Leveling the cliff

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

DEC. 19, 2012 -- The nation has two problems: paying for government; offshoring the economy.


Speaker Boehner exclaims: “The problem is spending.” Given a balanced budget in 2001, President Bush cut taxes, waged wars, added prescription drugs to Medicare, stimulated, bailed out – all without paying for them – increasing the debt $5 trillion in eight years. Boehner supported the spending without paying for it and can’t say now the problem is spending. President Obama increased the debt $5 trillion in four years and can’t say spending is the problem. We haven’t paid for government for twelve years and increased taxes and spending cuts will both be necessary.

We have a rule in the S.C. House of Representatives that any spending bill must be accompanied with a certificate from the Controller that the expenditure is within the revenues. Programs are paid for at the time of adoption. That’s how we’ve maintained our AAA credit rating in South Carolina.

"In 2006, the Princeton economist Alan Blinder estimated that in ten years the U.S. would offshore 30 to 40 million jobs -- an average of 3 to 4 million jobs a year. We continue to offshore more jobs than we create. "

-- Hollings

Globalization is nothing more than a trade war with production looking for a country cheaper to produce. 150 countries use a Value Added Tax to compete in globalization because the VAT is rebated on exports. Our corporate tax is not rebated. This is killing manufacture in the United States. A U.S. Manufacturer exporting to China pays the 35 percent Corporate Tax and when exports reach Shanghai is levied a 17 percent VAT. A China manufacturer exports to the United States tax free. This 52 percent difference has every manufacturer looking over his shoulder to see whether his competitor is looking to offshore. If his competition offshores it will put him out of business. You can’t start production. You can’t increase production. The economy stagnates.

To compete in globalization we must eliminate the 35 percent corporate tax and replace it with the 7 percent VAT. Immediately some will react: the VAT is complicated; the VAT is regressive. The VAT is not complicated, not regressive. With computers it is easily implemented. The corporate VAT needs no loopholes for a poor corporation. The VAT closes all loopholes, giving instant tax reform and is self-enforcing so that we can reduce the size of government (IRS). Last year’s corporate tax produced $181.1 billion in revenues. A 7 percent VAT for 2011 would have produced $872 billion. The Main Street merchant or small business is paying the full 35 percent corporate tax. The multinationals have so many loopholes they are getting away with murder. Two years ago, GE and Honeywell paid no corporate tax. All in Congress say they are for tax cuts, tax reform, reducing the size of government, helping small business, creating millions of jobs, paying down the debt and balancing the budget. This tax cut with spending cuts will permit Congress to balance the budget in two years.

In 2006, the Princeton economist Alan Blinder estimated that in ten years the U.S. would offshore 30 to 40 million jobs -- an average of 3 to 4 million jobs a year. We continue to offshore more jobs than we create. The Wall Street Journal (12/13/12) headlines: “Fed ties rates to joblessness.” The economy is not suffering from a lack of consumer confidence or demand. It’s a lack of consumer payrolls. We’ve offshored our research, technology, production, jobs, payrolls -- the economy.

Corporate America offshores to China and we need it to onshore or invest in the U.S. Free trade won’t do it. China completely controls its market and world trade. We’ve got to protect those items vital to our defense and strong economy. We’ve had trade laws to protect our defense and economy for years. In 1961, President Kennedy enforced the Defense Production Act of 1960 to save the textile industry. In 1971, President Nixon imposed a 10 percent surcharge on imports when our trade deficit was a miniscule of what our trade deficit is today. Our trade deficit in 2011 of $559 billion cost us four million jobs per year.

In 1984, President Reagan protected steel, motor vehicles, computers and machine tools vital to our economy. Both Presidents Bush and Obama have been lax on enforcing trade law. Both refuse to enforce the Defense Production Act. Last year we were begging Russia for helicopters for Afghanistan. If both had imposed a tariff on imported automobiles, like Nixon, the bailout of Detroit wouldn’t have been necessary. Both refuse to penalize China for devaluing its currency. The Nation can’t survive with China controlling its market and world trade. Already China takes U.S. technology, slightly alters and patents it, with the China product becoming the article in trade. In two years, China will become the largest market in the world.

The Congress must determine those items vital to our defense and economy and the President must vigorously enforce the laws.

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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