By ERNEST F. HOLLINGS, former U. S. senator
JULY 21, 2009 -- The administration now says it underestimated the severity of the economic downturn. But the truth is it overestimated the effect of stimulation. In the Bush eight-year term, we increased the debt or stimulated the economy $5 trillion. In the same period, household debt increased or stimulated the economy an additional $7 trillion, for a total of $12 trillion stimulation in eight years. This year's deficit has already added another $1.5 trillion additional stimulus and we are still losing jobs like gangbusters. Stimulation has spent its effect.
must turn to globalization and the loss of jobs from offshoring. Globalization
is nothing more than a trade war for market share with production looking
for a country cheaper to produce. Japan started this trade war for market
share after World War II by closing its market, subsidizing its production,
and selling its export near cost, making up the profit in the closed market.
It worked. Toyota is No. 1 while GM declares bankruptcy. Now China has
the supermodel of a closed market, controlled labor, and protectionism
for its production and trade as the United States blindly cries "protectionism"
and remains AWOL in this trade war. Two years ago, the Princeton economist,
Alan Blinder, estimated that the country is losing three to four million
jobs a year to offshoring. The principal problem with the economy is that
it is being offshored. The United States must come in from the cold and
engage in the trade war. Fortunately, we can do this by solving the problems
now facing Washington.
current level of a private sector output, each 1% of that would raise
approximately $131 billion. One percent more over ten years would raise
the $1 trillion, 310 billion, needed for health care and, for good measure,
another 1% would pay for the final cost of health care and stop deficit
take some time for business and the IRS to gear up for a VAT. That time
is best used now by canceling the corporate tax and making the 5% VAT
effective in 2011 - after the election in 2010. At present, trying to
pay for health costs, we are turning off different groups with payroll
taxes, health benefit taxes, soft drink taxes, Medicaid costs, small business
taxes, sur-taxes, deficit spending, unfunded mandates, etc., organizing
the defeat of health care. Instead, we should turn on these groups to
support health care by replacing the corporate tax with a 5% VAT. I understand
that Larry Summers wants to withhold a VAT for tax reform. But the most
difficult part of tax reform is instituting the VAT for mere reform. With
a VAT in place, Summers will have solved half of his headache of reform.
A 5% VAT now will solve the problems of tax cuts, deficit spending, the
cost of health care and make Corporate America more competitive in international
trade. Instead of offshoring the economy, we can repower our economy.
Senator Hollings of South Carolina served 38 years in the United States Senate, and for many years was Chairman of the Commerce, Space, Science & Transportation Committee. He is the author of the recently published book, Making Government Work (University of South Carolina Press, 2008).
© 2009, Ernest F. Hollings. All rights reserved. Contact us for republication permission.
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