Posted on 01/13/2006 9:34:17 AM PST by Conservative Goddess
US Congress is about to increase the tax burden on exports of American-made goods and services. Why? Because the World Trade Organisation says it must. To avoid a trade war, Congress will probably go ahead and repeal the Foreign Sales Corporation, a tax relief device that has been used in one form or another for 30 years. But when Congress does repeal FSC, it should call a halt to the charade that forces the US to tax its exports, while allowing other countries not only to exempt exports from value-added tax but also to impose VAT on imports from the US.
The WTO says this huge distortion of free trade—a net disadvantage for US exporters of more than $100 billion annually—is justified because our corporate income tax is a "direct" tax, whereas tax on value added is an "indirect" tax. That distinction is a pernicious fiction, created and perpetuated by trade mandarins, that has no place in either logic or fact and no place in America's trade relations. Enough is enough, and Congress should so declare.
When it repeals FSC, it should also call on the European Union and all other countries to join the US in correcting the mistaken distinction between direct and indirect taxes. Congress should simultaneously urge US trading partners to cease exempting their exports from VAT and cease imposing those taxes on imports. If they do not amend their tax practices within a decent period, the US tax code should at least be amended to exclude export income from US corporate income tax and allow American-made goods and services a fair opportunity to compete in world markets.
The mistaken distinction between direct and indirect taxes dates from the late 1960s, when the French were converting their old "cascade" taxes on gross business receipts to new taxes on net business income that later came to be called value-added taxes. The French desperately wanted to exempt exports from VAT and impose it on imports, so their trade mandarins pretended that VAT was an indirect tax, like the duty on whisky. Our trade mandarins acquiesced, because that was the era of European reconstruction and dollar shortages. All the US asked was leeway to reduce the corporate tax on exports, a request that was consistently denied by the EU, the General Agreement on Tariffs and Trade and its successor, the WTO. Today, the pretence is all that remains—and the enormous artificial trade advantage enjoyed by the EU and others.
For more than three decades, Congress has laboured under the false impression that basic principles of international law and economics having to do with direct and indirect taxes require the US to tax its exports in full—unless it joins other industrial countries and adopts a VAT system. Deep political misconceptions have made it impossible for Congress to consider the merits of value-added taxation. The EU and others, as part of a prolonged game of "Gotcha", have insisted that the only way the US can ever exempt its exports from tax is to adopt the European tax system. Who can blame the Europeans? In 1970, they pulled off one of the biggest trade heists in history and they want to keep their multibillion-dollar advantage—even though it is based on a false premise.
The false premise is the assumption that the economic burden of the VAT falls totally and uniformly on the purchasers of goods and services (like an excise tax on whisky), whereas the economic burden of the US corporate income tax falls totally and uniformly on the producers of goods and services (like a tax on property). But the predominant view today is that, in the absence of tax adjustments at the border, the economic burden of both corporate income tax and VAT falls primarily on the labour and capital that produce goods and services. In this sense, both taxes are direct taxes.
Whatever may have caused past presidents and Congresses to accept the false distinction between direct and indirect taxes, this Congress and this president should re-examine the issue as they repeal FSC, and think about what comes next. There is a compelling need for a coherent policy on the role that taxes play in distorting free trade. The stakes are high, payable in US jobs in sectors that make traded goods and services. In a global trading system free of distortions, US jobs lost to foreign competition are usually replaced by even better ones. But when US jobs go overseas because of tax distortions, something is badly wrong.
Thank You.....
It explains what I've been trying to explain for a couple of years......only this carries some authority!!!!
Mine are Feinstein and Boxer. They are impervious to fires, logic, or anything else we humans are so proud of discovering.
They remind me of some of the larger dinosaurs. You know, the ones where the message that something was eating their tail would take so long to reach their brain that they'd bleed to death first ?
I've never understood how one state, Ronald Reagan's state at that, could elect Barbara Boxer AND Diane Feinstein.
"Yup - they've been terribly quietly lately, haven't they?"
Only on this thread, PD.
"Perhaps they realize they've lost."
I wouldn't bet on that. Some of these guys will still be blasting the FairTax on the day the Prez signs it into law.
"As Dan Burton said to me, paraphrasing: 'If you believe that currency adjustments are going to wipe out this difference, then you've got to believe that price theory is meaningless, and that the trade tail will wag the dog of all dollar denominated assets in the world.'
I hope I did his words justice."
That is pretty close to what he said in his testimony before the tax commission. If the SQLs really thouht that would happen, then it would create an enrmous wealth effect for every one holding dollar denominated assets. That would completely offset the concerns of retirees protesting about paying a little more for their tiolet paper, milk and shave cream. However, you never hear them say that.
Of course, US equities would increase substantially in value, but not because of currency translation.
"I've never understood how one state, Ronald Reagan's state at that, could elect Barbara Boxer AND Diane Feinstein."
At least they are consistent (now, that is).
"Well, my two senators are on board."
Which two are those?
"Now light a fire under all of yours."
Here in GA, we have to work on Sen. Isakson.
Do you know anything about Christian and Hufbauer?
Are you sure? I thought Isakson was a co-sponsor. Just not a very loud one.
I honestly don't think Feinstein or Boxer was elected by the middle class. I think the hardworking Californians have been sold down the river by the guilt-ridden liberalism of the successful Hollywood/Artist/Tech set. Fully supported by public employee unions that spend their days serving not the California taxpayer, but illegal aliens.
Sometimes I think Feinstein and Boxer see 'constituents' in welfare-state recipients and 'enemies' in taxpayers. I see the opposite.
The FairTax should not be a partisan issue, but I definitely get more negative reactions from Democrats here than I do Republicans. Dims seem to like the present tax system just fine.
I know nothing of Christian and Hufbauer personally. I've been a fan of Hufbauer's writing for some time. I find that I generally agree with his interpretation and findings.
The reason you get that reaction (partrly at least) is that both of those Demoqueens put out the word in their letters and townhall meetings that FairTax=BAD and aimed at us poor welfare folk and will cause a deeeepression, etc!!! You know the drill - you read it on these threads from the Squirrel contingent often enough.
Neiher of my Congressmen are "for" the FairTax (yet) either but I have sent and will continue to send them "love letters" to remind them I INSIST they support the FairTax and that I expect to see their names as cosponsors ... otherwise I will not support THEM in and way - in fact quite the opposite.
National Sales Tax is unconstitutional. Tariffs on imports are not. Reinstate tariffs and repeal 16th amendment and problem solved, constitutionally.
"Are you sure? I thought Isakson was a co-sponsor. Just not a very loud one."
VERY sure. He was the last member of Ga's delegation in the house to sign onto the bill. He ran for the senate against two Republicans who were strong FairTax supporters (Herman Cain and Mac Collins). That was the same time that he signed onto the bill in the house. He led GA voters to believe that he would co-sponsor when he got into the senate, if he won. Now he is sending letters to FairTax supporters which refer to his "non-negotiable" demands. To say there are a lot of PO'd Ga Republicans would be an understatement.
"Reinstate tariffs and repeal 16th amendment and problem solved, constitutionally."
So you would replace the revenues that the government collects via income taxes with import tariffs? Are you serious? Any idea what the rate would have to be?
Answer: There is no rate that would work. If you set the rate high enough to replace income tax revenues with current import levels, you would shut off all imports. Then how much revenue would be collected? Zero.
We won't even get into the sanctions the WTO would place on us.
Thanks for the update. I guess I lost track after he went to DC. He will now get the SECOND nasty letter from me. The guy will not get away with this. I never supported him in any of his runs anywhere. He was the quintessential politician. A new thought or a wisp of leadership seemed foreign. And he certainly led his whole life in pursuit of political gain.
"The increase in demand for our goods and services with leveling the tax barriers that currently exist due to our corporate income and payroll taxes will quite literally reverse the flow of manufacturing out of this nation overnight."
Reverse it? More like slow it down considerably. China would still hold too high of a manfacturing cost advantage. But tariffs can take care of that.
The American Income Tax is a fraud, a sham and a travesty.
It's repugnant to the Constitution of the united states of America and makes American Citizenship undesirable on a number of levels.
Have any of you at AFFT bothered to ask what the WTO thinks of the Fairtax and if it would be OK with them for us to have it?
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