Five misconceptions

By ERNEST F. HOLLINGS, former U. S. senator

OCT. 17, 2011 -- Ezra Kline published in The Washington Post (10/9/11) a 7,000 word analysis of what Washington should have done to create jobs. And Eugene Robinson in The Washington Post (10/11/11) states: "… I love that the Occupy protests … are aimed at just the right target."


Hollings

We need to correct five misconceptions to create jobs now:

1. That the demonstrators in Wall Street are "on target."

They should be at the White House and the Capitol in Washington. They mistake result for cause. Business doesn't create the business climate. Government does. Business in Wall Street is only taking advantage of the business climate or economy that governments develop. The government of the U. S. has developed an open market with anti-trust laws. But China has developed a closed market, causing Corporate America to off-shore to China its production and jobs to make profits to invest in Wall Street.

2. That the economy is in a "cylical downturn" or "in the worst recession since the depression."

The recession of 2008 ended in June 2009. Rather than a lack of confidence in the economy or consumer demand, the trouble with the economy is the off-shoring of the economy - investment, research, technology, production, jobs, payrolls - the economy. When the Clinton Administration passed NAFTA, admitted China to the World Trade Organization, and gave China most favored nation status, the economy hemorrhaged off-shore. Now, we're in globalization or an economy war with Corporate America fighting for China, Vietnam, India, Brazil, etc. Our challenge is to get Corporate America investing in America and fighting for America.

"If President Obama enforced our trade laws, it would put a tourniquet on the hemorrhaging of our economy. "

-- Hollings

3. That you can't spend to stimulate the economy to create jobs and balance the budget at the same time.

You can do both. Take the tax benefit to off-shore jobs and give it to Corporate America to on-shore jobs -- cancel the corporate income tax and replace it with a 6% value added tax. This releases $1.2 trillion in off-shore profits for Corporate America to invest and create jobs in the United States. Last year, the corporate tax produced $194.1 billion in revenues. A 2010 6% VAT would have produced $700 billion in revenues. $70 billion in exemptions for the poor leaves $630 billion to pay down the debt. Replacing the corporate tax of 35% with a 6% VAT amounts to a tax cut. This tax cut creates the business climate that will bring Corporate America home. And it creates millions of jobs and billions to pay down the debt.

4. That the value added tax is too complicated.

The VAT is very simple. Rather than a tax on retail sales and on the sales price, a VAT is a tax on every sale - not on the sales price - but only on the seller's mark-up or value added. A VAT is a tax on consumption - the more you consume, the more you pay. Since the rich spend more, they pay more taxes. Since the poor must spend most of its income on food, health and housing, exemptions are allowed. You either pass the VAT on or pay it yourself. The VAT is self-enforcing, eliminating much of the Internal Revenue Service. This cuts the size of government. The VAT is rebated on exports, promoting exports, creating jobs. A VAT has no loopholes, producing instant tax reform. But the tax lawyers and tax lobbyists will howl. With no loopholes, the VAT eliminates most of the Washington lobbyists. The tax lobbyists howl: "A VAT increases the state sales tax." It doesn't. It cuts the federal corporate income tax of 35% to a 6% VAT. The people and corporations like the VAT. That's why 141 countries compete in globalization with a VAT.

5. That the tax cuts in President Obama's jobs plan for workers, firemen, policemen, and teachers, create jobs.

They retain but don't create jobs. "More than half of it [the jobs plan] is tax cuts." Business Week (9/19/11).
The better jobs plan would be enforcing our trade laws. Instead of bailing out the auto industry, we should have imposed a quota on auto imports like Brazil. Instead of begging Russia for helicopters for Afghanistan, the President should enforce the War Production Act of 1950 like President Kennedy did in 1961.

Instead of passing legislation that counters China's Rimini devaluation, the President should impose a surcharge on imports like President Nixon imposed in 1971. Enforcing our trade laws like President Reagan enforced the trade laws, saving the steel, motor vehicle, computer, and machine tools industries, would create millions of jobs. If President Obama enforced our trade laws, it would put a tourniquet on the hemorrhaging of 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 Making Government Work (University of South Carolina Press, 2008).

© 2011, Ernest F. Hollings. All rights reserved. Contact us for republication permission.

About Fritz Hollings

Ernest F. Hollings served the public for 56 years -- 38 years in the United States Senate and as South Carolina's governor, lieutenant governor and a member of the S.C. House of Representatives.

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