"The Party of Yes"

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


Hollings

DEC. 8, 2014 -- Globalization is nothing more than a trade war with production looking for a country cheaper to produce. David Ricardo's "Comparative Advantage" in globalization is China's closed markets and predatory practices, which requires competing countries to retain and protect production vital to a strong economy.

The Founding Fathers pointed the way. The U.S. was born in a trade war (Boston Tea Party), and its economy was built on protectionism. Congress enacted the Tariff Act of 1787 - two years before the Constitution and four years before Madison's First Amendment rights. It worked so well that Edmund Morris noted in Theodore Rex (pg. 20) that the U.S. was: "worth twenty-five billion dollars more than her nearest rival, Great Britain…the United States was already so rich in goods and services that she was more self-sustaining than any industrial power in history."

Corporate America flocks to China to produce for the easy profits. It doesn't have to worry about capital costs, safety, healthcare, or retirement. The Princeton economist Alan Blinder estimated in December 2006 that in ten years the U.S. would offshore 30-40 million jobs. Offshoring continues. Wall Street, the big banks, and Corporate America want to keep the market up, keep China profits flowing, so they contribute to the President and Congress to do nothing to disturb China - to not call on China's devaluing its currency; to not counter China's closed market and predatory practices; to not make it profitable for Corporate America to produce in America; to do nothing, and the President and Congress do nothing.

Economists join in the "do nothing" conspiracy by complaining about the "Great Recession." The 2008 recession ended in 2009 - has been over for five years. Now comes Martin Wolf in The Financial Times (11/18/14) complaining about: "chronic demand deficiency syndrome." It's chronic money deficiency, caused by offshoring payrolls. Rana Foroohar writes in Time (12/8/14) that General Electric is returning to manufacture in the United States by "trying to copy some of Silicon Valley's methods."

The solution to manufacture is not in Silicon Valley. The solution is with President Obama and Congress, who are paid by Corporate America to do nothing. To do something, the President and Congress can replace the 35 percent Corporate Tax with a 7 percent Value Added Tax (VAT), and the President must enforce our trade laws to protect vital production like President Reagan in 1984 when Reagan protected steel, motor vehicles, computers, and machine tools.

The Economist (8/18/12) cites Michael Grunwald's The New New Deal as "the most interesting book that has been published about the Obama administration." In it Grunwald writes a chapter on the Republican Party as "the Party of No." For years I've noted to both Republican and Democratic colleagues in the Senate that 160 countries compete in globalization with a VAT that's rebatable on exports. The Corporate Income Tax is not rebatable. 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 when the product reaches China, a 17 percent VAT. A competitor in the U.S. can produce the same product in China, import it tax-free into the U.S., and put the entrepreneur out of business.

The VAT has no loopholes, giving instant tax reform. The VAT is self-enforcing - pay it or pass it on - permitting the downsizing of government (IRS). The VAT helps small business. There are so many loopholes for the multinationals in the Corporate Tax, that multinationals (GE) pay little tax. The Main Street merchant, or small business, pays the full 35 percent.

Republicans in Congress could become "the Party of Yes" with a tax cut: just replace the 35 percent Corporate Tax with a 7 percent VAT. Last year's Corporate Tax produced revenues of $288 billion. A 2013 7 percent VAT would have produced $945 billion, permitting Republicans to balance the budget in two years rather than ten. This tax cut also releases $2 trillion in offshore profits for Corporate America to repatriate tax-free, invest, produce, and create millions of jobs in the United States - jumpstarting the economy. Now that the Republicans will have both houses in Congress, we can see if "the Party of No" can become "the Party of Yes."

Senator Fritz 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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