Nobody cares

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


JUNE 27, 2014 -- The United States is in real trouble. Given a balanced budget in 2001, Presidents Bush and Obama have borrowed $12 trillion to pay for government and keep the doors open. With no incentive to produce in America, Corporate America continues to offshore its research, innovation, technology, production, jobs, payrolls - the nation's economy. Workers can't get jobs. As foreign and domestic policy go awry, not only is government in Washington gridlocked but back home voters are gridlocked into: Republican, Democrat or "I don't mess with politics". The country goes broke. Nobody cares.

Gridlock is easily broken: do what Congress did in 1971, 1973 by limiting spending in elections. The Supreme Court reversed the law and with unlimited spending we started raising money against each other. Political Party Committees took over the fundraising; partisanship set in. Gridlock! The Constitution should be amended to empower Congress to limit or control spending in elections. Once done, fundraising against each other is limited; partisanship is limited; gridlock is broken.

We puff and blow like a military superpower when nuclear weaponry has abolished military superpowers. In the Korean War, when China spilled over the Yalu River, the U.S. retreated to the 38th parallel. We could have taken Vietnam in two months going above Hannoi but for fear China would come in, we palavered for ten years, losing Vietnam. Any military conflict between the U.S. and China threatens to go nuclear and must be avoided. Deploying 2,500 Marines to Australia in our "pivot to Asia" is nonsense. Instead of challenging China militarily, we should challenge China economically.

Our Good Neighbor Policy depends upon a strong economy. President Obama should long since have given Corporate America an incentive to invest and produce in America by replacing the 35 percent Corporate Tax with a 7 percent Value Added Tax. This immediately releases $2 trillion in offshore profits for Corporate America to repatriate tax free and create millions of jobs. This only applies to the Corporate Income Tax- not the Personal Income Tax. Many countries apply the VAT for both the Corporate and Personal Tax but the regressivity on personal income is taken care of by the poor receiving a card that punches in at the grocery store that exempts them from the sales and VAT tax.

Last year's Corporate Tax produced revenues of $288 billion. A 7 percent Corporate Tax for 2013 would have produced $945 billion, permitting Congress to balance the budget in two years rather than ten.

Not having a VAT stultifies manufacture in the U.S. An entrepreneur in the U.S. has to pay the 35 percent Corporate Tax on his production and is levied a 17 percent VAT when his exports reach China. A competitor in the U.S. can produce the same product in China, import it tax free and the 52 percent difference puts the entrepreneur out of business.
160 countries compete in globalization with a Value Added Tax that's rebated on exports. The Corporate Tax is not rebated. Many argue that the VAT is complicated. Today, with computers, it's not complicated.

Arguing further, they say the VAT is a money machine that will be increased. No country has increased its VAT to 35 percent. Others debate that the 35 percent is on "profits" whereas the 7 percent is only on "value added". Every entrepreneur includes value added in his profit. Both the 35 percent Corporate Tax and the 7 percent VAT is factored in the cost. The VAT is self-enforcing - you either pass it on or pay it yourself. This tax cut gives instant tax reform and permits cutting the size of government (IRS). The Corporate Tax has so many loopholes, the multinationals like GE and Caterpillar pay little tax. The Main Street Merchant or small business pays the full 35 percent. This tax cut helps small business. But Wall Street, the Big Banks, Corporate America and the U.S. Chamber of Commerce want to keep the China profits flowing so they contribute to the President and Congress to do nothing. The President and Congress do nothing.

Yesterday, President Obama was in Minneapolis, Minnesota talking up the economy. Instead, he should be leading the way to give Corporate America not only an incentive to produce in America but certainty that its production vital to our defense and economy is protected by enforcing the trade laws against China's and Japan's closed markets and predatory practices. We're not competing. Our economy is weak. You can't get a job in the United States.

As the country goes broke, nobody cares.

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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