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Letter to editor from a Montana rancher on trade

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This was submitted to an agricultural newspaper as a letter to the editor by CPA member Gilles Stockton from Grass Range, MT.

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Dear Editor

I am getting sick of hearing every national and local candidate claim that they have a plan to create jobs.  They are either lying or deluded because those jobs have been outsourced. Remember Ross Perot and his warning that if we adopt NAFTA we would hear a great sucking sound as jobs exited this country. Twenty years of exporting our manufacturing capability has resulted in a stagnate economy and an employment environment that does not pay enough to live. In other words the Great Recession.

Month after month we have a negative balance of trade and it adds up, as the wealth held by American citizens is exported. Forty two billion last month – half a trillion dollars a year – year after year.  We can’t keep doing that without eventually destroying the competitive ability of the people of this country. Investment bankers and hedge fund managers like Mitt Romney have been doing well as they negotiate deals to outsource America’ industrial capability – leaving just low paying service jobs behind. But for the rest of us, our options are being eliminated.

International trade is not bad, even necessary, but the manner in which our former Presidents and Congress people structured the trade agreements is the worst possible. American businesses were given the choice to either outsource their manufacturing or go bankrupt because of unfair competition from low wage – no regulation countries.

Taxation policy is the key to this problem. There are those – way too many – who loudly claim that we must eliminate all taxes on business in order to stay competitive. This is ridiculous, counterproductive,  and will result in accelerating the outsourcing of manufacturing. Our competitive advantage is in having a first world public infrastructure (which includes honest police, fair access to a judicial system, and other important public services)  and an educated motivated workforce.  It takes tax revenues to build and pay for that infrastructure and to educated our children.  Taxes not paid by business that has fled these shores, must be made up by someone, and it is the workers, middle class, and small businessmen who picks up the burden so that the infrastructure does not fall into disrepair, the police and judges have a place to work, and the schools do not lay off teachers.  The more our infrastructure deteriorates, and the more our schools fail to educate, the less competitive we become on the world market.

The problem in large part stems for how our tax system is structured compared to our major trading partners’ system. Most other countries use a national Value Added Tax (VAT) – a kind of sales tax – to pay for their public infrastructure. We, however, use state and locally levied property and sales taxes to do the same. The GATT (General Agreement on Tariffs and Trade) rules allows foreign countries to rebate the VAT to companies exporting and to impose the VAT on whatever is being imported.

However, according to the GATT rules, domestic US manufacturers cannot get a rebate of state and local sales and property taxes that they paid as part of the price to manufacture the things to be exported. The result is that US manufacturers are disadvantaged and not competitive.  In the case that our trading partner, like China, has a 17% VAT, they can sell an item in this country for 17% less than it is sold in their own country. If a US manufacturer tries to export the same item, the 17% VAT is added on. And remember, all of the local property and sales taxes that are part of the cost of manufacturing in the United States also increases the final sales price. The free trade game is stacked against US manufacturers and American workers.

This is why most of the promises to create jobs are just noise. Unless a candidate says that they are willing to challenge the fundamental un-level  playing field faced by US manufacturers by renegotiating the Free Trade Agreements – they do not have a plan to create jobs.

Sincerely yours
Gilles Stockton
Grass Range, Montana

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