Jobs and the economy

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

MAY 7, 2014 -- The recession that began in June 2008, was over by June 2009 - almost five years ago. The Federal Reserve in Minneapolis has determined that the Nation has experienced its weakest recovery since World War II. Economists think that the trouble with the economy is lack of confidence by consumers in the economy.


Now editorialists think that the trouble with the economy is psychological. In Sunday's New York Times (5/4/14) Frank Bruni asks: "What happened to our countries stride and spirit?" In today's Washington Post (5/6/14) Eugene Robinson's editorial is headlined: "Time for some happy talk from Democrats". The trouble with the economy is not a lack of confidence by consumers; it's not psychological. The trouble is Washington. The President and Congress have become so bogged down in a chase for money, that they have forgotten that politics is a competition for ideas, for programs. Climate change, class warfare, inequality, increasing the minimum wage, unemployment compensation doesn't create jobs; doesn't build the economy.

The Founding Fathers pointed the way. The Colony had been forbidden to manufacture or create jobs. So, in 1787, two years before the Constitution, Congress instituted the Tariff Act of 1787 to engender and protect manufacture and jobs. It worked so well that Edmund Morris in Theodore Rex writes that in 100 years, the Colony was "$25 billion richer" than the Mother Country.

The first order of business is to get rid of the Corporate Tax. 160 countries compete in globalization with a value added or consumption tax that's rebated on exports. The Corporate Tax is not rebated. The Corporate Tax is full of loopholes for the multinationals. The VAT is self-enforcing - you either pass it on or pay it. As a consequence, the Corporate Tax stultifies manufacture in the United States. An entrepreneur in the United States has to pay the 35% Corporate Tax on his production and is levied a 17% VAT when his exports reach China. A competitor can produce the same product in China, import it tax free to the United States and the 52% difference puts the entrepreneur out of business.

Constituents get confused over a VAT. They worry that the VAT is regressive. The VAT is not to replace the personal income tax but the Corporate Income Tax. Replacing the 35% Corporate Tax with a 7% VAT is not regressive but a tax cut. Last year's Corporate Tax produced revenues of $288 billion. A 7% VAT for 2013 would have produced $945 billion - permitting a balanced budget in two years rather than ten. Eliminating the Corporate Tax, releases $2 trillion in offshore profits for Corporate America to repatriate tax free, invest and create millions of jobs.

Having corrected our tax problem, we now must protect production vital to a strong economy. First, President Truman assured the nation of materiel vital to our defense by the enactment of the Defense Production Act of 1950. In 1961, President Kennedy held a Cabinet Hearing and determined that textiles were vital to the economy - parachute cloth, body armor, and uniforms. In 1971, President Nixon imposed a 10% surcharge on imports to protect the economy when our trade deficit was a miniscule of what it is today. In 1984, President Reagan protected steel, motor vehicles, computers and machine tools vital to a strong economy.

Two years ago President Obama was begging Russia for helicopters for Afghanistan. The New York Times (12/20/13) reported that the U.S. was depending upon foreign countries to furnish the U.S. military with uniforms and clothing. But all you hear from President Obama and Congress are cries for "Free Trade, Free Trade!"; "Protectionism!" As Henry Clay declared in 1836 on the floor of the United States Senate about Free Trade, "It never existed. It never will exist."

The U.S., one of the richest countries in the world, has been borrowing to keep the doors open for the government going on fourteen years. Japan and China set the competition in globalization with closed markets and predatory practices. Presidents Bush and Obama have failed to enforce trade laws against predatory practices. For jobs and the economy, President Obama and Congress must 1.) Stop the borrowing and pay for government 2.) Replace the corporate tax 3.) Enforce trade 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).

© 2014, 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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