Tag Archive | "taxes"

Are Taxes in the U.S. High or Low?


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The following article by Bruce Bartlett appeared in the Economix section of The New York Times here. Mr. Bartlett has served as an economic adviser in the White House, the Treasury Department and Congress.

Historically, the term “tax rate” has meant the average or effective tax rate — that is, taxes as a share of income. The broadest measure of the tax rate is total federal revenues divided by the gross domestic product.

By this measure, federal taxes are at their lowest level in more than 60 years. The Congressional Budget Office estimated that federal taxes would consume just 14.8 percent of G.D.P. this year. The last year in which revenues were lower was 1950, according to the Office of Management and Budget.

The postwar annual average is about 18.5 percent of G.D.P. Revenues averaged 18.2 percent of G.D.P. during Ronald Reagan’s administration; the lowest percentage during that administration was 17.3 percent of G.D.P. in 1984.

In short, by the broadest measure of the tax rate, the current level is unusually low and has been for some time. Revenues were 14.9 percent of G.D.P. in both 2009 and 2010.

Yet if one listens to Republicans, one would think that taxes have never been higher, that an excessive tax burden is the most important constraint holding back economic growth and that a big tax cut is exactly what the economy needs to get growing again.

Just last week, House Republicans released a new plan to reduce unemployment. Its principal provision would reduce the top statutory income tax rate on businesses and individuals to 25 percent from 35 percent. No evidence was offered for the Republican argument that cutting taxes for the well-to-do and big corporations would reduce unemployment; it was simply asserted as self-evident.

One would not know from the Republican document that corporate taxes are expected to raise just 1.3 percent of G.D.P. in revenue this year, about a third of what it was in the 1950s.

The G.O.P. says global competitiveness requires the United States to reduce its corporate tax rate. But the United States actually has the lowest corporate tax burden of any of the member nations of the Organization for Economic Cooperation and Development.

Revenue Statistics of O.E.C.D. Member Countries, 2010
If taxes are low historically and in comparison with our global competitors, how are Republicans able to maintain that taxes are excessively high? They do so by ignoring the effective tax rate and concentrating solely on the statutory tax rate, which is often manipulated to make it appear that rates are much higher than they really are.

For example, Stephen Moore of The Wall Street Journal recently asserted that Democrats were trying to raise the top income tax rate to 62 percent from 35 percent. But most of the difference between these two rates is the payroll tax and state taxes that are already in existence. The rest consists largely of assuming tax increases that no one has formally proposed and that would be politically impossible to enact at the present time.

Ryan Chittum, in Columbia Journalism Review, responded with a commentary that called the Moore analysis “deeply disingenuous.”

Nevertheless, one routinely hears variations of the Moore argument from conservative commentators. By contrast, one almost never hears that total revenues are at their lowest level in two or three generations as a share of G.D.P. or that corporate tax revenues as a share of G.D.P. are the lowest among all major countries. One hears only that the statutory corporate tax rate in the United States is high compared with other countries, which is true but not necessarily relevant.

The economic importance of statutory tax rates is blown far out of proportion by Republicans looking for ways to make taxes look high when they are quite low. And they almost never note that the statutory tax rate applies only to the last dollar earned or that the effective tax rate is substantially lower even for the richest taxpayers and largest corporations because of tax exclusions, deductions, credits and the 15 percent top rate on dividends and capital gains.

The many adjustments to income permitted by the tax code, plus alternative tax rates on the largest sources of income of the wealthy, explain why the average federal income tax rate on the 400 richest people in America was 18.11 percent in 2008, according to the Internal Revenue Service, down from 26.38 percent when these data were first calculated in 1992. Among the top 400, 7.5 percent had an average tax rate of less than 10 percent, 25 percent paid between 10 and 15 percent, and 28 percent paid between 15 and 20 percent.

The truth of the matter is that federal taxes in the United States are very low. There is no reason to believe that reducing them further will do anything to raise growth or reduce unemployment.


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Manufacturing Is Vital Component To U.S. Economy


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The following is the transcript of an interview by Steve Inskeep of NPR with Andrew Liveris, CEO of Dow Chemical and author of the book “Make It in America.” He’s among the CEOs who met last week with the visiting president of China. You can find it online here.

Manufacturing Is Vital Component To U.S. Economy
Published: January 25, 2011
TRANSCRIPT:

STEVE INSKEEP, host:

The website Real Clear Politics shows movement in opinion polls. For the first time in months, President Obama’s approval rating is above 50 percent. That comes just in time for tonight’s State of the Union speech. The lawmakers he plans to address have higher ratings, too – though still very low, at 24 percent. And many people in the room tonight will know they need to create jobs in order to keep their own. Over the weekend, the president previewed his speech.

President BARACK OBAMA: My number one focus is going to be making sure that we are competitive, that we are growing and we are creating jobs, not just now but well into the future. And that’s what is going to be the main topic of the State of the Union.

INSKEEP: That subject is also on the mind of a leading executive, Andrew Liveris, CEO of Dow Chemical and author of the book “Make It in America.” He’s among the CEOs who met last week with the visiting president of China.

When it comes to manufacturing, what is China getting right that the United States is not?

Mr. ANDREW LIVERIS (CEO, Dow Chemical): Well, you know, what the Chinese do -and not just the Chinese; other countries that I reference in the book, such as Germany – is they have a holistic approach to manufacturing. It’s a strategy. Basically, they say manufacturing is a very vital part of my economy. It employs my people; it pays them great wages. So they have a country strategy. They approach it as a country.

Now, those of us who are free marketeers would say, well, gee, you know, that’s government interference. Well, I don’t see that as government interference. I see that as the public sector establishing the rules of the road such that the private sector knows what those rules are and therefore, we can compete.

INSKEEP: Well, what do you think about the idea that the United States can still be the place where ideas are produced, where corporate headquarters are located, and even if an American company outsources some of their manufacturing or a lot of their manufacturing, there are still a lot of jobs being created in the United States by that economic activity?

Mr. LIVERIS: Well, you know, at the end of the day, I think we have proof points that say that if you put all your eggs in one basket, and if you’re just the idea owner, that you will eventually not generate the ideas that matter in terms of valuating your community, in terms of having the higher-paid jobs.

INSKEEP: What’s an example of that?

Mr. LIVERIS: Well, if you outsource electronics to countries that have initially cheap labor then obviously, they’ll start making those devices. But then on top of that, they’ll learn how to make the next one – better. And then they’ll build the universities around that industry that actually generate the human capital. Then ultimately, what happens is the companies who’ve maybe initially outsourced start to build facilities there, and they start to build R&D centers alongside and ultimately, you’ll outsource the creativity.

INSKEEP: When a lot of Americans think about manufacturing and manufacturing jobs overseas, it seems like a very simple question of cheaper labor. There are people overseas who will work for $3 a day – maybe even a dollar a day, in some cases -and work for wages that Americans would never dream of matching. It’d be a disaster if Americans matched those wages. And is it more complicated than that?

Mr. LIVERIS: Way more complicated. I mean, outsourcing based on wages has really become the storyline of manufacturing, and I think that’s wrong. It is more complicated than that. Take Dow as an example. We built this R&D center in China. We now have 500 Chinese scientists working there, and they earn incredibly good money.

Industries that are high-technology – clean energy, solar, photovoltaics – that conversation, and why that is all moving overseas, is not about labor costs.

INSKEEP: Well, now, that’s interesting because here you are, you’re the CEO of a multinational corporation, you’re a big supporter of American manufacturing -you’ve just written a book about boosting American manufacturing – but you mentioned that Dow Chemical has opened an R&D center in China. How do you, as a CEO, decide which of your operations to keep in the United States, and which to move abroad?

Mr. LIVERIS: Basically, the rules of the road per country. In essence, do I have in country X, do I understand their tax policies? Do I understand their energy policies? What are they doing to me in terms of regulatory policy? We look at all items on the cost line, all items on the incentive line, and make decisions on that basis.

INSKEEP: OK. What are some lines there where the United States apparently doesn’t do very well, since you have moved some operations overseas?

Mr. LIVERIS: Well, I not only have high taxes, I have uncertain taxes. Right now, I have more regulations coming at me that are not fact-based, not science-based, not data-based. I actually don’t even know what my costs are going to be in the next five years. And so I’m sitting back waiting for regulatory reform, and the government, of course, is now engaged on that – health care and the uncertainty around the health-care bill, and what’s going to end up happening there. Energy policy – we’ve got lots of uncertainty in the energy policy regimen. I mean, I can keep going, but that’s half a dozen.

INSKEEP: Well, you keep using the word uncertainty. It sounds like you almost don’t care what the rules are as long as you know what they are and what they’re going to be five years from now.

Mr. LIVERIS: The choice – bad policy versus uncertain policy – is a tough choice. I don’t think we have to go there.

INSKEEP: Is there some way in which, actually, you want an activist government, then?

Mr. LIVERIS: Yeah, activist in the sense that they are proactive, yes. I think we have a crisis in this country around manufacturing. I believe we need to have an activist – to use your word – government that engages proactively with business to create that framework, a public-private partnership. If there’s anything in the book that, you know, hasn’t been stated before, it’s that.

You need the private sector to have an input; you need the public sector to have an input; and it needs to be brought together at a national level.

INSKEEP: Is there a little bit of a contradiction here? Because you’re saying that your taxes are too high; you’d like corporate taxes to be lower. But at the same time, you want a government that is being more proactive, as you say, to provide better education, to provide better services, to upgrade society, to provide tax credits where necessary.

Mr. LIVERIS: Well, you know, this is where the collision occurs, which is: Do you have to spend more to invest more? I don’t think so. I think it’s not a zero sum game. I think, you know, you bring in certainty around tax regimens, like make the R&D tax credit permanent. I could start spending more on R&D dollars here, which therefore creates more tax revenues for the government, that allows them to go spend it on the items that we just talked about, such as education.

It’s a virtuous circle, and I think that virtuous circle needs to be completed.

INSKEEP: Interesting dilemma here, though – was raised in the Financial Times in a quote from one of your fellow CEOs, the CEO of the company that makes Massey Ferguson products. He basically says one thing that everyone seems to be missing here is that if an American company wants to expand its sales abroad -in Brazil, say – they’re likely to build a factory in Brazil. They’re going to put it close to the market for any number of economic and political reasons. It’s not going to increase U.S. exports, necessarily.

Mr. LIVERIS: Well, our experience at Dow – you know, we’re – we manufacture in 37 countries; we sell in 150 – is that you can actually have the synergy of building a market by exporting from the United States. But here’s the thing: The United States is still the largest economy in the world. The United States still has scale. The United States still has a powerful university system. So really, what I’ve got is, I’m putting satellite spokes around the world from my central hub. Over time, we stand the risk that the hub will move. The larger hub, potentially, will become China.

We can’t lose this country having a manufacturing-based hub. Sure, we’ll build factories around the world, but the hub needs to stay here.

INSKEEP: You’re saying we at least still need to be making a lot of things here, and making things – at least for the domestic market – at a greater rate than we do.

Mr. LIVERIS: And increasing the exports from it as a result. And then you get to the next idea and the next idea, and you keep making it here – and the next idea. And it continues a cascade where the United States continues to show the world why the last 50, 70 years was not a fluke.

INSKEEP: Andrew Liveris is the author of “Make It in America,” and he’s the CEO of Dow. Thanks very much.

Mr. LIVERIS: Steve, thank you. Pleasure talking to you.

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EXCEPTIONAL MUSH


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The following is a piece by Charles Blum of IAS Group and director of CPA’s government relations.

These are discouraging days for anyone seriously concerned about the future of our country.  In the aftermath of last month’s electoral upheaval, both parties seem hell-bent on misinterpreting the message from the people – those that voted and the many that didn’t.  The fact is that most Americans failed to support either party – and with good reason.

On the one side, we hear the mind-numbing mantra of “American exceptionalism.”  We are so special a people, this view seems to presume, that we can continue to mismanage our economy, neglect our needs, and ignore our foreign competitors without suffering the consequences.  All we must do is ensure no tax increases — especially on those most able to pay — and to starve the federal beast.  Exceptionalism is the ideology of the privileged, but its appeal traps many more citizens in the 51st state, the State of Denial, far from the realities of a global economy and the rise of state capitalism.

On the other, we are offered, according to Elliott Spitzer, “mush.”  Democrats have no coherent message and thus fall back on “mushy” calls for more economic stimulus and patching the gaping holes in the social safety net.  But where are the good jobs to come from?  Green technology?  Well, come with me to visit China sometime and I’ll show you what a commitment to green technology looks like and what kind of resources it entails.  The only competitions in which mush is useful are Iditarod and the race to the bottom.  It’s no way to win elections nor to motivate a nation.

Don’t get me wrong.  I love this country and thank God every day that when they left Germany my father and my grandfather decided to come here, not South America.  I believe in the greatness of our country and was privileged to represent it for 17 years as a diplomat and a trade negotiator.  I believe, as one of my Korean friends told me in the middle of an all-night haggling session in Geneva that “America is great because America is good.”

Just for those reasons, I sympathize with the objectives of living within our means, ensuring a sound dollar, and maintaining an open and fair trading system.  At the same time, I recognize the need for any civilized society to educate the young, retrain the older, provide decent housing and health care for all, care for the needy, and ensure an investment climate that generates good paying jobs for all those willing to work.

But as a country we have to escape this debate over “exceptional mush.”  Our problems are greater than this petty partisan debate presumes.  They are more difficult and more urgent, but we hardly speak of them.

Perhaps we can learn a lesson or two while watching this weekend’s football action.  We already know that the better team does not always win.  It’s possible for a less talented team to beat a more talented one, for an injury-riddled line up to best a healthy one, for a team on a losing streak to whip the hottest team in the league.  That’s why we bother to watch.

It might be good to contemplate how the unexpected can happen.  Sometimes it’s a lucky bounce of the ball, a mental blunder, or a bad call from the ref.  Most times, however, it’s preparation.  Football coaching staffs work almost 24/7 to devise elaborate game plans to capitalize on their team’s strengths, exploit the other team’s weaknesses, and produce victories even when not blessed by the odds makers.

On a national level, the steps to a winning game plan are pretty clear:

  • Establish a winning vision of a productive, wealth creating, financially self-reliant country.
  • Agree on overarching strategic objectives to save, invest, and produce in this country and balance our trade and current accounts.
  • Stop foreign currency subsidies.
  • Reform our tax system to rely more on consumption taxes that reward savings,  domestic production, and exports and less on income taxation.
  • Expense investment in new plant and equipment to unlock the trillions of dollars of cash that large corporations are sitting on and to promote the expansion of domestic energy production without undue political interference with market forces.
  • Support innovation and its application in this country.
  • Establish a national bank for infrastructure and energy conversion to provide reliable, long-term financing to meet our needs in transportation, communication and energy distribution.
  • Revise our trade policy to reflect the Reagan formula of reciprocity:  “free and fair trade with free and fair traders.”

There are many details to be hammered out legislatively and by regulation, of course.  But the starting point is a vision.  My friend Pat Mulloy likes to quote the book of  Proverbs:  “Without a vision, the people are lost.”  Without a vision, the American people are losing.  It’s time to work as diligently, as creatively and as urgently as an NFL staff to get a new game plan for America.  The whole word is watching.

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Daniels open to VAT, oil tax hike


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The following article by James Hohmann appeared at Politico.com here.

Indiana Gov. Mitch Daniels opened the door Thursday to supporting both a value added tax and a tariff on imported oil, bold proposals that could cause trouble for him with conservatives as he flirts with a long-shot bid for the presidency.

The Republican, staying mum about his 2012 plans, was the guest of honor at a dinner sponsored by the conservative Hudson Institute. He received an award named for Herman Kahn, the legendary nuclear theorist who founded the respected institute 49 years ago and helped inspire the character “Dr. Strangelove” in the movie by the same name.

Daniels, once the Hudson Institute’s chief executive, described himself as an acolyte of Kahn’s and marveled at the creative thinking evident in his 1982 book, “The Coming Boom.”

Daniels recited from Kahn’s book: “It would be most useful to redesign the tax system to discourage consumption and encourage savings and investment. One obvious possibility is a value added tax and flat income tax, with the only exception being a lower standard deduction.”

“That might suit our current situation pretty well,” said Daniels, who served as George W. Bush’s Office of Management and Budget director and was a senior adviser in Ronald Reagan’s White House. “It also might fit Bill Simon’s line in the late ‘70s that the nation should have a tax system that looks like someone designed it on purpose.”

The so-called VAT, common in European economies which have stagnated, is a toxic acronym to fiscally conservative activists like Grover Norquist and Dick Armey. It slaps a tax on the estimated market value for products at every stage of production. Progressives, meanwhile, loathe flat income taxes because they’re regressive and punish the poor. But some on the right have found the VAT attractive as an alternative to progressive income taxes and levies on capital gains.

Daniels also suggested support for increasing gasoline taxes. Kahn wrote, in a passage Daniels read from Thursday, “One fully justifiable tax would be on imported oil. Any large importation of oil by the U.S. raises security problems. There are, in effect, external costs associated with importing oil that a tariff would internalize.

“Now, maybe that transgresses some philosophical viewpoint of yours,” Daniels told the well-heeled crowd of 250. “But to me, that’s an interesting point today, just as valid as the day he wrote it.

“Now, none of us is Herman’s equal. But we are all his heirs, if we choose to be,” he added.

These comments come on the heels of a September profile in Newsweek, in which Daniels said tax increases might be necessary to tackle the federal deficit. “At some stage, there could well be a tax increase,” Daniels told the magazine. “They say we can’t have grown-up conversations. I think we can.”

Daniels has previously clashed with Norquist over the former’s refusal to sign the “No New Taxes” pledge.

Musing about tax hikes in speeches and interviews isn’t something a serious Republican contender usually does, but the soft-spoken Daniels’ biggest strength may be that he’s not a typical GOP candidate.

Conservative bona fides afford him the credibility to be more candid than other possible 2012 contenders. He inherited a $200 million deficit in 2004 and transformed it into a $1.3 billion surplus. He paid off the state’s outstanding debts, doubled venture capital investment in the state and reduced the number of government jobs by 15 percent. His well-established reputation as a penny-pincher makes it hard to stereotype him as a tax-and-spender.

“He thinks outside the box, and you don’t see that too often today in politics,” said former Vice President Dan Quayle, who introduced Daniels at the Willard InterContinental Hotel, just two blocks down Pennsylvania Avenue from the White House. “Because, you know, you have the conventional campaigns. You’ve got all the consultants. You’ve got things you can do and can’t do. It’s pretty well, many times, scripted. But Mitch has always been a person that would think outside the box. And that’s why, I think, he’s been tremendously successful in Indiana.”

Ironically, Quayle lost reelection in 1992 partly because President George H.W. Bush — who led the ticket — reneged on his pledge not to raise taxes. In that same year, independent candidate Ross Perot, who led what some see as a precursor to today’s tea party movement, proposed a 50-cent-a-gallon tax on gasoline to help eliminate the federal budget deficit and reduce consumption.

Milling about Thursday night were members of the old-guard GOP establishment and neoconservative luminaries from the George W. Bush-era, including Defense Secretary Donald Rumsfeld, Dick Cheney chief of staff Scooter Libby and ex-World Bank head Paul Wolfowitz.

Allan Tessler, the chairman of Hudson’s Board of Trustees, called Daniels “a rare hybrid,” a think-tanker and politician “all wrapped in one.”

That, indeed, is how he sounded in his speech: more theoretical than an average politician but not as aloof as many intellectuals who work in ivory towers.

Daniels, for his part, says he feels optimistic about the country’s future if only its leaders will “think long term and skeptically about what is commonly accepted and (then) practically, openly-mindedly following the facts where they lead.

“The people of Hudson were trained by Herman and his group to think in a way that was principled, yes, but practical, immensely practical,” he said, before receiving a standing ovation at the end of his 26-minute speech.

Former Japanese Prime Minister Shinzo Abe said word of Daniels’ stellar reputation on economic stewardship has reached Asia. “To tell the truth, we could use some of your ingenuity in facing down our fiscal challenges,” he said during the dinner’s program.

Daniels also caused a stir among social conservatives in June when a Weekly Standard story reported his proposal for a “truce” so that the country could focus on pressing economic issues. He backed off his comments, but not before serious damage was done.

In a brief interview after his speech, Daniels downplayed the significance of his comments. He stressed that he would support a VAT “under only the right circumstances,” reiterating his desire for it to be paired with  a flat income tax.

“If you think that the paramount problem for the country is the debt, and we’ll never get on top of it without really robust growth, one of the things you want is a very different, more pro-growth tax system,” Daniels told POLITICO. “And a quarter century ago, (Kahn) was writing about one. That’s all. There are other ways to get at it.”

“The point here is: think about solutions, think about outcomes,” Daniels added, when pressed on whether he’d back oil tariffs.

An aide said Daniels’ chief political focus this month is on winning control of the Indiana state House. Republicans need just three seats to claim the majority. The governor, with two years remaining in his second term, personally recruited several candidates and hopes to use them to push through significant reform legislation.

POLITICO reported last month that Daniels has been holding a series of private dinners with top Republican business leaders, policy types and donors at the governor’s mansion in Indianapolis since this spring.

Reflecting his stature, C-SPAN filmed Daniels’ speech for airing at a later date.

And Max Eden, a senior at Yale, just started what he calls the “Student Initiative to Draft Daniels” for a presidential run. He said there are eight students in New Haven already behind the effort, and that they’re already setting up chapters at 20 other colleges. The Ohio native, who met Daniels for the first time Thursday, hopes to build a large grassroots network after the midterms.

The only problem: Eden’s a registered Democrat.

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Here’s proof import tariffs save and create American jobs


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The following article by Roger Simmermaker appeared at WorldNetDaily here. Mr. Simmermaker is the author of “How Americans Can Buy American: The Power of Consumer Patriotism.” He also writes “Buy American Mention of the Week” articles for his website, and is a member of the Machinists Union and National Writers Union.

There’s been a long standing debate as to whether import tariffs are useful in either saving or creating American jobs. Over the last several years, I have settled this debate in my own mind believing it is mere logic that import tariffs do both.

Import tariffs raise the access fee, if you will, for foreign producers to be able to participate in the American market and grab their own share. I’ve found the best analogy to explain why this is necessary is the game of poker. In poker, everyone who sits at the table to share in the same pot has to ante-up the same amount. Americans don’t ante-up two dollars while Mexicans ante-up two pesos. That wouldn’t be fair. The Chinese shouldn’t be allowed to ante-up their own depressed currency pretending it’s monetarily equal to what Americans must ante-up.

The ‘pot’ in this case is the lucrative U.S. market. Everyone wants to sell to us. Still though, even fierce opponents of free trade sometimes disagree on the necessity of import tariffs. Some who advocate a more competitive America say that giving tax incentives to domestic producers is the answer. Others go so far to say that the tax rate for American manufacturers should be zero.

I have always believed, understanding that this complex issue cannot have only one ‘silver bullet’ answer, that the strongest solution is this: Instead of lowering taxes of American producers to make them more competitive with foreign companies (which pay fewer taxes to the U.S. Treasury), which is revenue-negative, we should be raising taxes on foreign producers, which is revenue-positive. In other words, do not lower our standards to theirs; raise their standards to ours.

Reducing taxes to zero sounds salivating, but that doesn’t help pay for the cost of government. Over 75 percent of all federal spending goes to pay for Social Security,

Medicare, defense, education, farm subsidies, highways, parks, and interest on the national debt. Polls show that most Americans are against “government spending” but still strongly back these programs. It’s difficult to explain how one can rally against taxes and yet support the benefits those same taxes would pay for.

Despite the popular rallying cry these days against government in general and calls to ‘starve the beast,’ there are such things as ‘good’ taxes. More taxes collected means more benefits reaped for better public schools, public libraries, and public hospitals. More taxes collected mean a stronger military and national defense, a healthier health care system, and a safer NASA space program. If we collect more taxes we will have cleaner public parks, better construction and maintenance of our roads and bridges, and well-equipped fire and police departments.

Ok, now here comes the proof.

I recently had the pleasure of talking to Harry Kazazian, CEO of Exxel Outdoors, whose company makes sleeping bags under the brand names Suisse Sport, American Trails, Disney, and Hello Kitty. Excel currently has a 30 percent share of the American market, has a 250,000 square foot facility in Haleyville, Alabama, and produces about 2 million family-style sleeping bags a year.

Exxel began their journey purchasing their facility from Brunswick in 2000, which was slated for closure at the time. The original plan was to take the customer list and ship equipment to their Mexico plant. But Exxel decided to take the long-term investment approach and found ways to produce sleeping bags for 3 percent cheaper than in China, where they had another factory.

Exxel’s ingenuity allowed them to create the most efficient sleeping bag factory in the world. They decided to re-open the Haleyville factory, close Mexico factory, bring more jobs back from China, and hire back most of their American workers. Exxel is a large employer in an Alabama region with 18 percent unemployment and wage rates that are on the upper end of Alabama standards. Exxel also provides affordable and accessible health care for employees and families.

In 2008, they added 20 percent more American jobs as they began closing down operations in China with plans to add even more American jobs in 2010 and 2011. They had come quite a long way. In 2005, Exxel made 30 percent of their sleeping bags in American and 70 percent in China. Fast-forwarding to 2010, 80 percent of their sleeping bags are now made in American and just 20 percent are made in China.

But in October 2009 things changed when Exxel discovered there was 5,000 percent surge in sleeping bags coming into America from Bangladesh, which unlike China, enjoyed duty free access to the U.S. market. Bangladesh was getting their raw materials from China – also duty free.

Under the U.S. Generalized System of Preferences (GSP) Program, all textiles are exempt from GSP duty free treatment – except sleeping bags – since there is a loophole in the GSP that says sleeping bags are not textiles.

In November 2009, Exxel met with U.S. Trade Representative (USTR) and the Department of Commerce and ultimately filed a petition with the USTR in January 2010. In June 2010 the petition was denied under the thinking that Bangladesh only held a one percent share of the U.S. market at the time. Now, Bangladesh holds a seven percent share, which is sure to grow if nothing is done and relief is not granted.

House Resolution HR 5940 and Senate Bill SB 3823 were recently introduced in congress to remove sleeping bags from the GSP. There are 12 cosponsors to the House bill to date with seven republicans and five democrats.

Let’s move these bills forward before Bangladesh increases their market share more than seven percent. Allowing Bangladesh to take a sizeable and potentially death-dealing market share from a promising and innovative American producer is like waiting for enough crash victims to die at an intersection before installing traffic lights.

If the Bangladesh market share goes to 10 percent, then 25 percent, then 50 percent or more, we’re looking at trying to bring back the dead, and it will be ‘game over’ for yet another American industry.

Here’s the proof of my point. With a modest 9 percent tariff on Chinese sleeping bags which afforded some level of protection, Exxel was able to go for a long term investment strategy that enabled it to actually produce less expensively than their Chinese competition. The absence of duty-free treatment for China gave America “most favored nation” status, and if any nation should be given such a status, it should be us.

Once America was open to zero tariffs applied Bangladesh production, a promising and growing American industry began to decline. And make no mistake; this isn’t an industry that was resting on its laurels, fulfilling some fat-and-happy protectionist scenario which is often the view of angry free traders who regard protectionism as a system that creates inefficient, lazy, American producers.

Let’s get enough legislators on board with HR 5940 and SB 3823 to save a company and an industry that is saving jobs, creating jobs, and doing their part to reduce unemployment in America. And then, let’s take with us the knowledge once and for all that import tariffs have their place is putting Americans, who are the only workers that pay taxes to America, back to work.

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9.20.10: Morici: The Decadence of Election 2010


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The following article is by Peter Morici, a professor at the Smith School of Business at the University of Maryland.

Americans are justifiably ticked off with both political parties but Election 2010 offers little hope. Democrats, Republicans, and yes the Tea Party offers little that is encouraging.

President Obama’s droning complaints about the failures of George Bush, notwithstanding, the current economic quagmire is a bi-partisan creation.

The Great Recession was caused by reckless Wall Street pay and fraud, a breakdown in sound lending standards by Fannie Mae, Freddie Mac and mortgage mills like Countrywide, and a huge trade deficit with China and on oil. The latter left Beijing and Middle East royals with trillions of U.S. dollars that they invested foolishly in the U.S. bond market and which financed the housing and commercial real estate bubbles.

Scrape away the finger pointing. All was set in motion by bank deregulation engineered by Clinton Administration Treasury Secretaries Robert Rubin and Lawrence Summers, and Bill Clinton’s deal to admit China into the World Trade Organization. The latter permitted China free access to U.S. markets while maintaining an undervalued currency and huge tariffs and other barriers to U.S. exports.

Democrats in Congress and the White House, when they occupied it, took every opportunity to block domestic oil and gas development and, led by the ever thoughtful and high minded Michigan congressional delegation, froze auto mileage standards.

If I like anything President Obama did, it was to finally impose higher mileage requirements. And initially, he pushed for more offshore drilling. Unfortunately, some tropisms can’t be overcome, and when BP disaster hit, the President punished the entire petroleum industry.

If President Bush is culpable for anything, it was to not see the gathering storm on Wall Street. But Treasury Secretary Snow was a railroad man and understood finance little, and Treasury Secretary Paulson, a shinning star from Goldman Sachs, honestly believed banks could borrow at 3 percent and lend at 5 and pay MBAs three years out of school five million dollar bonuses to create mortgage backed securities.

The best way to understand the Bush Treasury is to view the Eric von Stroheim 1924 masterpiece, “Greed.”

Whichever bunch of second rate incompetents you favor—the Clinton or Bush White Houses—one thing is clear, Obama ratcheting up government spending and taxes won’t fix what’s broke, and neither will the GOP prescription of tax cuts and deregulation.

President Obama’s two signature initiatives—health care reform and financial services reregulation—simply don’t work. The former fails to address the root problem—Americans pay 50 percent more for doctors, hospitals and drugs—than subscribers to national health plans in Germany, France and other decadent socialist European countries, and the banks are back to their old tricks.

Wall Street is hustling municipal governments into the kind of quick-fix budget schemes—like selling parking meters and airports fees—that made Greece the most historically elegant insolvent entity since bankruptcies were invented in the courts of ancient Athens. Now bankers are shoring up 2011 bonuses by hustling shoddy corporate bonds that lack adequate collateral and may never be repaid.

Republicans like Mitt Romney and John Boehner offer little encouraging. Cutting taxes and mindless deregulation are not the answer. Washington can’t forsake any revenue until the GOP trims $1 trillion from federal spending, and few believe deregulation will fix health care or Wall Street.

Republicans don’t believe in effective government solutions to health care, Wall Street, fixing trade with China, and dependence on foreign oil.

Enter the Tea Party. It really only offers a purer form of failed Republicanism. Tax and spend less, and turn the country over to the robber barons.

Americans needs a prophet—another Harry Truman or Ronald Reagan—who will level with them.

Americans must accept fewer government-paid benefits—for the rich, the poor and those in between—and must acknowledge the market works best most of the time, but it is not working in health care, banking, China, and oil.

Those mean new approaches to regulating, yes regulating, what the medical industry charges, bankers pay themselves, what Americans tolerate and buy in the Middle Kingdom, and guiding big oil and car companies to sustainable solutions.

Sounds radical but running the world has never been a choice between statism and anarchy. And running it effectively accepts that the private sector is not the enemy and government is not evil, but neither can serve the other, and us, if value is not seen in each.

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Bring our jobs back home


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The following article by Peter Navarro appeared in the San Francisco Chronicle on July 18, 2010. Navarro is a business professor at UC Irvine and co-author with R. Glenn Hubbard of “Seeds of Destruction: Why the Path to Economic Ruin Runs Through Washington, and How to Reclaim American Prosperity” (FT Press, forthcoming in September).

Smart guys like New York Times flatlander Thomas Friedman and Princeton economist Alan Blinder have been saying this dumb thing for years – manufacturing doesn’t really matter. Nonsense, says former Intel Chairman Andy Grove, who brilliantly argues that without a solid manufacturing base, there can be no innovation – or the tens of millions of new jobs we now need to forge a prosperous future.

That said, while Grove makes the case for revitalizing American manufacturing, his proposed solution – an export tariff to finance investments in U.S. manufacturing – fails abysmally to explain how we are going to get our manufacturing base back from foreign shores or why so many American executives have been so eager to offshore so much of their production.

Nor does Grove fully explain that America doesn’t really have an offshoring problem so much as a “Chinese import dependence” problem. Indeed, today China accounts for fully 45 percent of the U.S. trade deficit and, astonishingly, more than 75 percent when oil imports are excluded. Of course, much of that trade is in goods that used to be manufactured in the United States.

It’s no secret why China has been hollowing the American manufacturing base ever since it joined the World Trade Organization in 2001 – we’ve lost a third of our manufacturing jobs since then. The reason is China’s utter disregard for free trade principles coupled with a “no holds barred” industrial policy strategy expressly designed to woo (or force) American factories, technologies and even R&D facilities onto Chinese soil.

China’s free trade charade starts with its Great Walls of Protectionism. Behind those walls, China forces any American corporation that wants to enter its huge emerging market – including Grove’s beloved Intel – not only to surrender much of its technology but to also offshore a significant share of its research and development. No wonder Silicon Valley is becoming a ghost town.

At the same time, that protectionism makes it exceedingly difficult for American companies to penetrate Chinese markets, unless they move their facilities to China. And so our corporations go East.

As a matter of American policy, we need to tell China in no uncertain terms that we will not tolerate such forced technology transfers – all clear violations of WTO rules. Nor should we allow China to have its way with our markets if we can’t really enter theirs.

Besides institutionalized protectionism, China also has adopted a set of mercantilist trade practices – from high illegal export subsidies and rampant theft of American technology to a grossly undervalued currency – that likewise have pummeled our manufacturing base and driven U.S. corporations offshore. These practices make it cheaper for American corporations to produce in China and sell abroad than to manufacture on home soil.

What we need is for President Obama to fulfill the promises he made as a candidate in Rust Belt states like Michigan, Ohio and Pennsylvania to crack down on practices such as currency manipulation and illegal export subsidies. More broadly, we must pursue tough trade reforms together with the same kind of “job-centric” industrial policy promoted by Andy Grove. I strongly suggest passing a simple piece of omnibus legislation that says America will not trade with any country that systematically engages in mercantilist and protectionist practices that result in chronic trade imbalances. It need not even mention China – but its leaders will surely get the message.

We also need tax reform.

Consider the double taxation of American multinational corporations – an important conduit for selling exports to the rest of the world: They pay both foreign taxes and U.S. taxes. This puts American exporters at a competitive disadvantage while providing a strong incentive for multinational corporations to move their headquarters abroad. That’s ludicrous.

The United States has the highest corporate tax rate of any major country, save for a stagnant Japan. This high rate discourages domestic investment in everything from new plants and equipment to the development of new technologies – and thereby further fuels offshoring.

Given the depth of our economic crisis – and the Chinese rival we are up against – it is clear that America needs a more comprehensive approach than Grove’s simplistic tariff. Let’s get on with it before Silicon Valley sinks into the sea – and the American heartland loses its manufacturing soul.

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Using a Value-Added Tax For Jobs, Health and Retirement


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The following commentary from Manufacturing and Technology News was written by Brian O’Shaughnessy, Chairman of Revere Copper Products and Co-Chair of Manufacturing for CPA.

The media debate about the potential U.S. adoption of a value-added tax (VAT) has missed the mark. Strategically employed, a VAT can legally promote and protect domestic production of anything mined, made, grown or serviced in any country. The question is not whether the United States has new taxes, high taxes or low taxes. The question is whether the country has smart or dumb taxes in relation to promoting economic growth and international competitiveness. The value-added tax is a valuable tool used by 153 countries to gain a competitive edge in trade with the United States.

Americans look at a VAT as a tax on goods and services at each stage of production. This narrow view promotes the wrong idea that a VAT is a consumption tax that is regressive. Overlooked is the strategic importance of a value-added tax structure to international trade, domestic jobs and real wages.

A VAT becomes like a tariff when its proceeds are used to subsidize production in any country competing with another. The average VAT worldwide is about 16 percent. The proceeds of a VAT can be used like any tax, one of which 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 use in other manufactured goods and for the building and construction markets. Revere has a health care plan for its employees. The price that Revere gets for a coil of copper must cover my workers’ wages and salaries plus the cost of metal, energy, equipment, materials and supplies, taxes and health care costs. When a Revere product is shipped abroad, the foreign country applies a VAT. Some of the proceeds of that VAT are then used to help pay for the health care cost of the citizens of that country, not ours. In order to compete globally, my workers must produce at a cost that pays for their own health care costs and the health care costs of the workers in the foreign factory they are competing against.

When the United States negotiates a Free Trade Agreement with another country, both are required to reduce tariffs. VATs and other border-adjustable taxes are not considered “tariffs” even though they act as such. Foreign countries tax American goods to pay for their domestic programs. Canada and Mexico are good examples. Around the period of the negotiations for NAFTA, both Canada and Mexico dramatically increased their border-adjustable taxes, which then offset much of their agreed-upon reduction of other tariffs. The result was that the United States lowered import charges but Canada and Mexico did not.

Europe and the rest of the world have also lowered tariffs, but increased their value-added tax rates, leaving their import charges unchanged. They are trade-wise and strategically smart. The United States is not.

In order for a VAT to be compliant with World Trade Organization rules, it is applied by other countries to their domestic production as well as imports. But the cost of the VAT is largely offset for their domestic production by subsidies financed by the VAT for health care, retirement and taxes that U.S. producers do not receive. U.S. producers pay taxes but do not receive these countervailing subsidies. The result: The United States is not competitive.

Value-added taxes also promote exports. When a product is exported, the VAT is not applied. This means exported products are sold relatively tax-free. That’s because producers in foreign countries still benefit from the same health care, retirement and other subsidies even though no VAT was collected for exports. Thus, while export subsidies are largely banned by the WTO, the VAT rebates accomplish the same thing. Exports from other countries benefit from subsidies provided by a VAT yet still have the average 16 percent VAT deducted from their full value.

So how can the United States compete through a smart tax strategy? Again, look at a real-world example from my company. If the United States had a 12 percent VAT, it would generate about $4 million to the U.S. Treasury from my company. Revere’s health care costs are about $2.5 million per year and FICA is about $1.5 million. So with a 12 percent VAT, Revere’s health care and FICA costs could be subsidized by VAT revenues. That would give Revere a 12 percent cost advantage against imports. This 12 percent advantage gained from the subsidies would be retained for exports since a VAT is not charged for exports. What is good for jobs at Revere Copper Products is good for jobs in the USA.

Imagine how competitive mining, making, growing or servicing anything in the United States would become under such a tax regime? A strategic value-added tax system would put the United States on course to achieve President Obama’s goal of doubling exports in five years.

Companies outsource production to countries that have an attractive tax strategy. Even though many other countries have higher overall tax rates than the United States, they are still better places to produce goods or services because they have a “smart” tax strategy. The national goal of many other nations is to achieve economic growth and attract jobs by facilitating outsourcing from our country at our expense. A value-added tax is a major part of their national trading strategy. The United States does not have a national trading
strategy.

Other nations make strategic use of their VAT to subsidize domestic production so the United States can import cheap goods and export jobs. A value-added tax and numerous subsidies including currency manipulation are all part of having a national trading strategy to capture jobs from countries like the United States and ensure the growth of their gross domestic product.

GDP is equal to consumption plus investment plus government purchases and net exports (the amount that exports exceed imports). The U.S. trade deficit subtracts directly from its GDP. This explains the lack of U.S. economic growth. If net exports are positive, that drives GDP up and explains what is happening in China compared to the United States.

There is a misconception that a value-added tax would lead to increased prices in the United States by the same amount. In recent years, American producers have reduced prices in an attempt to offset foreign value-added taxes in order to remain competitive. This pressure on prices has put pressure on costs and helps explain why real wages have not grown in the United States and why investment has been flat. Similarly, a U.S. value-added tax would partly be eaten by foreign producers. U.S. producers, which would now be subsidized like foreign competitors for health care and retirement costs, would not raise prices fully if given such an opportunity to regain market share. A good estimate is that prices on a macro basis would go up by half of the VAT but would vary by product. More importantly, a VAT would cause real wages to go up and investment to increase.

Indeed, a U.S. VAT would tend to strengthen the dollar against other currencies. This would present a timely opportunity to take substantial action to offset currency manipulation by China and other Asian countries, which would weaken the U.S. dollar. Of course, that presumes the United States thinks strategically about international trade and has a national trading strategy. The strategic use of a VAT is a good place to start to solve the U.S. unemployment problem.

The United States has a patchwork of inadequate trading tactics and no national trading strategy to compete for global trade and jobs. That’s one good reason why the debate on the value-added tax lacks focus. Virtually every regulation, statute or law impacts international trade competitiveness but the biggest negative impact is the absence of a strategic VAT.

It is all about trade. Trade is what determines the location of jobs.

— Brian O’Shaughnessy is Chairman of Revere Copper Products. His company was founded by Paul Revere in 1801 and is the oldest basic manufacturing company in the United States: Brian@reverecopper.com, 315-338-2332.

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