Jump-starting the economy

By ERNEST F. HOLLINGS, former U. S. senator

MAY 30, 2012 -- Serving in the United States Senate from 1966-2005, I watched partisanship develop -- then gridlock.


Early on, six Republican and six Democrat Senators got together every Wednesday night; coats and ties off; heckling each other; becoming close friends. One morning a staffer told me about a fundraiser for my opponent: "All the Republicans on your Commerce Committee were there but Ted Stevens." In World War II I learned if you looked out for your men they will look out for you. If a Republican missed an important vote, as Chairman of the Committee I would put the question later so he could vote. After learning that the Republicans on my committee wanted to get rid of me, I wanted to get rid of them. Fundraising against each other started the partisanship.

So much money is needed in campaigns today that Senators are fundraising in Washington morning, noon and night. For five years the Senator raises money for the Senators of his party and they raise money for you when you are up for reelection. We used to hate filibusters. Cots would come out; everyone lost sleep and became irritable. Today filibusters are popular as a chance to fundraise. One Republican and one Democrat holds the floor and the U.S. Senate goes to California to fundraise. For my reelection to the U.S. Senate in 1998, we raised $8.5 million. This computes to $30,000 a week, each week, every week for 6 years. It's brutal. You don't have time to do your work. The constant fundraising against each other seals the partisanship.

Today, instead of a bipartisan group of Senators getting together every Wednesday night, lobbyists get together every night. Every lobbyist knows the lobbyist that can sway a particular Senator's vote and votes on important issues are fixed by the lobbyists long before the roll is called. Lyndon Johnson couldn't lead the Senate today. The lobbyists control. The people have lost control of their government.

On Morning Joe (5/9/12) Joe Klein lamented that we hadn't balanced the budget in forty years: "They don't even try in good years." Republicans and Democrats tried in 1973 by instituting the budget process to balance the budget; balanced Social Security's budget in 1983; enacted Gramm-Rudman-Hollings to cut spending in 1985 and in 1990 Democrats and Republican President George H.W. Bush increased taxes trying to balance the budget.

Partisanship blossomed into gridlock in 1993 when President Clinton called for spending cuts and an energy tax to balance the budget. Farmers in the Senate killed the energy tax leaving us on the Senate floor with Gene Sperling, cobbling together $250 million in tax increases. We increased personal income taxes, corporate income taxes, liquor taxes, gasoline taxes, cigarette taxes and even taxed Social Security - all without a single Republican vote. Newt Gingrich prevented Republicans in the House and Senate from voting for this initiative. I remember this well because I struggled to get the last Senator's vote for Vice President Gore to break the tie in the Senate. We cut $250 million in spending and raised taxes $250 million to give the nation its strongest economy and President George W. Bush a balanced budget in 2001.

"The first order of business is to get the budget off steroids. Cancelling the 35% Corporate Tax and replacing it with a 6% VAT will not only get the budget off steroids but jump-start the economy."

-- Hollings

Gingrich is a scoundrel. In the recent Republican primary, he kept crediting himself with "five years of balanced budgets." Gingrich never balanced a budget. For any year he says he balanced, call the Congressional Budget Office and it will give you the deficit for that year. In1995-96 Gingrich closed down the government and partisanship hardened into gridlock.

In the 1968 Presidential election Maurice Stans, Nixon's fundraiser, instituted a "cash and carry" system of fundraising - alarming the Congress. To make sure that elections couldn't be bought Congress in 1973 prohibited cash and limited spending in federal elections. President Nixon signed the law. Strom Thurmond and I were limited to so much per registered voter - totaling $687,000 -not the $8.5 million or more required in South Carolina today. The Supreme Court in Buckley vs. Valeo equated speech with money and reversed the law. Congress for years has attempted to control money in campaigns only to be thwarted by the Court. Fundraising and partisanship increased. This cancer of money must be excised.

We can excise this cancer as Congress did in 1973. First, the Constitution must be amended to restore free speech and get by the Supreme Court. James Madison never thought his free speech would be limited or controlled by money or by the Supreme Court. I worked for years in the Senate for this amendment: "The Congress is empowered to regulate or control spending in federal elections." This amendment doesn't commit Congress to a particular solution. It only permits later Congresses to do the controlling. The Governors Conference called and I added the states to the amendment. We obtained a bipartisan majority vote, but not the two thirds required for the passage of a Joint Resolution to amend. Congress should adopt this amendment now so the states can ratify it in November. Controlling spending in campaigns will limit the fundraising, limit the partisanship, limit the lobbyists and return the control of the government back to the people.

In 1991 Jack Welch, CEO of General Electric, made the off shoring of production and jobs legitimate. At the annual GE stockholder's meeting in December, Welch announced that in the next year GE would not consider a bid from any subcontractor that hadn't moved to Mexico. In 1994, President Clinton accelerated the off shoring by winning the approval of NAFTA for Mexico. Then President Clinton supported China's entry into the World Trade Organization and in 2000 gave China permanent "normal trade relations status" with the U.S.

Offshoring hemorrhaged. Between 2000 and 2010 the United States lost one third of its manufacture. But economists keep blaming "the worst recession." The 2008 recession ended in June 2009. It's not the worst recession. It's the worst recovery. It's not a lack of consumer confidence; it's the lack of money from off shoring payrolls. The Princeton Economist Alan Blinder in 2006 estimated that the United States would off shore an average of three to four million jobs a year for ten years. We are off shoring jobs faster than we can create them. We keep stimulating or bailing the economy boat as fast as we can but ignore the off shore hole in the bottom.

Globalization is nothing more than a trade war with production looking for a country cheaper to produce. Every country develops an industrial policy to compete in globalization and protect its economy. Corporations are competing but the country is not. 141 countries compete in globalization with a Value Added Tax.

The VAT is on consumption - the more you spend, the more taxes you pay. The poor are provided exemptions as the rich spend more and pay more taxes. The VAT has no loopholes, giving instant tax reform and is self-enforcing so we can downsize the Internal Revenue Service. The VAT is rebate-able on exports. China exports to the United States tax free as U.S. exporters to China are double taxed - the 35% corporate tax and a 17% VAT when exports reach China. VAT countries build automobile plants all over the South. The engines are manufactured in Germany, shipped at 2% cost, assembled at 12% cost and rebating its 19% VAT, Germany produces the "ultimate driving machine" for BMW in S.C. 5% cheaper than cars produced in Detroit. Imagine an America where one couldn't produce for a profit. Well, that's where we're headed. A U.S. manufacturer can start up, make a profit, and then a competitor goes to China and, rebating China's 17% VAT, puts the U.S. manufacturer out of business. The VAT is killing manufacture in the United States.

Fundamental to an industrial policy is the enforcement of trade laws to protect the economy. If President Bush and President Obama would have imposed an import surcharge on motor vehicles like Brazil recently imposed, the bailout of Detroit wouldn't have been necessary. If President Obama enforced the Defense Production Act of 1950, which ensures the nation of important supplies in time of war, we wouldn't be begging Russia for helicopters for Afghanistan. If President Obama protected steel, motor vehicles, computers and machine tools like President Reagan, we would have jobs instead of unemployment.

We can't control production in globalization, but we must make it profitable for Corporate America to invest and produce in America. If we had a balanced budget as in 2001, Paul Krugman's stimulation would work. More stimulation now won't jump-start the economy. President Bush increased the national debt or stimulated the economy $5 trillion in eight years. President Obama is on course to stimulate the economy another $5 trillion in four years. Stimulating the economy $10 trillion in twelve years has the economy, government and budget on steroids.

The first order of business is to get the budget off steroids. Cancelling the 35% Corporate Tax and replacing it with a 6% VAT will not only get the budget off steroids but jump-start the economy. The Corporate Tax for 2011 produced revenues of $181.1 billion. A 6% VAT for 2011 would have produced $728 billion to pay down the debt. The corporate tax has so many loopholes for off shoring production that multinationals pay little corporate tax - GE paid none in 2010. Small business pays through the nose. Cancelling the corporate tax helps small business and releases $2 trillion in off shore profits for Corporate America to repatriate tax free and create millions of jobs.

This tax cut breaks the gridlock. But economists say this is not a tax cut because the Corporate Tax is on net profit and the VAT is on value added. Both the Corporate Tax and the VAT are factored in by the seller on each sale and absorbed, partially absorbed or charged. Today sellers attract buyers with "$1000 off"; "60% off" or "two for the same price if you call in twenty minutes." Sellers will treat this as a tax cut. Then economists say consumers will have to pay six percent more on imports causing another recession. Six percent won't cause a recession and consumers will be glad to get a job.

President Obama, the Democrats and Republicans in Congress all play the game of gridlock. Both seek political show votes in Congress that are not going anywhere. Both submit jobs bills that are "in title" only. Both submit plans instead of budgets i.e. ten year plans for later Congresses to cut trillions from budgets but budgets continue in deficit. Both play to the extremes of their political party. Tell the liberals we can't spend or stimulate our way out of it. Tell the conservatives that the spending they want cut has passed majorities in the House and Senate and signed into law by a President. To close down the government for spending cuts is asking for government by the minority.

The people are tired of the games. The President and Congress have lost credibility. The election in November won't break gridlock. The President and Congress need to do something real. Get the President to call on Congress to pass Simpson-Bowles. Or have one of the 535 Members of Congress introduce replacing the 35% Corporate Tax with a 6% VAT. Debate it, pass it or really filibuster it so we can know who opposes competing in globalization with a tax cut that helps small business; that releases $2 trillion in off shore profits for Corporate America to invest and create jobs; that cuts the size of government; gives instant tax reform; promotes exports; stops the off shoring of payrolls; provides billions to pay down the debt; creates millions of jobs; breaks gridlock and jump-starts the economy.

Senator Hollings of South Carolina served 38 years in the United States Senate, and for many years was Chairman of the Commerce, Space, Science & Transportation Committee. He is the author of Making Government Work (University of South Carolina Press, 2008).

© 2012, Ernest F. Hollings. All rights reserved. Contact us for republication permission.

About Fritz Hollings

Ernest F. Hollings served the public for 56 years -- 38 years in the United States Senate and as South Carolina's governor, lieutenant governor and a member of the S.C. House of Representatives.

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