As a part time writer who works for free, I can sympathize with all the part time temps (temporary workers) across the nation and around the world. Victims of a corporate culture that squeezes profit from low wage employees do, at least, get small paychecks, but being self employed makes it more possible for me to work for less.  

Just for the heck of it, I may double my writing salary! (Critics may counter that if I wrote better, I’d get more.)

 
Temp workers, while offering a boost to profits seem now to be slowing the economic recovery in places like Japan, where low wages combined with an aging population have dropped auto sales by percentages in the teens, and generally seem to be contributing to a broad economic slow-down

A Barrons editorial presents the VAT issue as well as anyone.  It gets right at the VAT tariff vs. trade issue.

I'm going to break the law by reprinting the full copyrighted piece here. 

Memo to Barrons' lawyers - If you don't like it, let me know and I'll take the whole piece down.  But I'll provide the link to send a few more potential subscribers your way.

My only comment is that the Barrons piece is written for Republicans, which is fine.  But the message needs to come through to Democrats, because this should not be a partisan issue.  Barrons decries corporate taxes, and many Democrats like those taxes.  There is a good reason to shift away from corporate and other income taxes, but the language must appeal to those who justifiably think Big Corporations have too much power.

I will feature the key Barrons point here, and then reprint the whole thing:

Self-Punishment

Taxes on world trade are levied according to a set of rules that penalize the United States for its reliance on corporate income taxes. Under the rules of the World Trade Organization, value-added taxes need not be levied if the taxed goods or services are exported. No such export rebate is allowed for corporate income taxes. If a German car might be liable for $5,000 of value-added tax, its manufacturer would receive the $5,000 back from the tax authorities after driving the car onto a ship bound for the United States. A Honda exported from these shores would carry its share of the manufacturer's corporate income tax across the ocean, with no rebate allowed.

The U.S. Congress goes on year after year holding hearings about this inequity, and the U.S. goes on and on running up trade deficits, but nothing is ever done to secure better tax treatment for our exports by substituting a value-added tax for the corporate income tax, or by negotiating equal treatment for both kinds of taxation.

****

Monday, January 7, 2008

EDITORIAL COMMENTARY 

 
 
Taxation Without Justification
Cut the corporate income tax or, better yet, abolish it
Taxes on world trade are levied according to a set of rules that penalize the United States for its reliance on corporate income taxes. Under the rules of the World Trade Organization, value-added taxes need not be levied if the taxed goods or services are exported. No such export rebate is allowed for corporate income taxes. If a German car might be liable for $5,000 of value-added tax, its manufacturer would receive the $5,000 back from the tax authorities after driving the car onto a ship bound for the United States. A Honda exported from these shores would carry its share of the manufacturer's corporate income tax across the ocean, with no rebate allowed. (read more)

A major part of our trade deficit is caused by taxes.  Every trade agreement is a unilateral disarmament of the U.S.  We drop our tariffs, they drop some tariffs (usually more slowly) and they continue imposing a 17% tax on our exports to them.  Read the CPA policy on value added - or consumption - taxes for more details. 

Mike Huckabee is proposing a national sales tax, dubbed a "Fair Tax".  It's getting more attention because Huckabee won Iowa.  A New York Times article today has a good discussion about who is saying what about the proposal.

The positives are that we can neutralize foreign VAT tariffs by having our own.  We can rebate it when our businesses export (just like other countries do) and we can charge the tax when products are imported (just like other countries do).  Then the VAT tariffs are no longer an issue.

But taxes are a partisan issue.  Partisanship is the kiss of death for most issues, especially in a divided government.  Some Republicans want to use a national sales tax as a way to cut taxes.  But the U.S. is not over-taxed in comparison with other OECD countries.  Many Democrats believe taxing income is inherently fair because of progressivity.  But a national sales tax can be made just as progressive as the income tax, I'm told.

The Times article points out other objections, which need to be addressed.

“The main weakness of the FairTax is its comprehensiveness,” said Dale W. Jorgenson, an economist at Harvard who opposes the plan but whose research into problems with the current system is sometimes cited by supporters. “It tries to roll everything into one tax, which simply can’t carry all that weight.”

I don't know if that is true, but I'll not mock him because I simply don't know.  And there is the "black market" incentive:

Whatever the rate, critics say, a steep federal retail tax, piled on top of existing state sales taxes, would encourage widespread illegal tax evasion, black market transactions and other forms of cheating, creating a cycle that would require even higher tax rates.

Tax cheating exists now, and it will always exist.  We could have a "War on Tax Cheating" because the "War on..." is such an attractive rallying cry for politicians.  But the real issue is the marginal difference between the types of tax cheating. 

CPA will be doing more work on this issue during 2008.

Production moves to China because they are more efficient.  Right?  We just can't compete in the U.S.  

Yup.  We can't compete with this:

Here in the Pearl River Delta region near Hong Kong, for example, factory workers lose or break about 40,000 fingers on the job every year, according to a study published a few years ago by the Shanghai Academy of Social Sciences.

The "finger loss" category of productivity.  Its not like Chinese factories producing at 5% less cost than an American factory.  We don't say that "only 30,000 fingers per year are lost in a comparable American plant."  Because those U.S. plants, if they existed, have long been shut down.  The darned trial lawyers and OSHA would have seen to it.

China has labor laws, apparently.  And government inspectors.  But they oft-times fnd "no evidence" of wrongdoing. 

Guangzhou labor bureau officials said they recently fined Huanya for wage violations, but also said they found no evidence of child labor. ...

But underage workers seem to disappear when the inspectors come.  

When government inspectors visit the factory, the young brothers are given the day off, they said. 

What is an "inspection?"  Do the inspectors call and schedule an appoinment to inspect a couple weeks in advance?  Then ask:

'Hey Mr. Plant Manager, broken any labor laws lately?' 

'Nope.' 

'Good.  By the way, I like your coffee and that new couch in your office.'

This is not 1850's industrialization.  It is now 158 years later.  Development can be smarter.