I congratulate The Post and Courier for regular publication of ideas from former
governor and senator Ernest F. Hollings. I am disappointed that the paper seems to take no position on perhaps his most important topic, the concept of a Value-Added Tax, or more simply, a broad-based national sales tax. This would largely replace the corporate and personal income taxes, and help make our industries more competitive in the world market.
As Mr. Hollings makes his case for the VAT, he leaves out that our taxation system is not in sync with most of the world’s industrialized countries. Our tax structure penalizes U.S. exporters in two ways: We impose a corporate profits tax that is among the highest in the world, with no differentiation between profits on domestic vs. export sales. Then, most importing countries apply their value-added-tax (VAT) on goods imported from the United States, while refunding the VAT on their exports.
The net effect is a double whammy. The VAT in many countries is between 15 percent and 20 percent. Add that to the U.S. corporate income tax of 35 percent of profits. (An example: If profit before tax is 15 percent of sales, this tax rate adds another 5 percent to the cost disadvantage.) Under these circumstances, it’s easy to see why companies that can tend to source products overseas.
Prior to the 1970s, the U.S. economy was essentially independent of the rest of the world. If the Congress or the states needed more revenue, it was politically easier to raise taxes on business than on the broad population. Competition from imports was so low as to be ignored — but not anymore. In the global market, we can’t impose tax burdens here that companies can avoid by moving elsewhere. Thus, like it or not, our tax structure must become congruent with our major trading partners so the tax burden is not a significant factor in locating a business.
I fully understand that wages in the developing world will ensure that any low-skill, low-paying jobs will likely remain outside of the United States. But we need to eliminate the tax incentive to move higher-skilled jobs away.
We may not like the idea of a VAT system, but it is the way much of the world works, and we ignore it to our serious detriment.
Fritz Saenger Jr.
Cove Bay Lane