to off-shore Corporate America's production and jobs to China; and it removes the VAT tax advantage that 152 countries have over the U. S. in the trade war.

This will put the people of the country on notice that Washington has finally gotten the message -- that in globalization the United States will protect its production and economy. For fifty years we've been draining the country of production and jobs. Congress has responded by passing through both Houses legislation to enforce our trade laws, but Presidents of both parties call for "free trade" and veto the legislation. So Congress calls for "free trade," too, and gets the money for the campaigns. Congress neglects its Constitutional role of regulating trade.

Under the Constitution, all trade measures must initiate or derive in the House of Representatives. This relieves the Senate from introducing any trade measures. When a trade bill comes over to the Senate from the House, the bailout and bonus crowd keeps the Senate hamstrung with "fast track." They fix the trade bill in the Finance Committee and once the bill is reported for consideration on the floor of the Senate, "fast track" forbids any amendment. Take it or leave it. Of course, to get the money, the Senate takes it. With a two-year term, House members are constantly campaigning for money and not about to cut their throats by introducing a trade bill unless it's been sanctioned by the President. So it's up to President Obama. Does he continue to campaign for the money or does he save the country by replacing the corporate income tax with a 5% VAT -- by cutting taxes and engaging in the trade war?

In this war, we need only one troop.

For more commentary by Senator Hollings, please visit his web site at http://www.citizensforacompetitiveamerica.com

Comments

[Greggo]

We will soon be a colony of China. We don't make anything here anymore. All we have are concepts. We're in the proverbial handbasket.

[AnotherMcIntosh]

What is your goal?

If you begin with the assumption that corporations merely pass along taxes to consumers and if your goal is to solve the problems of our fiscal and trade deficits, you can accomplish your goal by adjusting the tax rate imposed upon income obtained by shareholders from profits which have caused those fiscal and trade deficits.

It is not unusual for the law to apply different tax rates to different types of income. Our country's tax system does that all the time.

Income currently earned from wages and salaries is, for example, taxed at rates that is higher than the income obtained from the individual sale of stocks and bonds. One is treated as ordinary income while the other is categorized as capital gain and treated in a preferrential manner.

A VAT won't solve the problem. If corporations really don't pay taxes but just pass them on, then corporations won't pay VATs either.

Income obtained by shareholders from corporations engaging in activities which has caused fiscal and trade deficits should not be given a preferrential treatment.

If you invert the manner in which taxes are imposed so that shareholders who obtain income from such activities paid more rather than less taxes than those who earn income from salaries and wages, this would solve the problem in a way that would be beneficial for the country as a whole.

[DCinFrance]

First, corporate taxation is not...it goes right to the consumer. This much is true. However, eliminate their tax, and prices will quickly reestablish themselves as they were with corporate taxation. The only thing that will keep downward pressure on prices is from the outside...and from the outside I mean nations that are not part of the western international banking cartel. It's an incredible dynamic.

For instance...and first let's be clear that a VAT is nothing but a sales tax...here in Europe, the VAT hovers around 18%. An 18% sales tax?? OMG you are thinking. Yet, I'm here to tell you--with certain exceptions like oil and and other sources of government revenue, prices here are not all that much different. Taken it all as whole, it comes out to be just about the same (factor in health care for starters). Now, why is that?

So what's wrong with the good Senator's proposal? The effect will be nil. Whether you're taxing corporations or imposing a VAT, it is regressive. The poor must pay a disproportional amount of spendable income. Prices will not change either way. It is all hot air. But given the nature of money, it's all air to begin with.

[StJames]

I think you have missed the point here. Corporations use tax loopholes as do the wealthiest citizens. What is really important here is the re-establishment of American manufacturing and the future protection of it.

[StJames]

Brilliant! Thanks so much for all the great info and insight.

[Skepticat]

Big corporations use an inordinate amount of government resources to ensure and protect profits and have been paying less and less taxes for decades. The idea that they should be further subsidized by ordinary citizens by imposition of a value added tax in a depression economy shows clearly which side Senator Hollings is on - and more important which ide he isn't.

[jmpurser]

Just not enough corporate welfare coming out of DC these days? You look around and this is REALLY the most important thing you think America needs?

[Froggie99]

This is just a way to shift corporate taxes from the corporations to the individuals.
Like we are not already hurting enough in this lopsided everything-for-the rich economy

[AnotherMcIntosh]

Or a way to shift taxes from the idle rich and super greedy to the ever shrinking middle-class, the working poor, and other consumers in general.

[GrahamInCanada]

"China has a 17% VAT. Today, U. S. production pays an average of a 27% corporate tax and, when its export reaches Hong Kong, China adds its 17% VAT -- for a total of 44%." wrote Senator Hollings above.

With all due respect to Senator Hollings, this sentence encapsulates the erroneous logic underlying this suggestion. As others have posted below, the 27% corporate tax rate is not the marginal rate, but this misses the error. The 27% corporate tax rate is not a sales tax, it is not a tax on total price, it is in fact a tax on income, or profit, and not on gross or retail prices.

American products are not 27% more expensive than they would otherwise be when they reach Hong Kong. And when the Chinese add their VAT, it is neutral: the VAT is paid on all sales, not just sales of American products, so there is no competitive disadvantage to American products.

[audadvnc]

Eliminate income taxes for the most powerful and wealthy . Institute more sales taxes. Explain to me how this helps the 95% of us not in thrall to the PTB?

[stevelindg]

Why do conservatives forget the word 'marginal' when referring to tax rates? That's the starting point before all deductions. More than half of all US corporations pay no income tax at all. The VAT has been the holy grail of conservatives along with 'trickle down' , and tax cuts solve all problems. These are all political policies to benefit the extreme wealthy wrapped around a few economic words to confuse their base.

[fallingsky]

Fritz,,,,, a value added tax is heinous,,, The vendor , manufacturer will pay an additional 3%,, they will jack the price up even more and then we will pay a sales tax on the tax ,,,, that works out to be about a 40 % added tax

[unitron]

"The vendor , manufacturer will pay an additional 3%,, they will jack the price up even more..."

And then their competitor will underprice them, sacrificing some markup for greater sales volume.

[Openeyes]

F Troop Sen Hollings.

Where do you get AVERAGE corporate taxes at 27%? Do you mean to say some corporations are paying MORE than 27% -I like you to name one.

You couldn't be more wrong.

Historically corporate tax levels are the lowest in the last 70 years, partly due to the flight of corporations to offshore entities, eliminating a great deal of tax.

Average corporate taxation for federal income tax is in the 15% range, with many large corporations (like oil companies) paying in the single digits.

Individual income tax payers are paying a greater portion of federal income taxes relative to corporations than they have since the Great Depression - please stop calling for lower corporate taxation. This is just NONSENSE.

[countfloyd]

So what is your solution to leveling the playing field for trade?

[COPerez]

Co-sign!

We don't need to lower or do away with Corporate taxes: we need them to pay their share. WITHOUT loopholes, without off-shoring profits, without off-shoring jobs to keep from paying health insurance costs.