Fritz Hollings: Zero out corporate taxes, institute 5% VAT

[Winehole23]

Sen. Fritz Hollings (http://www.huffingtonpost.com/sen-ernest-frederick-hollings)

Former South Carolina Senator
Posted: September 25, 2009 02:59 PM

b

One Troop (http://www.huffingtonpost.com/sen-ernest-frederick-hollings/one-troop_b_300225.html)





Read more at: http://www.huffingtonpost.com/sen-ernest-frederick-hollings/one-troop_b_300225.html


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.



Read more at: http://www.huffingtonpost.com/sen-ernest-frederick-hollings/one-troop_b_300225.html

[clambake]

pretty broad strokes have been painted in this piece.

[Winehole23]

Sure.

[clambake]

whats your initial take on it?

[Winehole23]

It's a consumption tax, so there's that.

But if it can level the playing field and put a serious dent in the trade deficit, it might be worth considering.

[clambake]

if it will gut that "fifth column".....

[Wild Cobra]

It's a consumption tax, so there's that.

But if it can level the playing field and put a serious dent in the trade deficit, it might be worth considering.
This is what HR 25 has been trying to do for years.

[starboy]

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.


Dumb.

Corporations pay the average 27% on taxable INCOME. Not on sales.

Just like consumers pay tax at the end of the year, on INCOME. If you were in the top 35% tax bracket, that doesn't mean you went walking around paying a 35% tax on everything you bought... which this paragraph wrongly implies.

No sir, I don't like it.

[Wild Cobra]

No sir, I don't like it.
Then I doubt you understand it.

[Wild Cobra]

Fair Tax, HR 25 (http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=108_cong_bills&docid=f:h25ih.txt.pdf)

[starboy]

Then I doubt you understand it.

Okay, I'd ask you to explain how you came to this conclusion, but I get the feeling it would be a waste...

Just to clarify -

I wasn't arguing about the idea of implementing a VAT tax or not in the US. I was saying the article was written poorly and had weak underlying arguments.(see my previous post).

[starboy]

Fair Tax, HR 25 (http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=108_cong_bills&docid=f:h25ih.txt.pdf)

Okay, so I read the first 20 or so pages of this.

I've never read a proposed bill before so I have a question for those who maybe have, or have done it more often than I have. More specifically, I have questions regarding pages 2-5.

SEC. 2. CONGRESSIONAL FINDINGS.
(a) FINDINGS RELATING TO FEDERAL INCOME
TAX.—Congress finds the Federal income tax—
(1) retards economic growth and has reduced
the standard of living of the American public;
(2) impedes the international competitiveness of
United States industry;
(3) reduces savings and investment in the
United States by taxing income multiple times;
(4) slows the capital formation necessary for
real wages to steadily increase;
(5) lowers productivity;
(6) imposes unacceptable and unnecessary ad14
ministrative and compliance costs on individual and
business taxpayers;
(7) is unfair and inequitable;
(8) unnecessarily intrudes upon the privacy and
civil rights of United States citizens;
(9) hides the true cost of government by embed4
ding taxes in the costs of everything Americans buy;
(10) is not being complied with at satisfactory
levels and therefore raises the tax burden on law
abiding citizens; and
(11) impedes upward social mobility.
(b) FINDINGS RELATING TO FEDERAL PAYROLL
TAXES.—Congress finds further that the Social Security
and Medicare payroll taxes and self-employment taxes—
(1) raise the cost of employment;
etc...

These(pretty major) assumptions are never talked about or discussed in the bill later on. They're just made and stated as if to be true. Is this always the case with a proposed bill? Is there an attached schedule that shows the data that supports these assumptions, or are the arguments just stated as if they were undeniably true.

No wonder this bad boy has never been passed (Once again, not arguing for or against the bill). It never really argues why it should be passed(except the poor job it does in the first few pages), it just goes on and on about what changes should be made to the current IRC to "promote freedom, fairness, and economic opportunity".

[coyotes_geek]

I think it's a good idea.

[Wild Cobra]

Okay, I'd ask you to explain how you came to this conclusion, but I get the feeling it would be a waste...

Just to clarify -

I wasn't arguing about the idea of implementing a VAT tax or not in the US. I was saying the article was written poorly and had weak underlying arguments.(see my previous post).

The argument acknowleges that when we export a product overseas, it has the added costs of built in taxes. A production tax. This increases the cost of our prioducts sold. If we eliminated corporate taxes, then protects would sell for much less, and decrease the trade imbalance.

Consider this hypothetical Wiget, current tax structiure:

USA production

$20 labor cost.
$60 other costs
$20 gross profit
$7.00 income tax
$13 net profit
$100 price USA
$5 shipping
$17.85 VAT at the overseas
$122.85 price overseas.



Chinese production

$2 labor cost.
$60 other costs
$13 gross/net profit
$0.00 production tax + $12.75 VAT = $87.75 cost to Chinese
$5 shipping
$90.50 USA price

Same product, eliminating income tax, implementing VAT:

USA production

$20 labor cost.
$60 other costs
$13 gross profit
$0.00 income tax
$13 net profit
$93 price USA + 3% VAT = $95.79
$5 shipping
$17.17 VAT at the overseas
$118.17 price overseas.



Chinese production

$2 labor cost.
$60 other costs
$13 gross/net profit
$0.00 production tax + $12.75 VAT = $87.75 cost to Chinese
$5 shipping
$90.50 +2.72 = USA $93.22 price

In the above hypothetical, the price for the wigit sold in the USA is $100 made in the USA and $90.50 made in China. Ho doesn't like saving $9.50?

The wigit sold in China is $87.75 made in China and $122.85 made in the USA. Why in hell would they buy from us?

Now changing the tax scheme as the article applies, the prices changes:

The wigit sold in the USA cost $95.79 and the one made in China is $93.22. With a $2.57 difference, this will encourage more USA manufacturing rather than buying overseas.

The wigit sold in China, made in China is still $87.75. The USA made one is now $118.17. Still much more, but the price did come down.

I prefer the fair tax over the 3% VAT. It makes the changes even more dramatic.

Now please, don't take any of these numbers as fact. Just look at the concept of what the change in taxation does.

Now lets look at one more hypothetical. At the current tax structure, 10% are USA made and 90% Chinese made. Out of every 100 units, the tax revenues are $70.00.

Under the new system, assuming a 30% USA and 70% Chinese, tax revenues are now $274.10 per 100 units.

[SpurNation]

As far as the "Fair Tax" supporters in congress

71 Representatives support while 10 Senators support.
http://www.fairtax.org/cgi-bin/scorecard.cgi

Personally...I've been a proponent of a "Consumption Tax" over "Income Tax" because it will provide the government with a "Fair" collection of money spent on goods more so than what is now being applied through income tax.

Suprising is the fact that no democrats are in support of this idea though it would mean the majority of purchasers in this nation are the same people (wealthy) that democrats want to target as far as receiving more tax revenue from and the biggest supporters of this idea are republicans who are demonised as protecting the rich.

A consumption tax would level the playing field as far as where tax revenue is generated and the "rich" would obviously be contributing more than a poverty status person.

I would like to know the reasoning in this (or better yet) why so many Dems who don't support this ...what the reason may be since this type of tax would generate much more from the wealthy than is generated now with our current income tax structure.

[mogrovejo]

It's a consumption tax, so there's that.

All taxes fall upon the consumers. A consumption tax is not more noble, from a moral standpoint, than others forms of taxes, but it's certainly more honest from an economic one.

[spursncowboys]

As far as the "Fair Tax" supporters in congress

71 Representatives support while 10 Senators support.
http://www.fairtax.org/cgi-bin/scorecard.cgi

Personally...I've been a proponent of a "Consumption Tax" over "Income Tax" because it will provide the government with a "Fair" collection of money spent on goods more so than what is now being applied through income tax.

Suprising is the fact that no democrats are in support of this idea though it would mean the majority of purchasers in this nation are the same people (wealthy) that democrats want to target as far as receiving more tax revenue from and the biggest supporters of this idea are republicans who are demonised as protecting the rich.

A consumption tax would level the playing field as far as where tax revenue is generated and the "rich" would obviously be contributing more than a poverty status person.

I would like to know the reasoning in this (or better yet) why so many Dems who don't support this ...what the reason may be since this type of tax would generate much more from the wealthy than is generated now with our current income tax structure.
Not to mention getting rid of the IRS, or decreasing the size and power it holds. An IRS agent can come into your house without a warrant.

[SouthernFried]

There will always be a collection agency like the IRS...the govt needs its money, no matter where it comes from. It will have all the power the IRS has now, even if its not called the same 3 letters...don't doubt that for a second.

But, to the bigger issue...

Good idea that someone is taking the trade issue seriously.

Bad that it's 40 yrs too late.

America basically doesn't make anything anymore. If we'd taken trade wars seriously in the 60's, then maybe we could have saved most everything we lost in the intervening years.

There's always been a few...very few, that saw what was coming and tried to do something about it. But, the American public has never been educated on this...they don't understand it.

The biggest failing in our public school systems, imho...has been its complete disregard, and outright hostility, to teaching anything to do with business, economic/monetary policy, trade, etc. Mostly because the teachers don't know anything about it themeselves. We haven't prepared our own children in dealing with the business of business. Even to this day, I can say that and still get responses like..."that's not what we should teach our children in schools...business should be kept out of schools."

Our current economic woes have been a very, very long time in coming. Not everyone is just now figuring out there are problems. I've seen 40 yrs of anti-business, punitive actions taken against the segment of our economy that has provided us with the productivity and standard of living that has been the envy of the world.

...and it is still happening to the shell of what it once was.

America doesn't produce anything anymore. We are now an 86% service economy. People have argued over the years how that is a good thing. Let the poor countries make shoes, we will make computers. Then those poor countries started making the computers, and it became "we are a high tech service economy, let them make the computers."

The underlying issues of why we were losing each segment of our production, be it low or hi tech, was never really addressed. It usually came down to..."they're greedy."

When it was addressed, it was too weak to be effective.

Japan has the saying, "business is war." America has never come to that understanding. Trade treaties are as important as Defense treaties. Protecting our shores and people from outside invasion was always a given...why people never got their heads around protecting American business from outside invasion is a mystery to me. Every time I heard..."if they can't compete, screw 'em" I cringed.

Finally, the understanding that business was leaving our shores was brought home. I cringed at the response to that as well. The common thread was...they should be punished for it, without understanding why it was happening in the first place, "they're just greedy," right?

All people had to do was ask the business's why. The problem was...they didn't like the answer business gave. It just costs too much.

It would not have been hard to fix...when we still actually produced something. I can sum it up in couple of sentences.

"If you demand that American business pay high wages, conform to myriads of regulations, provide safe working conditions, protect the environment, etc...which all cost money. Then you must PROTECT that business against attacks from countries that DON'T put those restrictions and extra cost/burdens on their business...or lose it."

Not enough business acumen in this country for that thought to go over well. The average response boils down to..."if they can't compete, they should go out of business."

Well...they have.

What Obama is doing now is something we should have done 40 yrs ago. I don't care if OBAMA doesn't understand the larger issues. I don't care if he's just protecting his Labor Union constituents, and doesn't give a rat's ass about the business that provides the jobs. I don't care what reasons it would have taken for the US to protect US business against foreign attacks. I just would have liked to see it.

But, I would like to have seen it done when we were in the stronger position. When we made most everything, and for any country to sell anything...they had to sell it here. We were the marketplace for the world. That was real bargaining power. We could have protected our Business, and grown our business because of it. We produced everything...and we were the largest consumer of those products.

We are still the marketplace of the world, but what we buy...we no longer make. It doesn't take a genius to see where that leads to. We buy, but we no longer make the money from what we buy. What happens when you keep spending...but don't make the money?

Hollins isn't the first, and probably wont be the last to try to address trade issues. Chances are it'll go as far as any other attempt. It's always worth the try tho. Not that there's much to protect anymore.

Fuck free trade, and everyone who has ever used this mantra. And that includes Rush Limbaugh.

[exstatic]

As far as the "Fair Tax" supporters in congress

71 Representatives support while 10 Senators support.
http://www.fairtax.org/cgi-bin/scorecard.cgi

Personally...I've been a proponent of a "Consumption Tax" over "Income Tax" because it will provide the government with a "Fair" collection of money spent on goods more so than what is now being applied through income tax.

Suprising is the fact that no democrats are in support of this idea though it would mean the majority of purchasers in this nation are the same people (wealthy) that democrats want to target as far as receiving more tax revenue from and the biggest supporters of this idea are republicans who are demonised as protecting the rich.

A consumption tax would level the playing field as far as where tax revenue is generated and the "rich" would obviously be contributing more than a poverty status person.

I would like to know the reasoning in this (or better yet) why so many Dems who don't support this ...what the reason may be since this type of tax would generate much more from the wealthy than is generated now with our current income tax structure.

If it's really "puttin' it to the rich", I think the REAL question is why do so many Republicans actually support it? I'd be skeptical as a Democrat, too.

[Winehole23]

All taxes fall upon the consumers. A consumption tax is not more noble, from a moral standpoint, than others forms of taxes, but it's certainly more honest from an economic one.It has the advantage of being based on real productivity. It is certainly honest in that way.

[Winehole23]

And I like the idea of having some money left over to retire the debt.

[Winehole23]

Or at least start to.

[boutons_deux]

The US and other corps pushed hard for globalization and free markets/free trade, so they could exploit the cheap labor and resources in non-industrial countries.

US corps don't give a fuck about patriotism, or America First, or US employees, or US jobs. They only care, are institutionally required to care, about profits.

If anybody thinks that lowering US corp taxes will bring off-shore jobs back to USA, they're as deluded as creationists.

[boutons_deux]

"the "rich" would obviously be contributing more than a poverty status person."

In countries where there is VAT (Europe), they've recognized that VAT is extremely regressive, and give income tax breaks to people in the lower brackets. That's why the Repugs and richies want VAT. It screws over the poor more than it takes from the rich.

Look at VAT as percentage of disposable income. The rich have plenty to dispose, so losing some to VAT is painless. The poor live from week to week, have no disposable income, so VAT is extremely painful, as is buying their own health insurance.

Same with Social Security being capped, so the rich don't have to pay SS on 100% of their revenue.

It's "unfair" to ask the rich to pay SS on $Ms of revenue, but poor people have to pay SS on 100% of their earnings. SS is a "flat tax" except for the rich.

[Wild Cobra]

Suprising is the fact that no democrats are in support of this idea though it would mean the majority of purchasers in this nation are the same people (wealthy) that democrats want to target as far as receiving more tax revenue from and the biggest supporters of this idea are republicans who are demonised as protecting the rich.

It's no surprise at all. They are talk. What the Fair Tax would do is remove the control that congress has over the tax code. They would lose all their favorite rich contributes who ask them to write in loopholes for them.

Democrats don't really raise the taxes on the rich. They just make the ignorant believe so. The only people who get caught are those who don't have the type of money that fit in the loopholes.

Yes, it would be a far more fair tax. I would like to see it changes so that necessities have no tax. That way, taxes are then paid on all nonessential. The richer you are, the more you buy nonessential, right?

Essentials would be like tooth paste, toilet paper, unprepared food, etc.

[Wild Cobra]

If it's really "puttin' it to the rich", I think the REAL question is why do so many Republicans actually support it? I'd be skeptical as a Democrat, too.
Because the democrats do not stand for what they claim.

[coyotes_geek]

Same with Social Security being capped, so the rich don't have to pay SS on 100% of their revenue.

It's "unfair" to ask the rich to pay SS on $Ms of revenue, but poor people have to pay SS on 100% of their earnings. SS is a "flat tax" except for the rich.

This doesn't mean anything. Benefits are calculated based on the income you paid taxes on. If the rich were getting benefits from income they weren't paying taxes on that would be wrong. But that's not the case. Bitching about SS taxes is just a democrat red herring.

[Wild Cobra]

It's "unfair" to ask the rich to pay SS on $Ms of revenue, but poor people have to pay SS on 100% of their earnings. SS is a "flat tax" except for the rich.
They get it back in what's called Earned Income credit.

[boutons_deux]

Why is the high earner's SS contribution capped?

[Wild Cobra]

Why is the high earner's SS contribution capped?
Because it's designed as an insurance. Not a tax.

[spursncowboys]

Why is the high earner's SS contribution capped?
This is a great example of people who listen to Air America and read HuffPost, and just regurgitate it all.

[boutons_deux]

Why is the high earner's SS contribution capped?

[spursncowboys]

Why is the high earner's SS contribution capped?
Isn't SS technically our money that the govt. is just holding for us?

[boutons_deux]

Why is the high earner's SS contribution capped?

[coyotes_geek]

WC answered your question 4 posts ago.

[boutons_deux]

why is SS "insurance" for high earners capped?

[coyotes_geek]

Because high earners don't need to insure their whole income for retirement. Why should they be forced to buy more insurance than they need?

[SouthernFried]

Again...it's all about how much the government is going to get, or not get...who's gonna pay the govt, or not pay, etc..

It's always what the discussion is about.

It's never what it should be about. About how we go about increasing productivity, industry, GDP (for the economics minded,) exports. How we go about making America productive again.

It should not be all about government. Fritzie's been around awhile, the points I "believe" he's trying to make, are being overshadowed by periphereal issues.

I could give a shit about how this affects govt...I wanna know how it affects US productivity and competiveness.