Reverse Tariff – Economic Crisis Due to Free Trade’s Flaw

What is a reverse tariff? Like a tariff [3], a reverse tariff is a tax on imports. However, a reverse tariff is defined here as a tax on imports paid on trade deficit goods and/or services, by the importing country’s citizens due to trade deficit tax loss consequences. This presents an economic flaw of free trade. Therefore there are two key differences. The first is that instead of the importer paying the tax, the importing country pays the tax through tax losses. The second key difference is that the tax losses are created by a trade deficit. Therefore, it is solely a tax only on trade deficit goods and services, since it is the trade deficit that causes the tax losses. These tax losses are real and effectively add to a country’s national debt making it a debt that every citizen owes and must pay. Therefore, if you live in the United States which has massive trade deficits, it can and does cause economic hardship. To understand this we first need to comprehend why there are trade deficit tax losses? How do these come about?

There are both quantitative and qualitative reasons for tax losses. We will discuss the simpler qualitative reasons and provide the interested reader with reference to the quantitative ones. Here are basic examples of qualitative reasons for tax losses.

– Imports create decreases in federal tax revenues for various reasons, such as products made by non U.S. citizens who do not pay federal tax compared to products or services that would have created tax revenues if the products were not imported. Thus as U.S. made goods are replaced with foreign imports, so too are U.S. jobs and lost taxed wages in addition to unemployment benefits. Seemingly temporary, yet U.S. displaced workers occur frequently enough that the U.S. taxes burden is yearly.

– The U.S. trade deficit, now over $7.5 trillion since 1971 [4], provides extra dollars to foreigners who can reinvest and buy treasuries and American businesses [5]. IRS data shows that foreign-owned corporations doing business here typically pay far less in U.S. income taxes than do purely American firms with comparable sales and assets. This is because it is hard to determine how much of a corporation’s worldwide earnings relate to its U.S. activities and therefore are subject to U.S. taxes. There are many other tax issues that create serious tax problems [6]. One key issue is that foreigner ownership produced few U.S. jobs ~3.5 percent [7], while they own more than 15 percent [5] of all U.S. businesses.

– Many U.S. CEOs outsource jobs creating service trade deficit tax losses, these “imported services” decrease potential tax revenues of the company’s workforce compared to non outsourcing. This also creates higher unemployment. Unemployment causes more lost tax dollars due to U.S. government subsidies until workers can recover.

– U.S. companies’ off-shoring manufacturing find as much as a 15 percent tax reduction due to both tax loopholes and lower tax in other countries.

– Foreign profits from the trade deficit that are reinvested typically do not provide the tax revenue that U.S. citizen reinvestments may provide. For example, currently foreign reinvestments are considerable in U.S. government obligations for the U.S. national debt and now total about $3 trillion. This provides tax liability as the U.S. has to pay interest on this money to foreigners. On the other hand, U.S. citizens pay taxes on many of their reinvestments when owning U.S. business and equities. Foreigners who reinvest in buying U.S. business will also engage in job outsourcing once a U.S. business is taken over.

These are basic examples, but serve to help in understanding the reasons for tax losses from a trade deficit that creates the reverse tariff. Therefore, the trade deficit reverse tariffs mainly originate from job outsourcing, product outsourcing, and off-shoring a country’s factories and the ripple effect to our economy.

The next question to ask, how do we know that it is primarily due to the trade deficit? To answer this question requires a quantitative assessment. This author has provided a quantitative analysis from a correlation study between the free trade deficit and the national debt. This is published in my book and on a public website [4]. The actual dollar amount of the reverse tariff due to any yearly country’s trade deficit is not quantified by any government to this author’s knowledge. However, the findings that are published do show that as the trade deficit is reduced, the effect on the national debt is reduced [4]. Said another way, mathematically it is shown that when global trade is balanced (equal trade) no tax consequences exist. This is a key result in that it explicitly shows the economic flaw of free trade, its trade deficit’s reverse tariff.

These are Free Trades Economic Flaw that can be interpreted as an illegal tax and actually violates the World Trade Agreement when thought of as a “reverse” tariff (tax) on imports. There are also possible unconstitutional issues as well as described in reference. [5]

Dr. Alec Feinberg is the author of the Truth of the Modern Recession and founder of CitizensForEqualTrade.org. You may contact the author at ModernRecession@comcast.net.

References:

2. http://www.opednews.com/articles/Biggest-Threat-to-America-by-alec-feinberg-100609-154.html, Biggest Threat to America’s Future –” The U.S. Free Trade Deficit – Key Facts

3. http://en.wikipedia.org/wiki/Tariff

4. www.CitizensForEqualTrade.org

5. http://www.reuters.com/article/idUSN2744743020080827

6. www.ctj.org/hid_ent/part-2/part2-3.htm, “Tax breaks for multinational corporations”

7. http://www.nytimes.com/2009/10/18/business/18excerpt.html?_r=1

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