Posts Tagged ‘Taxation’

Toward a Fair Corporate Tax

December 12, 2014

It’s past time we reformed our tax laws, including corporate/business taxes.
Others have said this, but my motives are different.
I favor a gross-receipts tax. And it must be applied equally to every sale of goods or services that takes place in this country.
I don’t care where the company originated, where it’s currently based. If that company wants access to the American market, pay the tax.
As an example, consider Toblerone. They’re a Swiss company that makes chocolate, good chocolate as a matter of fact.
They can sell their product in Switzerland, no effect on American taxes. BUT…if they sell in the US, the US buyer will pay a business GR Tax, say 10% as a ball-park figure. It might be as much as 20%, in practical terms; I’ve a reason for selecting that figure.
US companies MIGHT, I emphasize MIGHT, get a deduction for salaries paid to US workers, who pay US personal taxes. But even so, I would limit the deduction for top salaries. As for benefits, if the company wants to pay them, fold the value into individual income, and tax the entire package.
The European nations already do this. You might not be aware of it, but they do.
I’m an American, I write books, I market them through Amazon, an American company that also has foreign subsidiaries. My books sell in many of the world’s largest nations. As an example, I’ve sold books in France, in the UK, in Canada, in Australia, in Japan.
Amazon pays a Value-Added Tax, VAT, on each book I sell in the EU. Note that I’m not a citizen there, but my sales to those markets are taxed.
I think we should do the same.
Suppose every sale by a company based in the US, in Mexico, in China, in Indonesia, in Vietnam, in Korea, in Japan, paid the same tax rate as a company in Omaha?
So why shouldn’t we? A more important question is, why CAN’T we?
We’ve signed various ‘free trade’ agreements. Mexican car parts, for example, are shipped to the US where they’re put into vehicles that are sold to US citizens. There are many others. They come in essentially tax-free. Others, folks like Romney, pay taxes in places like Switzerland and deduct those from they pay their own government. They switch sales to tax havens, hide profits offshore, all while taking advantage of the US laws and the US Government.
Free Trade isn’t. It’s a scam that takes our economy out of the hands of our government and hands it over to international businesses. Those agreements are essentially worthless; other nations aren’t nearly as willing to honor the spirit of such agreements and even the lax ‘laws’ are also broken.
It’s past time this was changed.
I don’t have much hope of that, however; look at the House’s version of the Omnibus budget bill, you’ll see where the next Congress will focus their attention.

A Critique of Both Presidential Candidates, and a Suggested Tax Solution

June 22, 2012

There’s a point behind some of Romney’s criticism.
While Obama had Congressional power, he worked to get the Affordable Health Care Act passed. That took much of his political capital. Attempting to also get immigration reform, education reform, any number of other issues addressed, would simply have meant that nothing got passed, given the obstructionist aims of Republicans.
But Obama allowed Congress to work through most of this without risking his own political status. This is not the action of a strong president.
He also didn’t risk that status by attempting to address any other hot-button issue such as immigration reform.
That weakness or unwillingness is now coming around. He’s been a weak president. Put into context, that’s understandable. He’s the first Black president. A serious mistake can set back 70 years of progress in a nation that has had a history of enslavement of Blacks and oppression of minorities in general. For a lot of the Republican base, Mr Obama’s skin color trumps all of the other issues. Racism is not an issue that Republicans address; there’s a reason for that. Put simply, Republicans can count on the racist vote.
Not that I think Romney is an improvement over Obama. The policies he apparently favors, as much as any outsider can determine his real opinions regarding education, budget, the safety net, and the economy, are a disaster in the making.
He would ‘encourage private enterprise.’ I hope he has a better idea than his predecessor in the Republican Party. Encouragement then was to simply shovel enormous amounts of public money to financial firms, who were then suitably ‘encouraged’ to sit on some of that money as a cushion for future losses, skim off some of it as shareholder dividends and executive bonuses, and use some of it to acquire competitors. Supposedly, they were to loan the money in the hope that this would stimulate the economy; not being fools, they used it in ways that seemed most profitable to themselves.
That, BTW, is how you encourage industry: you decide what you want them to do, and via a carrot-stick approach (tax breaks, tax penalties) you encourage them to do that. They’re in it for the money, after all; so use that to encourage them to act in the national interest.
A Value-Added Tax, to replace the current corporate tax system, works. Say you dump the tax rate that only the foolish pay and the savvy avoid; replace it with a VAT, but suspend a portion of that tax for any product produced domestically using domestic labor. No loopholes. Set this at a nominal 15% (vice the current rate, the one that Apple and GE and Big Oil doesn’t pay), and put in a mechanism that automatically raises or lowers this depending on our international balance-of-trade. Work to keep trade within a narrow range, + or – 1% of balance for example. Trade will still happen, but not based on cost; instead, it would be based on quality. Better quality always wins out in international trade.  Nations that want to sell us goods and services would thereby be encouraged to purchase our goods and services or see that VAT rise.
In this way, everyone who has access to the US market pays for that, and those who bring goods in as imports will pay more than those who produce goods domestically.  Want to export a lot of goods to us, then buy our domestically produced goods.  If you don’t want to buy from us, then don’t plan to sell to us.  Balance of trade can easily be determined quarterly; indeed, such information is currently published in The Economist.  And the automatic adjustment mechanism (needed to take the matter out of the hands of a Congress that is far too easily bought by special interests) can take effect as soon as this information is obtained, certainly within the following quarter.
What about planning on the part of managers who might want reassurance of tax rates before they produce goods?  So long as those goods are produced domestically, the manufacturers can be sure their products won’t be undercut in price by imports.
Simple. And it encourages domestic companies to act in the national interest, not their own financial interest. That’s the kind of ‘encouragement’ that they understand.

Economic Malaise, Simplified

June 20, 2012

This essay was written in response to a column by Thomas Friedman in the New York Times, edition of June 20 2012.

Friedman like so many others misses the point, I think. He has some good recommendations, but they won’t solve the economy’s long term problems.

Put simply, in simple and easy-to understand steps:
We have a surplus of workers. Half our workforce can produce all we require in goods and services. The relentless push for more efficiency has gotten just that, and efficient economic processes need fewer workers. Machines have taken the place of men.

If those workers are to be employed, then they must be employed in activities that bring in external revenue. They must serve tourists or manufacture goods for sale offshore, and in both cases what they sell must be something that others want to buy and can afford to buy. For a time, we produced commodities that people needed: oil and coal, metals, foodstuffs. Ultimately the minerals become depleted, the few remaining become too expensive to extract and sell, and other nations could extract minerals cheaper and could begin producing excess foodstuffs using the mechanization and efficiency developed here. Manufacturing, e.g. value addition, and tourism are what is left. And that need to produce competitive pricing means that our unrestrained capitalism must be controlled. Unions demand more, executives demand more, finance demands more, taxation demands more…but when the demands price the US economy out of the market, no one wins. Union workers are laid off, management sees the company decline toward bankruptcy, finance loses what it invested, there is nothing left to tax. The inflated manufacturing sector drags the economy down with it. Only by requiring readjustment of currencies (i.e., a cheaper dollar vs the euro and yen and renminbi) can this adjustment realistically be made. It’s not unilateral; those other currencies and the nations that issue them are involved, and so this is a government issue that only governments can address.  And a consideration to be factored in is that those who hold dollars will see their holdings decline in value.  Governments and banks will take major losses if there’s a decline in value of the dollar.  What helps our economy harms them.

Currency adjustment affects balance of trade. That trade cited above is the basis for a functional economy that employs those excess workers and that can support a large middle class. Our government is now controlled by a few who are positioned to exploit niches and extract riches from the status quo. But that status quo is unsustainable; it’s destroying the very economy it depends on. Those who once manufactured goods for external sale are now importers and salesmen; few goods go out, many come in. Foreign competitors have been joined by Americans who do the same thing those competitors do, compete with the domestic economy.  And money flows FROM the economy, not into it. Instead of employing our surplus labor making goods for export, we now employ foreign workers in foreign nations to do the work and bring the results of that work here. Economically, this is no different from firing American workers and replacing them in our plants with cheap foreign labor. It’s the problem that people cite when they oppose unchecked immigration; but the real job loss is not here, it’s THERE, when the job itself is exported. Exported jobs destroy the middle class.  Pressure on the middle class comes not solely from foreign competitors but also now from our own upper classes who have joined the foreigners in putting pressure on rather than sustaining that middle class.  The Walton family, despite claiming American citizenship and measuring their billions in dollars, have economically become Chinese.  Their economic activity benefits China at least as much as it benefits the US; and of course, it benefits them financially.

The other thing affecting trade balance is the concept of ‘free trade’. This type of agreement effectively removes government from trade and turns all trade decisions over to for-profit entities. In so doing, our inflated economy produces goods that foreigners can’t afford to buy and floods our markets with cheap goods that we can’t compete with on a pure price basis domestically; again, it’s that inflated economy that makes this happen. Regulation of trade is a government function; it’s done by imposing taxes or tariffs on imported goods to slow down the flood of imports that saturates the American market.  But no one in government is prepared to do anything except press for more ‘free trade’, without realizing that this means free imports without corresponding exports.  We freely buy but cannot freely sell.

Only a robust middle class can support our government. That government has been squeezed and faces further pressure. Middle class people can’t afford private schools for their children, they can’t afford to provide for themselves after they’re unable to work, they can’t afford to pay for expensive healthcare. Our middle class lifestyle actually is subsidized by the government we’ve built. That government needs income to provide these things. That income must ultimately rest on taxation. Borrowing is a short-term solution that is ultimately unsustainable. We are currently approaching that limit of sustainability.

The middle class is being squeezed ever smaller; the upperclass now controls the government that has the power to save that middle class. The mechanisms that provided education and housing and health care and retirement are being destroyed, even as the government that provided them is being destroyed. All wealth now flows not into the middle and underclasses but only to the wealthy, who become wealthier thereby.  Government policy protects that wealth.

And so we’ve rebuilt a system of nobles and serfs. The nobles profit by rents, from lands and properties occasionally, but mostly from renting out the money they’ve extracted. They live well not by producing more, but by extracting wealth from rents. They remain wealthy because they ARE wealthy.

It’s not sustainable. Never has been, never will be. The traditional solution is violence, the kind of violence that pushed the American Revolution and the later French one. At some point, the level of unsustainability will reach that tipping point. It’s not here yet, but it appears certain to come.

If I can figure this out, why can’t our elected leaders? Why are they so unwilling to act before a crisis overtakes us, a crisis that we can’t recover from?

And why do we keep putting the venal and stupid and uncaring in positions to control our lives?