Paradox solved

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


MARCH 31, 2014 -- Robert Kagan writes in the Washington Post (3/27/14): "President Obama's Foreign Policy Paradox." Kagan details in his column policy by policy how President Obama gives "the American people the foreign policy they want", but in a poll only 36% approve of the President while 49% disapprove.

The paradox is domestic policy; partially explained by Harold Meyerson's: "The Coming Job Apocalypse" in the same Washington Post. Meyerson tells of the job decline in the U.S. caused by "trade policy", "offshoring" and "technological automation". To prevent this apocalypse, Meyerson lists: "A massive government program to build and repair infrastructure; preschool education and elder care that the nation needs…" Amazingly, Meyerson fails to list the President's duty to limit the offshoring.

The Princeton Economist Alan Blinder, in December 2006, estimated that in ten years the U.S. would offshore 30-40 million jobs. Now, economists blame the Great Recession for the lagging economy. The recession has been over for four and a half years. Offshoring is the culprit. Corporate America continues to offshore its research, innovation, technology, production, jobs and payrolls. We can't outlaw offshoring but we must acknowledge the President's duty to limit offshoring enough to build and maintain a strong economy.

Entering the sally port of PT barracks at The Citadel, there is a bronze plaque by Robert E. Lee: "Duty is the sublimest word in the English language". President Obama has a duty to compete in globalization; to make it profitable for Corporate America to invest and produce in America; to enforce trade laws against Japan and China's closed markets and predatory practices and to protect production vital to a strong economy. We can't wait on imports to defend ourselves. Harry Truman enacted the Defense Production Act of 1950, guaranteeing defense materiel for the nation when needed. President Obama fails to enforce the Defense Act. As a result, General Motors went bankrupt and President Obama was begging Russia for helicopters for Afghanistan.

160 countries compete in globalization with a value added tax that is rebated on exports. The Corporate Tax is not rebated. An entrepreneur in the U.S. has to pay the 35% Corporate Tax on his production and is levied a 17% VAT when his exports reach China. A competitor in the U.S. can produce the same product in China, import it tax free into the U.S. and put the entrepreneur out of business. Our competition in globalization uses the VAT to put Detroit into bankruptcy. BMW, Toyota, Nissan, Volkswagen, Kia, Hyundai et al ship the parts to the U.S. tax free, assemble the parts in the U.S. at little profit and put Detroit into bankruptcy. Time Magazine (3/31/14) just published a puff piece: "Built in Detroit". Shinola, a U.S. Corporation, imports the Swiss parts under a joint venture and assembles watches as BMW assembles cars. If we don't adopt a VAT, the U.S. will go broke

Replacing the 35% Corporate Tax with a 7% VAT releases $2 trillion in offshore profits for Corporate America to repatriate tax free and create millions of jobs. CBO estimates last year's Corporate Tax produced $288 billion in revenues. A 7% VAT for 2013 would have produced $945 billion - enough to stop the borrowing and balance the budget. This tax cut produces billions to develop a Social Security Trust Fund by raising the cap of $117,000 to $200,000 and using all Social Security revenues to pay for Social Security. The VAT has no loopholes - instant tax reform. The VAT is self-enforcing - cuts the size of government (IRS). The multinationals pay little tax while the Main Street Merchants pay the full 35% corporate tax. This helps small business.

Finally, President Obama has a duty to protect vital production. The United States was built on protection - the Tariff Act of 1787, two years before the Constitution. Protection worked so well that Edmund Morris relates in Theodore Rex that after a hundred years the Colony was " $25 billion richer" than the Mother Country. Lincoln protected steel; Roosevelt protected agriculture; Eisenhower protected oil; Kennedy protected textiles and President Nixon protected the economy in 1971 by imposing a 10% surcharge on all imports when our deficit in the balance of trade was nearing $2 billion - today $474 billion.

Wall Street, the big banks and Corporate America want to keep the offshore profits flowing, so they contribute to President Obama to avoid his duty; to do nothing. President Obama does nothing. Paradox solved.

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).

© 2014, Ernest F. Hollings. All rights reserved. Contact us for republication permission.

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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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