President Obama engaged in good politics in his speech at Knox College last week, but continues to emphasize the strength of the U.S. and is completely silent on what he and the Congress can do to revive the economy.
The U.S. has the best of research, innovation, productivity, skills and graduate education but the president refuses to enforce our trade laws. He is hung up on “free trade” and “protectionism.”
This nation was built on protectionism (Tariff Act of 1787). If this continues, we’ll face three more years of the economy tide going out.
Understand our dilemma. Corporate America withholds $2 trillion in offshore profits because it wants to invest in the United States. Deficits concern CEOs. Taxes going up keep them in limbo. With a balanced budget in 2001, neither Bush nor Obama paid for tax cuts, wars, prescription drugs, bailouts, stimulation and government. Ten trillion dollars were added to the debt, and the White House announced recently that $759 billion would be added by Sept. 30. Borrowing continues. CEOs hold up on investing and creating jobs.
After World War II, Japan closed its market, subsidized its manufacture, sold its export at cost, making up the profit in its closed market. Steve Biegun, vice president at Ford, recently stated in The Financial Times: “Japan is the most closed auto market in the world.”
I spent 40 years fighting Japan’s predatory practices. In 1961, I brought the witnesses for the Kennedy Cabinet hearing to find textiles the second most important to steel to our economy. Enforcing the Defense Production Act of 1950, President Kennedy promulgated his Seven Point Program in 1961, saving the textile industry.
By 1968, the industry was slipping, so I got the Senate to approve a textile amendment to a House trade bill, but President Johnson had Wilbur Mills “deep-six” the measure in the House — never calling it for a vote.
With the support of Corporate America, I was able to get four textile bills through both houses of Congress only to be vetoed: one by President Carter; two by President Reagan; one by President George H.W. Bush.
Presidents spreading democracy treated textiles and autos as expendable.
South Carolina has the skills to make the “ultimate driving machine” for BMW and Boeing’s Globemaster but we have 8.1 percent unemployment. Detroit, the most skilled city in the U.S., declares bankruptcy because the auto industry suffers from a $12 billion a month deficit in the balance of trade.
When President Clinton favored China’s entry into the World Trade Organization and in 2000 gave China “permanent normal trade relations,” Corporate America stopped trying to have trade laws enforced. Offshoring hemorrhaged!
Between 2001 and 2010, the U.S. lost one third of its manufacture.
In December 2006, Princeton economist Alan Blinder estimated that in 10 years Corporate America would offshore 30-40 million jobs. A Wall Street Journal headline last week: “Growth Outlook Stuck in Neutral.”
The economists continue to blame the lethargic economy on a lack of consumer confidence in the economy. It’s lack of money. We’re offshoring payrolls. It’s trade deficits.
In 1971, President Nixon imposed a 10 percent surcharge on imports when our deficit in the balance of trade was a miniscule fraction of what it is today. Economists estimate a loss of 9,000 jobs for every trade deficit of $1 billion. Running a trade deficit of $600 billion this year means a loss of 5.4 million jobs. President Obama’s recipe for the economy does nothing to limit offshoring or the running of horrendous trade deficits.
Finally, it’s the corporate income tax that’s not rebated on exports. One hundred and fifty countries compete in globalization with a value added tax (VAT) that’s rebated on exports. President Obama and Congress could solve the offshoring, deficit, jobs and budget problems, making it attractive for industry to invest in the U.S., by replacing the 35 percent corporate tax with a 7 percent VAT.
This immediately releases $2 trillion in offshore profits for Corporate America to repatriate tax free and create millions of jobs in the U.S. This VAT tax cut has no loopholes, giving instant tax reform; is self-enforcing; allowing the size of government (such as the IRS) to be cut and, with computers, easily administered.
Not having a VAT is killing manufacturing in the U.S. An entrepreneur can be making a profit but pays a 35 percent corporate tax and a 17 percent VAT when his exports reach Shanghai. A competitor can produce the same product in China, import it tax-free to the U.S. and put the entrepreneur out of business.
According to Congressional Budget Office, the 35 percent corporate tax for 2012 produced revenues of $236.8 billion. A 7 percent VAT for 2012 would have produced $922 billion. With the VAT, the budget can be balanced in two years instead of 10.
Ernest F. Hollings served as S.C. governor from 1959-63 and in the U.S. Senate from 1966-2005.