Sunday, November 1, 2009

Go, Senator Hollings -- End "Free" Trade

My comments on a post by Senator Fritz Hollings on the Huffington Post: "Perfect Desertion"
Good stuff, Senator Hollings.

I'll put in my two cents, and reiterate some of your previous arguments:

Free trade is bad policy unless the foreign businesses we trade with adhere to exactly the same labor and environmental rules (and incur the same costs) as businesses in the U.S.

Wages may be lower elsewhere, but when they are, it is also generally true that workers have little or no collective bargaining rights, few or no worker safety rules, little or no worker compensation for on the job injuries, and little or no health care. Low wage countries also often ignore the environmental impact of unsound manufacturing processes, rendering air and drinking water toxic. All this eventually leads to civil unrest and global environmental impact. Both of which cost everyone when supply chains are disrupted, and landscapes and species are destroyed.

A VAT is preferable to corporate taxes, as you point out in earlier posts, since most corporations only pay about 3% corporate income tax on profit -- not the mandated 27% -- because they hire lawyers and accountants to move profits offshore. So, lawyers and accountants benefit instead of U.S. citizens who subsidize the corporations with infrastructure and defense investments (not to mention property tax rebates, and other incentives, paid for relocation). Plus, any economist will point out that corporate income tax is passed on to consumers in the form of higher prices. With a VAT, at least, taxes paid by consumers go into public coffers instead of personal incomes for accountants, lawyers, and executives (27% levied minus 3% actually paid = 24% retained by corporate entities).

Further, a VAT benefits the national economy by discouraging consumption (tax on final sale -- regressive, but remember, corporate taxes are passed through -- equally regressive), while encouraging production (no taxes on manufacturing supply chain costs, just "value added" -- corporate profits). This, in turn, reduces prices to the consumer (demand is down), and encourages exports (price is down because domestic demand is down). Plus, most nations refund all or some VAT taxes paid by manufacturers when a product is exported (China, Europe, etc.), which further encourages exportation rather than leveraged (credit card debt) consumption at home. Finally, to alleviate regressive impact, we need not charge VAT on necessities like food, utilities, and medical care.

I hope all that reads true. I'm sure many will take issue, but I think the arguments against free trade and for a VAT are indisputable. Someone just needs to sell 'em. Go, Senator! (visit former Senator Hollings' web site:

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