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Simpson-Bowles and a Smarter Tax System to Spur Growth

February 20, 2013 By

Sen. Alan Simpson and Erskine Bowles have released their newly revised plan for curbing the deficit and reducing the debt.  Included in the plan is a call for $600 billion in increased tax revenues to be accomplished by reducing deductions for corporate and individuals while reducing tax rates.

In calling for this approach to tax reform, Simpson-Bowles takes aim at our bloated, inefficient tax system:

“Reform the Tax Code in a Progressive and Pro-Growth Manner. The current tax code is complicated, confusing, costly, anti-growth, anti-competitive, unfair, and riddled with well over $1 trillion of tax expenditures – which really are just spending by another name. Tax reform must reduce the size and number of tax expenditures to reduce the budget deficit and lower marginal tax rates for individuals and corporations. At the same time, tax reforms must maintain or improve the progressivity in the tax code and promote economic growth. Tax reform will make the tax code more efficient, effective, and globally competitive.”

The last goal, to create a “globally competitive” tax system cannot be overemphasized.  In this era of globalization, the U.S. remains at a major competitive trade disadvantage by virtue of its tax system.  Eliminating this disadvantage is the prime key to growth that government policy could provide.

According to the new Census Bureau report, the 2012 U.S. trade deficit dropped nearly $20 billion to $540 billion, mostly due to a decrease in expenditures for foreign oil.  But, our manufacturing trade deficit reached a record deficit of $684.5 billion, an increase of 7%.

The goods deficit with China increased $20 billion, to $315 billion from $295 billion, accounting for 58% of the imbalance. U.S. exports to China increased $6.7 billion (primarily soybeans and civilian aircraft, engines, equipment, and parts) to $110.6 billion, but imports increased $26.3 billion (primarily cell phones and other household goods) to $425.6 billion.

The goods deficit with European Union increased from $99.9 billion in 2011 to $115.7 billion in 2012.  Exports decreased $3.3 billion (primarily non-monetary gold and petroleum products) to $265.1 billion, while imports increased $12.5 billion (primarily passenger cars, civilian aircraft engines, and petroleum products) to $380.8 billion.

Achieving Growth through Tax Policy.  The most positive reform to stimulate growth in exports, domestic production and jobs would be to replace the Corporate Income Tax with a Value Added Tax.  VAT is now utilized by all our trading partners and over 150 countries to exclude the cost of government from the price/value relationship of goods and services in international trade.  By definition under GATT rules, unlike corporate income taxes, the VAT is border-adjusted, i.e., subtracted from exports and added to imports. Without a VAT of our own, imports have a decided price advantage, and our exports carry a price disadvantage.

Replacing the CIT by a VAT would eliminate the double-taxation of dividends, encourage the return of multi-national profits now parked in countries with lower corporate tax rates, and stimulate foreign investment here.  Imports would carry an equal burden, so American goods would become more competitive at home and abroad.  An additional consideration to stimulate jobs would be to replace the corporate contribution to FICA by the VAT to reduce a direct disincentive cost to employment.

Governor Mitch Daniels, echoing Herman Kahn of Hudson Institute, once suggested that replacing our current tax system by a VAT coupled with an individual income tax with a high threshold would produce a tax system that is fair, competitive, and stimulative for growth.  And, with zero tax preferences (no exclusions and deductions), gone would be the corrupting lobbying for loopholes, once and for all.

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Sen. Orrin Hatch (Again) Miscasts VAT

August 3, 2012 By

On August 2, Sen. Hatch, in a speech on the Senate Floor, used the opportunity to again warn against a “European-style” Value Added Tax.

Notably, in the last Domenici-Rivlin testimony before the SFC, Sen. Hatch – for emphasis – rhetorically asked Sen. Domenici and Alice Rivlin if their revised proposal dropped the Deficit Reduction Sales Tax (VAT).  Alice Rivlin responded affirmatively, but made the point that both she and Sen. Domenici “still like” the DRST, but there was “no appetite” in Congress for a VAT.

Sen. Hatch and others who oppose a VAT smear it as a “European-style” tax, and only characterize it as an “add-on” tax, which it need not be!

Opponents in Congress ignore the potential opportunity for a revenue-neutral replacement of the Corporate Income Tax by a VAT to stimulate domestic growth and improve our trade balance.

The U.S. is at a competitive disadvantage in global trade for not employing a Value Added Tax.  All our trading partners use a VAT to eliminate the burden of taxation from the price/value comparison of goods crossing borders, since the VAT is subtracted from exports and added to imports.  Even China imposes a 17% VAT on everything we sell to them, and subtracts 17% from exports.  It’s not a socialist concept.  It’s just smart business.

In contrast, the U.S. clings to its high 35% CIT rate which is successfully avoided by parking profits abroad and through successful lobbying for loopholes.  The CIT is so unsuccessful that its share of government revenue has dropped from 32% in 1952 to 7.9% in 2011.  Today, that 24% drop in share would project to $674 billion in revenue.  In fact, government receipts have dropped to the point where corporations now spend $740 for avoidance (accountants, tax attorneys, lobbyists) for every $1,000 the government collects.

To replace the CIT, revenue-neutral, would take a VAT of 4.5%.  Imagine the effect on domestic job creation, if imports cost 4.5% more and exports cost 4.5% less. Imagine the effect of zero CIT on the billions of U.S. profits retained in lower CIT countries to avoid U.S. taxes?  Imagine the investment by foreign businesses, which would want to avoid their own country’s CIT?

Nothing government could do would have the significant positive effect on growth as replacing the CIT by a revenue-neutral VAT.

Prejudicial rhetoric without discussion of the merits of a revenue-neutral VAT to replace the CIT is against the country’s best interest.

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Domenici-Rivlin Ditch DRST (VAT), testimony before Senate Finance Committee, 06/19/12

June 20, 2012 By

Sen. Pete Domenici and Dr. Alice Rivlin appeared before the Senate Finance Committee in open session to discuss their plan for sweeping tax reform.  They emphasized the overarching point that additional revenue is needed to reduce the deficit.  After all prudent cuts are made to Medicare, and after means-testing Social Security, there will still be a need for additional revenue to meet the obligations of a growing retired population.

Senator Hatch asked for confirmation that the revised D-R plan as now presented would replace their original element of a Deficit Reduction Sales Tax, a VAT, with an increased Corporate Income Tax (CIT).  Dr. Rivlin confirmed in response, but added that they “both still like” the idea of the DRST, however there was “no appetite” in Congress for a VAT.

The fact that no one in the Senate has the courage to back a Value Added Tax is at once understandable and regrettable.  Introducing a VAT…even dedicated to deficit reduction…would create yet another new tax in addition to the CIT.  Senators would have a hard time convincing their constituents that this medicine would be in their best interest.  It just would not be politically viable.

The way to sell a VAT rests with outright replacement of the CIT, which is a broken cog in our tax system.

In the process of avoiding taxation, corporations employ accountants, tax attorneys, and lobbyists to find and create loopholes that will minimize their costs.  These specialists are hugely successful, particularly for the large multi-national corporations.  As a result, the CIT is riddled with many exceptions —for agricultural subsidies, off-shore profits, American cruise lines, literally hundreds upon hundreds.

The result is a complicated maze that only a team of specialists can navigate. And, who knows what’s right? Neither individuals nor corporations know for sure whether their taxes paid are more or less than they could or should be.  As Will Rogers said, “The income tax has made more liars out of the American people than golf has.” Ultimately, this crazy quilt of code has undermined trust in government.

The CIT has long been criticized for being too high and uncompetitive.  This is why our multi-nationals tend to park profits in countries with lower tax rates. Some multi-national corporations push the limits by incorporating overseas profit centers that are no more than a mailbox in a foreign land. Such legal non-compliance may be an ethical and moral question, but it makes for good after-tax profits.

The fundamental purpose of our tax system should be to efficiently collect revenue in a way that is equitable and minimally inhibits economic growth and domestic employment.  William Simon, who served as Secretary of the Treasury in the Nixon and Ford administrations, said disparaging of our tax code: “The nation should have a tax system that looks like someone designed it on purpose.”

Look at how unsuccessful the CIT really is.  Collections peaked as a percentage of federal tax receipts in 1952 at 32.1%.  Receipts averaged 21.3% of total revenues in the 1960’s, 16.1% in the 1970’s, 9.6% in the 1980’s, 10.5% in the 1990’s, 10.4% in the 2000’s.  In 2010, the CIT contributed 8.9% and in 2011 only 7.9%.

A 2011 study by Citizens for Tax Justice revealed that the 280 most profitable corporations sheltered nearly half their profits from federal income taxes in the prior three years; their average effective tax rate was 18.5% over the three years, about half the statutory 35% rate; 78 of these companies paid zero federal income tax in one or more of those years.

Corporations are so successful at gaming the CIT, that taxes paid have fallen to the point where their compliance expenses including accountants, lawyers and lobbyists cost these corporations $740 for every $1000 the government collects.

If federal receipts from corporations have declined from one-third of federal revenues and now amount to less than 10%, why continue a tax system that is so easily thwarted and inefficient?

Why not replace the CIT with a smarter tax, a VAT to better compete in world trade and to assure compliance?

VAT is already accepted and proven.  This tax system was specifically created for world trade and is employed by all our trading partners and over 150 countries.  It is a consumption tax levied at each stage of production and in total is equivalent to a retail sales tax.

What makes the VAT important for trade is its border adjustability, meaning it is subtracted from exports and added to imports.  This feature removes the variable of the burden of government from the cost comparison of goods in international trade.

For example, when a car is shipped from Germany to China, the 19% German VAT is deducted from the price of the vehicle, and the 17% VAT in China is added to the price of the car when it is imported there. But, when a U.S. car ships overseas, there is no such deduction for the cost government (the CIT), and a VAT tax is added to the price by the importing country.  Here in the U.S., there is no VAT added to imports.  Without our own VAT, there is a large price wedge against U.S. products at home and abroad.

Our largest trading partners add the following VAT cost to goods they import from us.  The range is from 5% VAT in Canada and Japan to over 17% on average from the others: Canada 5%, China 17%, France 19.6%, Germany 19%, Italy 20%, Japan 5%, Korea 10%, Mexico 16%, Spain 16%, United Kingdom 17.5%.

These countries have a CIT in addition to a VAT.  But, that does not make sense for the U.S.  Why just add another tax onto the CIT, which we already know is a broken system?  How would replacing the CIT by a VAT affect us?

  • We would very likely see a strong economic growth spurt and more jobs.
  • U.S. goods would be more competitive with imports here, since imports would be equally taxed by the VAT.
  • U.S. exports would be more competitive, as the VAT, unlike the CIT, would be subtracted from exports.
  • There would be no double-taxation of dividends.  Because corporate profits would not be taxed, only dividends would be taxed to individuals when they receive them.
  • U.S. multi-nationals…which now park profits in lower-taxed countries…would bring their capital back to the U.S. for investment. The U.S. with NO corporate income tax would be the best country for recognizing your profits.  Foreign corporations would likewise shift profits to the U.S. for investment.

 If VAT is so good, why don’t we have it?  Again, VAT would be a new tax, and politicians fear proposing taxes, even if it is good medicine.  Tax is a four-letter word to politicians.  But, we don’t have to follow other countries and make our VAT an “add-on” tax.  Our VAT can be a dollar-for-dollar replacement for other taxes.  We can replace all corporate tax revenues by an 8% VAT, including rebates to protect individual tax filers with low income.  Companies would save substantially on their compliance expenses, and that savings could go to stockholders or consumers in the form of lower prices. Companies would no longer have the CIT to dodge, so they would no longer need a bevy of expensive lobbyists to push for loopholes (unless we made the mistake of permitting exceptions to the VAT, which would be like letting the camel’s nose under the tent).

Want to see the idea considered of replacing the CIT by a VAT?  Contact your representatives in the House and Senate. Tell them you would like the U.S. to get a fair shake in international trade.  Tell them replacing the Corporate Income Tax by a Value Added Tax will make the U.S. more competitive and create jobs.  Tell them you will not vote against them for proposing a revenue-neutral VAT to replace the Corporate Income Tax.

Chances are, some of our representatives really get the concept and would support a VAT, but they need to know you will support them.

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If Obamacare Is Overturned

March 28, 2012 By

The Supreme Court may decide that individual mandates for insurance purchases oversteps the authority of the federal government.  If Obamacare is overturned, there is a better alternative — single-payer in the shape of Dr. Zeke Emanuel’s plan for a dedicated VAT paying for vouchers to be used in an exchange. The VAT tax, dedicated to health insurance, would have precedent for the Supreme Court, e.g., the Social Security tax.

With a dedicated VAT tax, the citizenry would have a measure of health care costs vs. benefits that should work to restrain additional demands for more expensive tests and services. Corporations would be on an even footing in that the amount of medical insurance would no longer be a competitive benefit for employees.

Of great importance, the VAT burden would saddle imports equally with the burden of healthcare, and exports would not carry the burden. VAT is the border-adjustable tax for this era of globalization, i.e., added to imports and subtracted from exports. That is why it is used by all of our trading partners — to our competitive disadvantage.

Dr. Emanuel, Rahm’s brother, published a book detailing the plan, “Universal Healthcare Guaranteed.” Links to information about the Emanuel plan and VAT can be found at: http://wp.me/p18NCA-1o

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The “SMART Tax” Proposal

January 24, 2012 By

The economy needs restructuring, and strategic tax reform should be part of the picture.  This is the first presidential race since 1992 to focus on how we might change the way we tax ourselves at the federal level.  Perhaps this is the year that sweeping tax reform receives the attention it deserves.

We have had Herman Cain’s 9-9-9 plan, Rick Perry’s version of the flat tax, and Mitt Romney’s struggle with revealing how he has managed to pay less than 15% in taxes.  In October 2010, Gov. Mitch Daniels’ floated the idea of replacing personal and corporate income taxes with a VAT balanced by a flat tax on personal income; most disappointing, his suggestion of a VAT was roundly criticized with knee-jerk opposition in Republican ranks.

For a short time in 1992, tax reform looked like it might have its day.  Gov. Jerry Brown excited the press with his notion of a VAT and a flat personal income tax.  (This plan was designed by economist Gary Robbins, who this year envisioned the Cain 9-9-9 plan.) Steve Forbes was running on the flat tax.  Sen. Phil Gramm, the only economist in the Senate, also endorsed the flat tax, but wanted unearned and earned income treated equally.  Unfortunately, candidate Bill Clinton dismissed Brown’s VAT as a “double-tax” and “Jerry’s tax,” and it was never fairly vetted, but, today, Bill Clinton endorses a VAT.

Replacing the Corporate Income Tax (CIT) by a VAT will be stimulative (a component in a growth strategy):

(1)       Ends double-taxation of dividends;

(2)       Ends a competitive disadvantage in world trade, as all our trading partners and over 150 countries use the border-adjustable VAT, which is subtracted from exports and added to imports;

(3)       Ends incentive for multi-national corporations to park profit in lower-taxed countries, as the U.S. with zero CIT will be the best place to evidence profits;

(4)       U.S. becomes a stronger magnet for foreign investment;

(5)       As Brookings’ Aaron and Sawhill have suggested, the implementation of a time-certain VAT would speed purchases, i.e., an off-budget stimulus.

Gov. Daniels did not present details to analyze when he made the observation that a VAT plus a progressive VAT “might suit our current situation pretty well.  It also might fit Bill Simon’s line in the late ’70′s that the nation should have a tax system that looks like someone designed it on purpose.”  The attached “SMART Tax” plan is intended to offer what such a solution might really look like.

Working with figures on revenues from OMB, and the breakdown of tax revenues by income brackets from IRS, and VAT revenue projections provided by Urban Institute/Brookings, the following parameters were used to present the plan:

“SMART Tax” Illustration (click here)

1)         Overall plan is revenue neutral;

2)         The VAT replaces the Corporate Income Tax entirely, and, per Brookings, provides protection for the lower income brackets via Earned Income Tax Credits;

(3)       The VAT also covers for the elimination of income taxes for below $50,000 income and reduction of income taxes for income $50,000 and $100,000;

(4)       Progressive income tax brackets;

(5)       Zero tax preferences or deductions to eliminate the corrupting gamesmanship in lobbying for loopholes.

 

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NYTimes: “1% and That 15%,” editorial, 01/19/12

January 19, 2012 By

At a time when the U.S. economy needs serious restructuring, the Republican candidates for president are vying for the position of who will cut taxes the most if elected.  They are calling for tax cuts at a time when government expenditures are 40% higher than revenues.  No one really believes that manageable cuts to defense, medicare and social security can shrink that 40% deficit gap by half.  Nor has deficit spending successfully grown the economy and increased employment in the last several years.

After all politically practical cuts are made to spending, taxes will still need to rise.  Republicans will argue that lowering taxes will boost economic growth and obviate the need for additional tax revenues.  There is no such evidence.

Candidate Romney appears to be headed for the rocks over the coming disclosure of his tax returns and the risk of public focus on his low tax contributions relative to income.  In its editorial, today, the NYTimes speaks to the larger problem: “The controversy over the tax treatment of carried interest is a subset of the larger debate over whether there even should be a preferential rate for capital gains. The answer is no. It is not only excessive, and unjustified, it actually encourages wasteful gamesmanship, by enticing people to engage in tax avoidance schemes to convert ordinary income into capital gains. It also exacerbates inequality and crowds out other ways to foster risk-taking.”

Campaign apologists will spin that Romney’s firm paid Corporate Income Tax and that his 15% is a double-tax.  If that is what they really believe, then they should very well support replacing the CIT by a VAT, which would eliminate the double-taxation of dividends.  The VAT implemented with zero tax preferences would also eliminate the gamesmanship in lobbying for loopholes.

Sweeping tax reform that includes replacing the Corporate Income Tax with a VAT as one component would have a positive effect on exports, domestic production and jobs.  VAT is used by all our trading partners, including China, to exclude the cost of government from the price/value relationship of goods and services in international trade.  It is border-adjusted, i.e., subtracted from exports and added to imports.  Replacing the CIT would encourage the return of multi-national profits now parked in lower taxed countries, and stimulate foreign investment.  Imports would carry an equal burden, and domestic goods would be more competitive.

As Mitch Daniels once suggested, couple the VAT with zero tax preferences with a zero deduction Personal Income Tax with a high threshold and progressive rates and we will have a tax system that is fair, competitive, and stimulative for jobs and growth.  Mitt Romney would pay a much higher, but fair tax.

 

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Clinton (Again) Endorses VAT

December 30, 2011 By

In his new book, “Back to Work: Why We Need Smart Government for a Strong Ecconomy,” Knopf, 11/08/11, President Bill Clinton again calls for (see TV interviews under “Audio/Video”) a shift away from income taxation to a consumption tax:

“Among wealthy nations, we now have the second-highest corporate tax rate in the world, and because of recent changes in other countries we’re now the only wealthy nation that taxes income earned overseas when it’s brought back home.  We’ve also fallen to seventeenth in the level of our research and development tax incentives.  We have to become more competitive.  Big corporations don’t get hurt by the current system.  They just put plants in other places, create good jobs there, and leave their earnings there.

In the future, we’ll have to design a progressive revenue system that relies more on personal income and consumption taxes, like the value-added tax, which also would help to increase our exports…making our products more affordable in other markets.”

 

 

 

 

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China’s 17% VAT Is Trade Advantage

December 9, 2011 By

Keith Bradsher reports in The New York Times (“China’s 10-Year Ascent to Trading Powerhouse,” 12/09/11), that China has seized upon the broad rules available under the open global trading system governed by the WTO to accelerate Chinese trade.  The agreement with China, which was hammered out under GATT rules ten years ago, permitted China to impose higher tariffs to protect a then developing economy.  These rules are still in place and permit China to retain a tariff wedge of 25% on imported cars.

That tariff is not the only wedge.  China also employs a 17% Value Added Tax, which under GATT rules is subtracted from exports and added to imports.  Bradsher:

 “But the 25 percent tariff is only one reason a Grand Cherokee costs three times as much in Chongqing as in Chicago. In the name of energy conservation, China also assesses a sales tax of up to 40 percent of the vehicle’s price based on its engine size. Small, fuel-sipping Chinese cars pay the lowest rate, as little as 1 percent, while gas-guzzlers from the United States and Europe pay the highest rate.

 China also collects a 17 percent value-added tax on almost everything sold in the country, whether imported or domestically produced. But like many European nations, China uses a W.T.O. provision that allows the tax to be fully refunded to China’s export producers, who often pass along the saving to foreign buyers.

 What’s more, China limits foreign manufacturers to no more than 50 percent ownership of car assembly plants in China. That special rule, which China managed to negotiate for its W.T.O. accession agreement when its auto industry seemed tiny and vulnerable, has forced multinationals to set up numerous joint ventures in China and to transfer a wide range of technology to those Chinese partners.”

 http://www.nytimes.com/2011/12/09/business/global/chinas-10-year-ascent-to-trading-powerhouse.html?pagewanted=2&_r=1&ref=business

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NYTimes: Flat Tax Doesn’t Solve Inequity Problem, Robert H. Frank in “The Problem with Flat-Tax Fever,” 11/06/11

November 6, 2011 By

Robert Frank attacks the Flat Tax as inequitable and as a mirage to solving the problem of complexity.  But, the Perry incarnation is only the latest, but not the purest presentation of the Flat Tax.  The complexity resides in the retention of various deductions (loopholes), which in the ideal are eliminated in their entirety.  Mr. Frank does not discuss the simplification potential, but concludes his piece with a brief submission of his preference for a progressive consumption tax.  There is no acknowledgment, however, that his preferred tax would also favor the highest earners, as they have the most disposable income and therefore the very disproportionate ability to save.  Most economists would agree that increased savings are important to our economic success, but there is no discussion of this in the column.

Unfortunately, Mr. Frank’s unarguable conclusion is that our politicians are most unlikely to approve a new tax, backed-up by the fact that half the members of the Debt Commission (“supercommittee”) have pledged not to do so.

Mr. Romney and President Obama have yet to declare one way or the other on sweeping tax reform, but the possibility remains, in spite of the pledges taken by members of Congress and Senators, that either might propose a new and different plan.  The cleanest, most competitive system for replacement of our outmoded and corrupted tax code would be a clean sweep replacement by a VAT and a FlatTax on personal income with a high threshold.  The tax could be balanced between the VAT and Personal Income Tax, so as to retain (increase) progressivity, and the bottom quintiles could be protected from the VAT via the Earned Income Tax Credit.  The border-adjustable VAT would make exports more competitive and imports less so.  Such a plan was once floated by Gov. Mitch Daniels, but has not reached the light of day without a champion in the presidential campaign.

 

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Breaking the Spell on the Economy

November 3, 2011 By

Halloween has passed, but our economic witches’ brew remains in place.  In our major cities, an impatient and resentful citizenry has taken to the streets in anger to protest inequality in opportunity.  And, it is spreading.  In Oakland the demonstration turned violent.  People are trapped in a spell fueling our nation’s debt — between a stalled economy with negligible job creation and rising entitlement demands from retiring baby boomers.

Both political parties are shackled to their core principles, but neither has a real remedy.  Republicans are steadfast in believing that tax cuts will fuel growth that will overcome the increase in short-term debt that these cuts will produce; they would rather cut entitlements to pay for some of the cuts.  Democrats believe that if government spends more on infrastructure projects, the jobs created will relieve the malaise; they would rather increase taxes on the wealthy to cover the cost of investment spending.

Both visions are incomplete, as both lack an identifiable long-term solution.  Can the Republicans foresee an industry that would fuel private sector growth?   Can the Democrats see that infrastructure projects are only a short-term fix for an economy that is hemorrhaging through outsourcing?

At one time, it was said, “As Detroit goes, so goes the nation.”  We can no longer look to the auto sector for salvation growth, since much of the industry is comprised of imports and imported components.

The internet industry propelled the economy for a time, but that was a finite bubble.  The new generation of internet applications, e.g., Facebook, Google, are not as labor intensive as manufacturing and have a much lower ratio of employees to sales.   The computer industry no longer resembles its original promise for domestic jobs, as the finished products or components have largely been outsourced.  Apple Computer, for example, has created tens of thousands of jobs in the U.S., but more than a million jobs for Chinese assemblyline workers.

The construction industry filled the gap after the internet bubble deflated, but, as is inevitable in the course of our boom and bust cycles, the end came to the housing bubble.  What’s next?  Can we identify a nascent industry on which to place our bet?  And, if so, how can we best support that industry?

The obvious target is alternative energy, whether nuclear, solar, wind.   In addition to sparking growth and employment, we would save billions of dollars for imported oil, which money Thomas Friedman has repeatedly warned fuels the middle-eastern countries that hate us.  That is why placing a bet on Solyndra was a good idea.  Their product had unique competitive advantages, and it would have been produced here in California.

We can no longer accept that our future “Apples” will be grown in China.  In nurturing promising players in the alternative energy field, we must think ahead to their success, and how to assure that entrepreneurs will scale-up their inventions here and not turn to outsourcing. This means government must not only provide the tax incentives and investment funds (loan guarantees) for start-ups, but must also alter the rules of the game.

First, and foremost, the U.S. should sweep away its cumbersome and corrupting corporate tax code with all its loopholes in favor of a value added tax, so that the burden of government taxation is not shouldered by exports and is added to imports equally as to domestic production.  The U.S. would become the lowest taxed country (zero), making the U.S. a magnet for foreign capital and encouraging the return of multi-national corporation profits currently parked in lower-taxed countries.  Gone, too, would be the double-taxation of dividends.  In a nutshell, our Corporate Income Tax is a drag on our economy and all our trading partners now use VAT to our competitive disadvantage.

Second, the protection of a U.S. Patent should be restricted to products that are 80% value-added in manufacturing facilities here.  Too many products are outsourced in their entirety and too many are merely assembled here using imported high-value-added components.  Patents would still be licensed to foreign manufacturers for producing goods for their own populations, and foreign manufacturers would need to open plants here for U.S. Patents and to tap our market.

Third, where necessary, we should not hesitate to add tariffs to the mix to protect promising new industries, especially where we can identify dumping practices of foreign countries.

Turning our economic ship of state will take time.  Congress will deliberate on tax reform, patent law, industrial policy and tariffs.  In the short-term, the parties will fight over tax cuts vs. infrastructure spending.  But without visionary leadership with a longer horizon, we will not break the spell.

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