When asked why he was always robbing banks, Willie Sutton replied: "That's where the money is." So the question is where are jobs being created. Few on-shore, but millions off-shore. Why? Because Corporate America makes better profits off-shore. Why? Because labor is cheaper and there are no concerns with health, safety, environment, and legacy costs.
First we need to check U. S. labor, safety, environment and legacy regulations to make sure they are needed in globalization. Globalization is nothing more than a trade war with production looking for a country cheaper to produce. Every country has an industrial policy to compete in globalization. Japan closes its market, sells export near cost, making up the profit in its closed market. China uses every trick in the book. It requires foreign investment to forfeit technology and intellectual property for 49% of the profits. It alters acquired technology, patents it so that the new technology becomes the article in trade. When China cuts the profits of foreign production as it expands its middle class, Corporate America will come home with nothing to produce. So the U. S. has to develop an industrial policy competitive with China's controlled capitalism.
We have an industrial policy in our trade laws. President Kennedy enforced the War Production Act of 1950 to protect the textile industry. President Richard Nixon imposed a 10% surcharge on imports when the deficit in balance of trade was a miniscule of what it is today. President Ronald Reagan obtained restraint agreements on steel, motor vehicles, computers and machine tools. And President Reagan imposed a 45% tariff surcharge on motorcycles to save Harley-Davidson. But for twenty years it's been a political "no-no" to enforce our trade laws or execute our industrial policy. Practicing free trade against controlled capitalism in globalization is like playing "touch football" against "tackle football." If we had enforced the War Production Act, we wouldn't be begging Russia for helicopters for Afghanistan. Imposing an import surcharge like President Nixon would immediately create jobs.
Worst of all, we encourage off-shoring with our tax policy. Our corporate income tax averages 23% and is not rebated on export. One hundred thirty-six countries compete in globalization with a value added tax averaging 15% that's rebated on export. The VAT is not complicated -- easily installed and administered with computers. So U. S. exports are not only emburdened with a corporate tax, but are levied a VAT when exports reach destination -- 17% in China; 19% in Germany. Corporate America pays no corporate tax on off-shore profits unless the profits are repatriated. We subsidize off-shoring and wonder why there are no jobs.
Moreover, the VAT is used in the trade war to put U. S. production out of business. Germany uses its 19% VAT to produce windmills in Charleston, South Carolina. Producing the parts at high cost in Germany, shipping the parts at 3% cost, and assembling parts at 3% cost, allows Germany with its 19% VAT to produce windmills 13% cheaper than any U. S. production. We need to stop subsidizing the off-shoring of jobs and subsidize creating jobs in the United States. Cancel the corporate tax and replace it with a 6% VAT. This promotes exports, and replacing an average corporate tax of 23% with a 6% VAT is cutting taxes. Even Grover Norquist will rejoice. Corporate America has been begging for amnesty for off-shore profits. Now it can repatriate a trillion dollars in off-shore profits to create jobs in the United States. More importantly, the VAT is self-enforcing. We can reduce the Internal Revenue Service and eliminate that tax lawyer and lobbyist crowd in Washington.
Revenue for the 2010 corporate tax amounted to $194.1 billion, whereas a 6% VAT for 2010 amounts to $700 billion. Exemptions for the poor of $70 billion leaves $630 billion to pay down the debt. Spending cuts will permit us to pay down more debt. Replacing the corporate tax with a VAT cuts taxes, pays down the debt, creates jobs, and eliminates tax lobbyists. But no member of Congress is going to introduce a tax measure unless the White House signals its approval.
President Obama refuses to signal his approval. The president is intent on fundraising a billion dollars for his re-election. He doesn't want to turn off his best contributors: Wall Street, the banking elite, and the Fortune Five Hundred. This financial crowd wants to keep the off-shore profits flowing. They are not interested in the U. S. economy -- only the economies of China, India, Vietnam and Mexico. So the president travels the country finding needs that we have, or are being off-shored -- needs like windmills or green jobs that foreigners are locating in South Carolina; needs like research that is being off-shored; needs like innovation, when Google, the best of innovation, off-shores a million jobs to Taiwan; like retraining when South Carolina has the training and skills to produce cars for BMW and Boeing's Dreamliner. Finally, he appoints the champion of off-shoring jobs to create jobs in the United States. In 1991, Jack Welch of General Electric started off-shoring in earnest by announcing at the annual stockholders meeting that GE would not consider any subcontractor's bid unless it had off-shored to Mexico. With Welch's "squeeze the lemon" policy, GE has off-shored the majority of its jobs. Now the president appoints the CEO of GE, Jeffrey Immelt, as the job czar, who promptly off-shores a $550 million research center to Brazil.
In his fundraising, President Obama is not serious about creating jobs. He never discusses the causes or solutions to unemployment. He never talks about industrial policy, controlled capitalism, or the trade war. He continues the tax benefit to off-shore the economy. He is serious about campaigning -- he is not serious about governing. We can't pay for government, create jobs, or head the economy in the right direction until we get the president back in the White House governing.
Countries like China can supplky raw material and energy to can produce materials like steel for about half the cost of U.S. mills. Our government recognizes this and therefore “equalizes” the price of suppliers, if a mill is caught undercutting standardized price they can be charged with dumping. U.S. manufacturers of steel products are locked into a cost structure based on U.S. steel pricing!
Billions of dollars of manufactured goods flowing into the U.S. daily from China and India, duty free made from their raw materials? The Harmonized Tariff System of the United States allows most goods to enter the country duty free. The Chinese learned this lesson; not wanting to leave money on the table their objective as low cost produceris to know exactly how low they must price the item in order to secure business away from U.S. manufacturers. If the Chinese can sell below U.S. production costs and maintain a 30-40% profit margin in the process they will do so all day long.
It is truly shameful that President Obama, who questioned NAFTA when he was running for President, now totally refuses to acknowledge and deal with the trade war that we are in. Other countries are actively fighting this war, but our President and most of the members of both parties in Congress are letting other countries win the the trade war. Shame on all them and shame on our business leaders for their disloyalty to this country. They should be lobbying for the VAT.
Personally, Fritz, I think you give Obama too much credit.
I don't think he's even as active as you say.
It also sounds like a very good topic to bombard President Obama on, right up until election day. The trouble is, none of the other candidates are going to go for it either, so that doesn't leave us much choice. Maybe what we really need is an 'Egypt.'