Friday, July 06, 2007

Our Trade policy is a complete shambles

As readers of this blog know I feel that fixing our trade policy is one of the most important things we must do. Our tax code puts an unfair burden on our businesses and our tax code has driven a large number of companies to move production overseas. This in turn has eliminated a large number of manufacturing jobs. This is turn has devastated Northern Indiana, Ohio, Michigan, etc...

I think the easiest way to fix it is to abolish the Federal Income tax and replace it with a consumption tax. This would level the playing field Internationally for our businesses.

Hillary Clinton and Barrack Obama are sponsoring a bill that would help fix some of our problems with China; however, the bill they are sponsoring makes a lot less sense then switching to a consumption tax:

<http://www.ft.com/cms/s/e628b512-2b20-11dc-85f9-000b5df10621.html>

I would support the bill they are sponsoring. We should have forced China to let their currency fluctuate a long time ago.

This is a winning issue for Democrats. Jeff Pruitt over at Fort Wayne Left posts about Trade issues regularly. Jeff has long said that the Democrats need to take a more "populist" stance on Trade and that they need to support "Fair Trade."

Jeff Pruitt is right. This is an issue that could help the Democrats gain more support among voters...

The Republican Party along with about most of the Democratic Party (Including its leadership) has created a Trade Policy that has really hurt this Country.

Do you remember Bill Clinton and NAFTA? NAFTA hurt this Country badly.

Lets hope someone in Washington wakes up and that we fix our broken Trade Policy...

Mike Sylvester

13 comments:

Robert Enders said...

Trade barriers create a temporary, short term gain. But they ultimately hurt a country in the long run as other countries respond with their own tariffs and subsidies.

The first two things we need to do regarding trade are:
1. Reform the tax code, and start using the consumption tax.
2. Lower taxes. This is why we have a lower unemployment rate than Europe.
3. End agricultural subsidies. We need to get other countries to reduce their trade barriers, but we need to end our own ag subsidies before they would be willing to comply.

Charlotte A. Weybright said...

Mike:

You only mention Clinton and NAFTA. What about DR-CAFTA passed and signed by the Bush Administration in 2005? While DR-CAFTA is a bilateral trade agreement rather than a regional trade agreement, the harm to American farmers and workers is still the same.

LP Mike Sylvester said...

Charlotte:

I agree with you. DR-CAFTA is a bad bill as well!

Mike Sylvester

Jeff Pruitt said...

Mike,

I don't mind the idea of a consumption tax in general but I do have some political concerns and there are portions of the Fair Tax that I don't like.

1)As I've said many times, voting for a new tax that will offset another tax ALWAYS leads to increased taxes. If a consumption tax is enacted it must be coupled w/ a repeal of the 16th amendment. Otherwise, we will inevitably be paying consumption AND income taxes.

2)I think this could lead to a massive underground economy. Of course we already have underground employment issues so perhaps this is a wash. It certainly would increase the amount of taxes collected from those engaging in illegal activity.

3)I don't like the idea that I will be taxed twice if this were enacted. Anyone that has saved money has already been taxed and now they would be hit again w/ a consumption tax. Any legislation MUST find a way to implement the consumption tax w/o double taxation...

LP Mike Sylvester said...

Jeff Pruitt:

I do not think the "Fair Tax" is perfect either; hoever, it is far better then what we currently have.

I will address your concerns in order:

1. I agree. We would have to 100% abolish the Federal Income tax.


2. I disagree with you concerning the underground economy. Can you explain your concern as far as an underground econmy? We currently have a massive underground economy, I think the "Fair Tax" would help decrease the size of the underground economy.


3. I think you bring up a valid concern; however, there is no way around it. We have to switch and the sooner we switch the better.

Mike

Jeff Pruitt said...

Mike,

The underground economy concern is based on the idea that cash transactions would be difficult to tax. I think this would lead to a large increase in black markets for about every good imaginable. My fear is that the government will then start to impose restrictions on all citizens in order to reign in the black markets. To date, I've never heard supporters of the Fair Tax address this concern.

Another big problem is currency manipulation. The Federal Reserve now tries to control inflation but would they if there was a consumption tax? They could actually do the opposite.

Also, the tax would have to be applied EQUALLY to all goods. The government should not be allowed to raise the sales tax on ITEM X to 500% just because they want to discourage its use.

The very idea of passing the Fair Tax and then attempting to repeal the 16th amendment is foolish. They MUST be done together or there is absolutely no doubt that we will get both a consumption and income tax. Too many Fair Tax supporters are naive to this.

And I will not support a plan that penalizes fiscally responsible people by doubly taxing their savings. There has to be a solution worked out here.

Fair Tax supporters must show that their 30% number is feasible. I know people want to cut spending but what's more likely to happen is that if 30% doesn't cover the federal budget then they will just raise it to whatever's necessary.

The real problem is serious tax reform never gets any debate in this country so these issues don't disected like they should...

Robert Enders said...

Jeff
1. The interest on your savings is taxed under the currrent system. It would not be taxed under Fair Tax. So your savings would not be not be double taxed.

2. It would neither eliminate or promote the underground economy. Under the current system, drug dealers, hookers, and some illegal immigrants do not pay federal income tax. These groups would pay taxes on all new items they buy in the US.

3. The comsuption tax promotes the conservation of resources. Since used goods would not be taxed, people would be heavily motivated to buy used goods at a heavy discount rather than buy new.

Jeff Pruitt said...

Robert,

1. Interest is taxed but I've already paid INCOME tax on my savings - and a lot of it. Now, when I use that savings I have to pay the CONSUMPTION tax as well. That's double taxation any way you slice it. Future savings would not get doubly taxed but any savings that are currently not in tax-deferred accounts certainly would.

2. The increase in taxes collected from illegal behavior you describe is likely to be miniscule compared to the black market that gets generated. Do you honestly think a 30% sales tax won't stimulate a black market economy? I think this is an issue that needs to be addressed in detail before any consumption tax is implemented.

3. Sure.

Tim Zank said...

I generally like the idea of a "fair tax" or "consumption tax" but worry a little about the ramifications on all the businesses that rely on the current tax structure.

What are all the CPA's and IRS employee's going to do? I'd love to do away with the IRS, but doing so will cause one hell of a jolt to the system, won't it?

Robert Enders said...

Jeff
1. This is a legtimate concern. How about if people were able to report everything they have in savings accounts, bonds, stocks, etc at the time of the changeover as "previously taxed income". Let's say you report $3657.54 in PTI. You would get a voucher that would enable you to buy $3657.54 in new goods without paying taxes on it, since you already paid taxes on that income.
2. People already cheat on their taxes. The question then becomes would the amount that the government loses due to tax evasion today be more or less than what the government will lose due to an expanded underground economy. Illegal behavoir is hard to predict, so I would propose giving Fair Tax a trial period and switching back if it does not generate the same amount of revenue.

Tim,
Mike is a CPA, and he is one of the biggest advocates of Fair Tax. Either he anticipates that he can continue to find work, or he is ready to retire soon.

Jeff predicts an expanded underground economy, so IRS agents can be put to work combating that.

But even so, people lose their jobs to progress all the time. The demand for buggy whips went down when cars became mass produced. A lot of farmhands lost their jobs to tractors. The realist movement in art died out with photography. You have to ask if the change in any given policy creates the greatest good for the greatest number, and if that good outweighs any potential hardship that people might suffer as a result of the change. If the answer is yes, then you support the change.

Jeff Pruitt said...

Robert,

I had similar thoughts regarding the voucher idea and I think that would work...

Robert Enders said...

Then we are more or less in complete agreement then. I would also throw a screaming fit if they imposed the consumption tax without repealing the income tax. But I don't think that it is necessary to repeal the 16th Amendment in order to repeal the income tax. It takes a constitutional amendment to repeal a constitutional amendment, while repealing the income tax is simply a matter of legislation.

LP Mike Sylvester said...

Jeff Pruitt:

The Democratic Party would never accept the coucher, unless it excluded the rich...

Mike Sylvester