By former U.S. Sen. Fritz Hollings | This morning’s Wall Street Journal (2/22/16) headlines an article by Martin Feldstein: “The U.S. Economy is in Good Shape.” Feldstein, an eminent economist, knows what he is talking about.
I am not an economist but I know from having listened to the best economists for 30 years on the Budget Committee that no one is in charge of building and protecting the economy of the United States. We were spoiled in the twentieth century by Corporate America fashioning the economy. But here in the twenty first century, with globalization, Corporate America is fending for itself. Globalization is nothing more than a trade war with production looking for a country cheaper to produce. In globalization, the Congress of the United States must protect and build a strong economy.
The Founding Fathers pointed the way. The Congress took charge of the economy when it created the Tariff Act of 1787, two years before the Constitution in 1789. The economy of the United States was built on protectionism – not free trade. For those observing that manufactured products could be obtained cheaper from the Mother Country and crying “free trade,” JFK’s Profile in Courage, Henry Clay in 1836 on the floor of the U.S. Senate cried about “free trade” “…it never existed. It never will exist.”
When President Lincoln wanted to build the Transcontinental Railroad, it was suggested that the steel could be obtained cheaper from the Mother Country. Lincoln said: “No we will build a steel mill and when we are through, we will not only have a Transcontinental Railroad, but also a steel capacity.” Protectionism worked so well that Edmund Morris in Theodore Rex writes “current advertisements in British magazines gave the impression that the typical Englishman woke to the ring of an Ingersoll Alarm, shaved with a Gillette razor, combed his hair with Vaseline Tonic, buttoned his Arrow Shirt, hurried downstairs for Quaker Oats, California Figs, and Maxwell House coffee, commuted in a Westinghouse tram (body by Fisher), rose to his office in an Otis elevator, and worked all day with his Waterman pen under the efficient flare of Edison light bulbs… The first year of the New Century found the United States worth $25 billion more than her nearest rival Great Britain…with a gross national product more than twice that of Germany and Russia.” (Theodore Rex, pp. 20-21.)
Members of Congress cry about Wall Street creating billionaires, income inequality, etc., but they avoid their primary responsibility. Congress is responsible for the economy. Today Corporate America can’t produce for a profit in the United States. A successful entrepreneur in the U.S. has to pay the 35 percent corporate income tax and when his exports reach China, a 17 percent value-added tax. A U.S. competitor can produce the same product in China, import it tax free and the 52 percent difference will put the entrepreneur out of business.
One hundred sixty four countries compete in globalization with a value-added tax. The VAT has no loopholes and is self-enforcing. The cost of doing business, or value added, is passed on or absorbed. If we replace the 35 percent corporate tax with a 15 percent VAT, we could:
1.) The VAT replacement is a tax cut which everyone in Congress says he or she is for.
2.) Balance the budget in two years rather than 10.
3.) Phase out the payroll tax.
4.) Eliminate the corporate tax, releasing $2 trillion in offshore profits for Corporate America to invest in the U.S. and create millions of jobs.
5.) Manufacturers competing for jobs will eliminate income inequality.
6.) The tax on offshore income is eliminated. Now, Corporate America can profitably produce in the United States.
Of course Congress must protect the production of items vital to a strong economy as President Reagan protected steel, motor vehicles, computers and machine tools in 1984. Begin with the enforcement by President Obama of the Defense Production act of 1950.
The Princeton economist Alan Blinder in December 2006 estimated that in 10 years the U.S. would offshore 30 million to 40 million jobs. In the 10-year period, 60,000 factories were lost. (Mulloy: “U.S. Opportunities and Challenges in the Asia Pacific,” 2/26/15). The U.S. continues to offshore its research, technology, jobs, payrolls – its economy. Congress complains and sits idly by watching the tide or economy go out.
Buy a mirror.
Hollings served as governor and U.S. senator for South Carolina. Have a comment? Send to: feedback@statehousereport.com.
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