Tax Cut

by Former U.S. Senator Ernest F. Hollings

Joe Scarborough constantly complains on Morning Joe: “The people hate big government.”   Grover Norquist wants to bring the government down to size so it can be “drowned in a bathtub.”  The Tea Party takes the text “…that all men are endowed by their Creator with certain inalienable Rights” – not the government.  The Declaration of Independence was from the Crown in England, not from constitutional government.  The government of the founding fathers adopted an industrial policy to compete in globalization with the Tariff Act of 1787 – two years before the Constitution.  Yet to discuss an industrial policy to compete in globalization is a “no no”.  Just when we need government, politicians campaign against government.

For 38 years in the U.S. Senate I watched the tide go out for the U.S. economy.  In 1968 I passed the Textile Trade Bill by 68 votes. President Lyndon Johnson had Congressman Wilbur Mills “deep six” the bill in the Ways and Means Committee.   The House never got to vote on the bill.  Four more of my Textile Trade Bills passed both Houses of Congress only to be vetoed - one by President Carter; two by President Reagan; one by President George W. H. Bush.  In South Carolina today we have the skills to make “the ultimate driving machine” for BMW and Boeing’s Dreamliner.   But South Carolina has 9.3% unemployment.  The textile industry has been offshored.

This morning’s Post and Courier (8/16/12) headlines on the front page: “Economic Recovery Weakest in Decades.”  The story continues four columns on page 9 describing every reason for the weak recovery but doesn’t mention offshoring.   The Princeton Economist Alan Blinder in 2006 estimated that the U.S. would offshore 30-40 million jobs in ten years.  Annualizing last month’s creation of 163,000 jobs, this brings home the fact that we are losing more jobs than we are creating.  “Between 2007 and 2010 (U.S. Firms) added 200,000 U.S. jobs and 600,000 outside the U.S. the government estimates” David Wessell, Wall Street Journal (4/18/12).

Globalization is nothing more than a trade war with production looking for a country cheaper to produce.  Today China sets the competition in globalization with controlled trade, and Corporate America comes running - offshoring research, innovation, technology, production, jobs, payrolls – the economy.   The U.S. Chamber of Commerce, Wall Street, the big banks, and Corporate America campaign against the government at home but builds China’s government offshore.

The United States can’t survive globalization unless our government develops our industrial policy to maintain a strong economy.   150 countries compete in globalization with a Value Added Tax that’s rebated on exports.  The Corporate Tax is not rebated.  The President and Congress must replace the 35% Corporate Tax with a 7% VAT.  Wall Street and Corporate America want to keep the China profits flowing so they contribute to the President and Congress not to develop our industrial policy – not to compete in globalization.  The Olympics proved that the United States was the most competitive nation in the world.  The President and Congress compete for contributions but not for the country.

Last year the Corporate Tax produced revenues of $181.1 billion.  A 7% VAT for 2011 would have produced revenues of $872 billion.  Since the VAT has no loopholes, we have instant tax reform.  Since the VAT is self-enforcing we can cut the size of government (IRS).  This tax cut creates millions of jobs, billions to pay for government and jumpstarts the economy.  But the President and Congress refuse to compete with a tax cut that produces instant tax reform and cuts the size of government.