Tax Reform and the Return of Tariffs
To compete globally the U.S. must export. Our country must become a strong manufacturing nation again. Tax reform will be needed if we wish to compete with foreign nations. The value-added tax, or VAT, is the most widespread and successful taxation system in use around the world today. More than 140 nations utilize the value-added tax system as a means of building government revenue.
Unfortunately, the VAT also acts as a means of blockading American exported goods to nations that use a VAT. The value-added tax is applied to every good and service inside a country’s economy, making their own domestic goods cheaper.
Germany charges a 19 percent VAT on products entering the country and offers rebates to their companies when they export. This gives Germany a huge advantage over manufacturers in the U.S. Foreign companies can afford to charge less both at home and here in the U.S., while our companies are forced to charge more to cover the cost of the foreign VAT.
We can prepare to compete overseas with tax reform. We can do this by implementing a VAT, which has been adopted very successfully by all of our competitor nations. We should follow their lead. A VAT would not tax food or children’s clothing. It would also allow U.S. personal taxes to be lowered and business taxes to be dramatically lowered.
In addition, we must return to the systematic use of tariffs. Our country was built on tariffs. They paid for American railroads, wars, and even the government until 1913. We can then use the money earned through tariffs and a VAT to subsidize American exporters, just as our competitors are doing to us now. The U.S. would have the funding to rebuild our infrastructure and allow our transportation to catch up with the rest of the developed world. This would mean jobs for Americans. However, all building projects must include Buy American provisions, or we will continue to watch American wealth pour overseas.
As we raise tariffs, so will our competitor nations. We should negotiate with countries one at a time, making trade and competition with other nations fair. As the playing field in other countries levels out compared to ours— wages rise, environmental standards are imposed and enforced, currency manipulation ends — we can lower the tariffs we impose on goods from those nations. In the interim, we can still tax imports on top of the tariffs, as other nations do to us currently.
With consumer spending making up 70 percent of our GDP, and 70 percent of that money being spent on foreign-made products, there would be enough money from a VAT and tariffs to dramatically lower the income tax.
Foreign nations will still need a place to sell their products, and Americans will have to buy them until we get our manufacturing going again. However, this would mean more money in the pockets of Americans as the government will have the funding to stimulate domestic production. Production jobs lead to shipping and sales jobs. These in turn create more jobs.
In the short term, prices for goods will go up. In the long term, however, with the return of good paying jobs, Americans will be able to afford them. Otherwise, if we stay this course, unemployment will only continue to rise. T-shirts that cost $5 may be very appealing, but who will be left to wear them when consumers without jobs cannot even afford a $1 loaf of bread?