Lind, Michael, “A Radical Tax Solution,” Salon.com, 04/24/12

“Michael Graetz of Columbia Law School points out that “the United States is a relatively low-tax country, but not with respect to income taxes … We typically collect about 12 percent of GDP in corporate and individual income taxes, while the OECD nations average about 13 percent. The biggest difference is that most other nations rely much more heavily on consumption taxes than we do: 11 percent of GDP in the OECD compared to about 5 percent in the United States. Indeed, we are the only OECD nation that does not impose a national level tax on sales of goods and services.”

This raises the possibility of a fourth option for American tax reform, distinct from the phony centrism of Simpson-Bowles (closing loopholes while lowering rates for the rich and cutting entitlements for the majority), radical conservatism (the single flat tax) and conventional progressivism (relying for more revenue chiefly on higher personal income taxes combined with bigger tax credits). The fourth option would reject the goal of revenue neutrality and acknowledge that, in a nation with an aging population, federal taxes can and should be permanently increased to pay for Social Security, Medicare and Medicaid. (These, like the rest of the American healthcare sector,  need to be made solvent by price reduction and price regulation, not rationing). Much or most of the needed additional revenue should come from the adoption by the federal government of a VAT.  A federal VAT’s revenues could be shared with state and local governments, partly replacing existing sales taxes.

 http://www.salon.com/2012/04/24/a_radical_tax_solution/singleton/

 

Porter, Eduardo, “A Tax Code of Politics, Not Practicality,” NYTimes.com, 04/10/2012

“Our byzantine tax code is built upon a longstanding political deal: Democrats wanted a tax scale with higher rates for richer Americans to finance social programs aimed at the poor and the middle class. Republicans countered by pushing for tax exceptions, exclusions and deductions that shielded the incomes of the rich from the taxman and reduced government revenue.

This compromise has left us with a loophole-riddled code that isn’t very good at raising money. The richest 1 percent of Americans, who make $1.5 million on average, pay 28 percent of their income in federal taxes, according to the nonpartisan Tax Policy Center. That’s way below the top rate of 35 percent. The rest of us also pay little. The bottom 85 percent of taxpayers have an average federal tax rate of 12 percent. The poorest 25 percent pay less than 1 percent of their income — $77 a family, on average.

Compared to other developed countries, the United States doesn’t collect much tax at all. Tax revenue at all levels of government adds up to less than 25 percent of the nation’s gross domestic product, putting us behind every other rich country and even some poor ones. Among the 34 nations in the Organization for Economic Cooperation and Development, only Mexico and Chile collect less in taxes. The average across the O.E.C.D. is 9 percentage points higher.”…

“…(F)ederal tax revenue has not surpassed 21 percent of the nation’s output. Last year it was under 15 percent. Not only is our tax code bad at raising money, it is also plagued with perverse incentives that, added up across the population, can push us to distort the economy and slow it down”….

“ …What would a better tax system look like? Most other rich countries have one. While each country has a different version, they share a core feature: they raise a lot of money taxing people’s consumption, at the point of sale.

Consumption taxes create fewer perverse incentives because taxing what people buy doesn’t affect their choices about work and investment. If anything, such a system might promote savings, generally good for growth. These taxes are also easy to collect and hard to evade. They don’t add complexity to your tax return. Because they produce few perverse incentives, they can be used to raise a lot of money.

Consumption taxes are supported by a vast majority of economists. They underpin Western Europe’s welfare systems, which are based on the proposition that all citizens are entitled to similar income support and services to guarantee a minimum standard of living, and that everybody should pay proportionately for them. Denmark and Sweden collect about 10 percent of their gross domestic product with a value-added tax, a modern tax on consumption.

In the United States, by contrast, states raise only 2.2 percent of G.D.P. through various sales taxes.  There is no federal consumption tax at all.

A federal consumption tax has been proposed more than once. A report last year by the Congressional Research Service found that for every 1 percent levied in a value-added tax, the federal government would raise up to $55 billion a year. This new source of money could help change the political deal underpinning our tax system and pave the way to cull loopholes and reduce our top tax rates.”

 http://www.nytimes.com/2012/04/11/business/economy/a-tax-code-of-politics-not-practicality.html

Hollings, Sen. Fritz, “Untying the Knot,” HuffingtonPost.com, 04/09/12

“There is an immediate solution to deficit spending and creating jobs — just replace the 35 percent Corporate Tax with a 6 percent VAT. The 2011 Corporate Tax produced revenues of $181.1 billion. A 2011 6 percent VAT would have produced $728 billion. This will cut taxes, eliminate loopholes, give instant tax reform, promote exports, free up $2 trillion in offshore profits for Corporate America to create jobs in the United States, provide billions to avoid deficits, and create millions of jobs.

Everyone in Congress is for these initiatives, but not one of the 535 members will introduce the VAT solution, nor will President Obama. Why not? Because Corporate America doesn’t want to increase the cost of their China exports to the United States. U.S. exports to China are taxed twice: the 35 percent corporate tax and a 17 percent VAT when exports reach China. China’s exports to the United States are tax free. 141 countries compete in globalization with a VAT that is rebated on exports. Wall Street, the big banks, and Corporate America are the biggest contributors to the President and Congress. Contributions for reelection in Washington come before the nation’s economy. Talk shows and the political pundits don’t mention the VAT solution because the press and media are owned or in bed with Corporate America.

In 2006, the Princeton economist, Alan Blinder, estimated that for the next decade off-shoring would cost the U.S. Economy an average of 3 to 4 million jobs per year. We are off-shoring jobs faster than we can create them. The recession ended over 2 ½ years ago and we wonder why the recovery is anemic. The economy would come alive by replacing the 35 percent corporate tax with a 6 percent VAT.”

http://www.huffingtonpost.com/sen-ernest-frederick-hollings/untying-the-knot_b_1412370.html

Mitchell, Daniel J., “Tax Reform to Encourage Growth, Reduce the Deficit, Promote Fairness,” Senate Budget Committee Hearing, 03/01/12

Dr. Daniel J. Mitchell, Senior Fellow, Cato Institute

“The internal revenue code is needlessly punitive and complex. Some of its major flaws are:

1. High tax rates – Marginal tax rates on additional increments of productive activity are too high, discouraging people from productive behavior.

2. Biased treatment of income that is saved and invested – Because of the capital gains tax, the corporate income tax, the double tax on dividends, and the death tax, there is pervasive double taxation on capital, causing very high effective marginal tax rates.

3. Distorting loopholes – Many provisions of the internal revenue code are explicitly designed to encourage economically irrational choices.

4. Worldwide application – The United States have the world’s most onerous tax system for international activity.

5. Corruption – While in most cases technically legal, the common practice of swapping favorable tax policies for political support is corrosive.

6. Complexity – Nearly 100 years of tax changes have produced 72,000 pages of law and accompanying regulation.

Tax reform has the potential to reduce, or perhaps even eliminate, these problems. But it also could make them worse. To ensure the best possible outcome, lawmakers should be guided by these principles.

A. Tax rates should be as low as possible – Taxes are a price, and it doesn’t make sense to impose a high price of work and entrepreneurship. . The tax system should not discriminate against capital formation – Since every economic theory, even Marxism and socialism, holds that saving and investment is a key to long-run growth and higher living standards, it doesn’t make sense to impose extra-high tax rates on capital.

C. Government should not tilt the playing field with preferences or penalties – Luring people into making economically inefficient choices makes the economy less productive.

D. Territorial taxation – This is the good-fences-makes-good-neighbors approach to tax policy. Disputes with other nations become trivial if each nation is in charge of taxing economic activity inside its borders.

The ideal system, based on the above principles, is a low-rate, consumption-base, loophole-free tax.

The best-known tax meeting these criteria is the flat tax, as developed by Professors Hall and Rabushka at Stanford University’s Hoover Institution.

But the value-added tax is also satisfies these principles – assuming it is replacement rather than add-on tax. And a national sales tax also shares these theoretical qualities.

All of these tax regimes have different collection points, but the tax base is identical. All economic activity is taxed, but only one time and at a low rate.

If lawmakers want to improve growth, particularly in a competitive global economy, where labor and capital can cross borders in search of pro-growth fiscal policy, they should seek to reform the tax system so it fulfills these principles. Economists will not agree on how much additional growth such a system will generate, but they generally will agree that a low-rate, consumption-base, loophole-free tax is the way to minimize the damage caused by taxation.”

http://budget.senate.gov/democratic/index.cfm/committeehearings?ContentRecord_id=553aa480-29a4-44b4-8b3f-9fc8004f4e81&ContentType_id=14f995b9-dfa5-407a-9d35-56cc7152a7ed&Group_id=d68d31c2-2e75-49fb-a03a-be915cb4550b

Hollings, Sen. Fritz, “Building the Economy,” HuffingtonPost.com, 02/14/12

 “Just at the time we need government, all the candidates run “against big government.” “I served in government, but didn’t inhale.” “Get government out of the way so market forces can work.” Who do they think developed the economy? Not market forces. Not Corporate America, whose executives caterwaul “free trade;” “protectionism.” The government of China develops the most closed, controlled economy in history, and Corporate America off-shores to China.

The founding fathers taught us that government creates the economy. The U.S. was born in a trade war (the Boston Tea Party) and President George Washington’s first message to Congress emphasized “manufactories.” The government developed our economy with the Tariff Act of 1789. The Mother Country opposed this development, cautioning against protectionism, calling for “free trade,” and nagging David Ricardo’s “doctrine of comparative advantage” — England’s textiles versus Portugal’s wines. But Alexander Hamilton saved us with his famous “Report on Manufactures,” and Henry Clay exclaimed on the floor of the United States Senate in 1836 that free trade “never existed; it never will exist… ” Abraham Lincoln was a protectionist. Theodore Roosevelt wrote a friend: “Thank God I’m not a free trader.” We didn’t pass the income tax until 1913. We built this nation with protectionism into an economic superpower, “… twenty-five billion dollars more than her nearest rival, Great Britain… ” (Theodore Rex, Edmund Morris, p. 20). President Theodore Roosevelt kept market forces from working with anti-trust laws so that we have an open market today.

How do you think government builds a strong economy? Paying its bills, incentives and enforcing its trade laws to protect investment. Globalization is nothing more than a trade war with production looking for a government cheaper to produce. In globalization the war has expanded from trade to research, technology, innovation, production, jobs, payrolls — the economy. Corporate America has $3 trillion ready to invest, waiting for the President and Congress to determine the increase in revenues bound to occur. Corporate America demands protection. Rather than bailing out Detroit, President Obama could have protected motor vehicles by imposing a tariff on auto imports like Brazil is now imposing. Rather than begging Russia for helicopters, President Obama should enforce the War Production Act of 1950 which would create millions of jobs. Everyone knows that you can’t build a strong economy with federal aid to keep the policemen, firemen and teachers in their jobs or cut payroll taxes which Wall Street executive, Steve Rattner, says: “… provides little lasting benefit. We could just as effectively throw borrowed hundred-dollar bills out of airplanes.”

How could President Obama and Congress bring Corporate America back from China? Easy. Just take the tax benefit to off-shore and give it to Corporate America to on-shore — cancel the 35 percent corporate tax and replace it with a 6 percent value added tax. Immediately, the CEOs, tax lawyers and tax lobbyists cry: “We can’t have a national sales tax.” 141 countries compete in globalization with a VAT or national sales tax. Replacing the corporate tax with a 6 percent VAT is on value added, not sales, and a tax cut. Reason for the howls: a VAT has no loopholes. The CEOs and Corporate America with today’s loopholes are not paying any tax. They could care less about building our economy. China is getting difficult every day. This tax cut releases $3 trillion for Corporate America to create millions of jobs in the United States. The 2010 corporate tax produced $194.1 billion in revenues. A 2010 6 percent VAT would have produced $700 billion in revenues. Exemptions for the poor leave billions to pay down the debt. The VAT is on consumption — the more you consume, the more you pay. Now folks can pay their fair share of taxes. The VAT promotes exports and is self-enforcing. A good bit of the IRS is eliminated, reducing the size of government.”

http://www.huffingtonpost.com/sen-ernest-frederick-hollings/building-the-economy_b_1277012.html

O’Shaughnessy, Revere Copper Chrmn., Calls for VAT to Spur Growth

Using VAT for Jobs, Health and Retirement

The media debate about VAT has missed the mark.  Strategically employed, VAT can legally promote and protect domestic production of anything mined, made, grown or serviced in any country.  The question is not whether we have new taxes, high taxes or low taxes.  The question is whether we have smart or dumb taxes in relation to promoting economic growth and international competitiveness.

VAT is a valuable tool used by 153 countries to gain a competitive edge in trade with the USA.

Americans simply look at VAT as a Value Added Tax on goods and services at each stage of production.  In this narrow view, VAT is a consumption tax that is regressive.  Overlooked is the strategic importance of VAT to international trade, domestic jobs and real wages if used intelligently.

The VAT becomes just like a tariff when the proceeds are used to subsidize production in any country competing with another.  The average VAT worldwide is about 16%.  The proceeds of VAT can be used like any tax in many ways.  One way is to fund health care costs.  This remains true whether or not the nation’s health care system is socialized or private.

Let’s look at a real world example of how this impacts my company—Revere Copper Products.  Revere fabricates copper and brass products for further manufacturing and for building and construction markets.  Revere has a health care plan for its employee owners.  Imagine Revere workers on the factory floor producing a coil of copper.  The price Revere sells it for must cover their wages and salaries plus the cost of metal, energy, equipment, materials and supplies as well as taxes and their own health care costs.  When that Revere product is shipped abroad, the foreign country applies a VAT.  Some of the proceeds of that VAT are used to help pay for the health care cost of the citizens of that country, not ours.

http://www.tradereform.org/2012/01/brian-oshaughnessy-on-the-vat/

Hollings, Sen. Fritz, “It’s the Economy, Stupid,” HuffingtonPost.com, 01/27/12

“We need to get in step with 141 countries that use a VAT to compete in globalization. The VAT is rebated on exports, creating jobs and removes the subsidy of foreign imports. Substituting the 35% corporate tax with a 6% VAT is a tax cut and releases $1.2 trillion in off-shore profits that Corporate America can repatriate tax free and create millions of jobs. The VAT is on consumption rather than income – the more you spend the more you pay. Now the rich pays its fair share. In 2010, the corporate income tax produced $194.1 billion in revenues. A 6% VAT in 2010 would have produced $700 billion in revenues. Since the poor spend most of their income on food, health, and housing, exemptions for the poor still leave billions to pay down the debt. The VAT is self-enforcing — you either pay it or pass it on. Much of the IRS can be eliminated, cutting the size of government. The VAT has no loopholes, giving instant tax reform. It puts the tax lobbyists out of business. They will howl: “We can’t have a national sales tax.” Substituting the corporate tax with a VAT is not a sales tax. Corporate America merely factors in the 6% as a cost of production rather than 35%. The lobbyists will call for tax reform — the lobbyists’ playground. We always end up closing two loopholes and adding four more. It took us six years to find the Ethanol loophole. When I left the Senate in 2005, tax expenditures or loopholes were costing the budget $1.3 trillion every year.”

http://www.huffingtonpost.com/sen-ernest-frederick-hollings/its-the-economy-stupid_2_b_1237247.html

Hollings, Ernest F., “Why America Slept on Globalization,” The Post and Courier, 01/17/12

“Globalization is nothing more than a trade war with production looking for a country cheaper to produce. And the war has expanded from trade to production, research, technology, techniques, jobs, payrolls — the economy. Every nation struggles in the economy war to maintain and build its economy — except the United States.

In the Jan. 7 debate in New Hampshire, Gov. Jon Huntsman exclaimed: “We don’t want to start a trade war.” Japan started the trade war after World War II by closing its market, subsidizing its manufacture, selling its exports at cost, making up the profit in its closed market — making Toyota No. 1 as General Motors went broke. In the same debate, Gov. Mitt Romney exclaimed: “We’ve got to stop China from stealing our jobs.”

China steals intellectual property — not jobs. President Obama and Congress do the “stealing” by continuing the tax benefit to offshore jobs.

Corporate America invests in China because there are no labor, safety or environmental concerns. If you make a profit, you pay no corporate tax unless profits are repatriated. Just reinvest for more profit. If not profitable, walk away with no legacy cost. Facing this kind of competition in globalization, the U.S. must develop an economy attractive to invest and protect the investment.

The president and Congress say they are developing an economy to create jobs in the United States. Tax cuts or federal aid for policemen, firemen and teachers is no way to build an economy. It takes private investment.

Ed Schultz, on MSNBC, continually exclaims: “You can’t increase the taxes on the job creators. Really? Where are the jobs?”

In China. To get Corporate America out of China and investing in the United States, we’ve got to lower the taxes “on the job creators.” All we have to do is to take the tax benefit to offshore jobs and give it to Corporate America to onshore jobs — replace the 35 percent corporate tax with a 6 percent value added tax. This tax cut reduces the cost of exports 29 percent, creating jobs. It releases $1.2 trillion in offshore profits for Corporate America to repatriate and create millions of jobs. In 2010, the corporate tax produced revenues of $194.1 billion. A 2010, a 6 percent VAT would have produced $700 billion. The VAT is a tax on consumption, not income. The more you spend, the more you pay. The poor have to spend most of their income on food, health and housing, so exemptions for the poor leaves billions to pay down the debt.

The VAT is self-enforcing: you either pay it or pass it on. Much of the IRS can be eliminated, cutting the size of government. The VAT has no loopholes, so it eliminates the tax lobbyists. We must get in step with the 141 countries that use a VAT to compete in globalization or keep losing our economy. Germany uses its 19 percent VAT, which is rebated on exports, to produce green jobs in the U.S. 13 percent cheaper than any domestic production. It produces the parts at high cost in Germany to avoid any tax; ships the parts at 3 percent cost, and assembles the parts in Charleston, at 3 percent cost, producing windmills.

www.postandcourier.com/news/2012/jan/17/17hollings/?print

Hollings, Sen. Fritz, “Shameful Conduct,” HuffingtonPost.com, 10/05/11

“I don’t know what the demonstrators want Wall Street to do, open earlier; cut the price of stocks? Demonstrators mistake result for cause. Business doesn’t create the business climate or economy. Government does. Business takes advantage of the business climate that the U.S. government has developed. Capitalism has a tendency to monopolize.

That’s why government institutes anti-trust laws and restrictions to keep the market open. But an open market doesn’t mean a free market. In globalization, with China setting the competition, the market is definitely not free. Corporate America shouts “free trade” but creates jobs and develops the most closed market in China…”

“…The first order for government is to take the tax benefit for corporate America to off-shore jobs and give it to corporate America to on-shore jobs — cancel the corporate tax and replace it with a 6 percent value added tax. Last year’s corporate tax produced $194.1 billion, whereas a 6 percent VAT for 2010 produces $700 billion in revenues. Exemptions for the poor leaves billions to pay down the debt.

With no loopholes, a VAT produces instant tax reform, which puts the tax lobbyists out of business. The VAT replacement releases $1.2 trillion in off-shore profits for corporate America to create jobs in the United States. The VAT is like a sales tax, but not on the sales price — only on the value added or seller’s mark-up…”

“…Wall Street, the big banks, and corporate America are happy for Congress to do nothing. They oppose the enforcement of trade laws; oppose a VAT because it increases the cost of imports, and oppose the repeal of the subsidy to off-shore jobs. Wall Street, the big banks, and corporate America are the biggest contributors to the president and Congress. So the president refuses to enforce our trade laws. The president and Congress oppose the VAT solution even though they are for tax cuts; and they oppose repeal of the subsidy to off-shore profits.

Replacing the corporate tax with a 6 percent VAT would make it profitable for corporate America to produce and create jobs in the United States…”

http://www.huffingtonpost.com/sen-ernest-frederick-hollings/value-added-tax_b_996626.html

Thorndike, Joseph J., “A Trade-In for the Corporate-Income Tax: Echoes,” Bloomberg.com, 09/30/11

“…The corporate tax has been wearing out for some time. Its contribution to total federal revenue has declined to just 8.9 percent in 2010, from a postwar high of 30.5 percent in 1953. As a share of gross domestic product, it has fallen to 1.3 percent in 2010 from 6.1 percent in 1952.

Current proposals for the repatriation of overseas profits (which remain untaxed as long as they stay offshore) are just another sign that the corporate tax is nearing the end of its useful life. If gutting a tax every three or four years is the only way to keep it functional, then what does that tell us about the tax itself?

So what’s the best way to get rid of it? The U.S., with its dire fiscal outlook, is in no position to simply repeal the levy. Clearly, some sort of replacement is necessary.

Luckily, one is available. A federal value-added tax could finance a gradual retirement of the corporate-income tax. Initially, even a modest VAT could be used to dramatically reduce marginal rates. According to estimates from the Tax Policy Center, a think tank based in Washington, a broad-based 5 percent VAT could pay for a reduction in the top corporate rate to 7.4 percent. Eventually, lawmakers could repeal the tax entirely.”

http://www.bloomberg.com/news/print/2011-09-30/a-trade-in-for-the-corporate-income-tax-echoes.html