Now or Never

A new poll conducted by sponsors of the upcoming FABTECH/AWS/Metalform tradeshow reminds us that now is the time to hop on board the tax reform bandwagon. Why?
In this survey, executives cited these six obstacles as the leading barriers to growth:
1. Lack of employee skills (27 percent)
2. Oil prices (20 percent)
3. Tax policies (11 percent)
4. Weak U.S. dollar (10 percent)
5. Financial commitment in Iraq (9 percent)
6. Credit crisis (7 percent)

Notice that tax policies is the lone barrier – the only one – that we, as voters, can make a direct, immediate impact on during the upcoming elections. Think this through for a moment.

The upcoming federal elections will decide the president and vice president of the U.S. Both presidential candidates are promoting their ?blueprints for change? around altering our nation’s tax infrastructure, particularly where it relates to health care, the environment and other hot button issues. The upcoming elections will also determine more than 30 seats in the U.S. Senate and the entire House of Representatives, where all tax legislation originates. These opportunities to influence change in our current tax policies make the upcoming elections extremely important to our industry.

With our economy slowing in several sectors, we must change our tax policies so American manufacturers can be more competitive around the world. Today, nearly 70,000 pages of tax code cripple our competitiveness. According to Representative John Linder (R-GA), our tax code has ?driven $2 trillion into the underground economy, costing us about $50 billion in tax collections. Our tax code drove $12 trillion into offshore financial centers – funds that should be working in our markets and banks. We spend between $400 and $500 billion each year just complying with the code. That money is a total and unnecessary loss to the economy.? This severely disadvantages us in the global economy, because these expenses must be added to the price of the goods and services being sold.

We must change our tax policies because the challenge to our economic supremacy by 1.3 billion Chinese and 1.1 billion Indians is vastly greater than anything we’ve ever faced. Indian capitalism and that weird Chinese merger of communism with free market initiatives are creating a brave new world right before our eyes, one where they will eventually control one-fourth of the world’s markets.

Quick sidebar: Our love-hate China syndrome is particularly intriguing. Competing against them, we, the world’s greatest debtor, take on a powerful nation with a large $363 billion trade surplus. Our current account deficit is $987 billion, an amount larger that the total deficits of all other countries in the world combined. And this comes on top of the $53 trillion in unfunded liabilities our government owes.

So we are the world’s worst credit risk. And who do we rely on to finance our consumption, our wars, our handouts, and the daily operations of our government? China, primarily. But that’s a discussion for another day.

So how should we specifically change our tax policies? Many tax reform advocates have proposed competitive strategies. Former Republican Speaker of the House Newt Gingrich, for example, wants tax incentives for American firms to make acquisitions so that the U.S. becomes the center of the world’s executive talent. He wants a tax code that favors work, savings, investment, productivity, and creative entrepreneurs. Gingrich would abolish the death tax permanently so that entrepreneurs, family farmers, and business owners would no longer fear losing their life’s work to the tax collector. Amen.

Others offer plans to eliminate capital gains taxes and encourage investing. All of these could dramatically accelerate our competitive development.

I personally desire something beyond policy changes. I want a radical transformation, one that eliminates our current tax system altogether. I support the simple 132-page FairTax plan promoted by Rep. Linder (HR 25/S 1025) that repeals all current taxes imposed by the Internal Revenue Code on income and wages, including individual, corporate and alternative minimum income taxes, capital gains taxes, estate and gift taxes, and Social Security and Medicare taxes.

The FairTax replaces all of these taxes with a single 23 percent tax (tax-inclusive) rate on the final retail sale of goods and services used or consumed in the U.S. The plan then amends the U.S. Constitution so that the income tax will never return.

If that wasn’t enough, this system also fully eliminates the current self-imposed tariff against American manufacturers. We now have a negative trade balance in goods with every principal nation and region. Our trade deficit is approaching $600 billion per year (more than 5 percent of our GDP), yet we fail to address the increasing reliance on border-adjusted taxes by our trading partners.

Virtually all (29 of 30) OECD nations and China employ border-adjusted consumption taxes that are rebated on exports and levied on imports at an average rate of 17.7 percent ad valorem. These border-adjusted taxes legally enhance the competitiveness of exports. Since these nations turn around and levy consumption taxes on imports, our goods are effectively being double taxed – we pay U.S income and payroll taxes, plus foreign value-added taxes. But foreign goods sold here carry no foreign consumption tax, nor any appreciable U.S. tax.

The FairTax completely removes the self-imposed tariff now imposed on U.S. produced exports. It does not tax goods or services used or consumed outside the U.S., but taxes imports the same as U.S produced goods when they are sold at retail in the U.S. This is why the FairTax can play a central role in revitalizing the American manufacturing base lost to foreign competition and return high-wage manufacturing jobs from overseas back to our land. I believe it is superior to the current tax system and the other alternatives being considered by Congress.

What do you think? Those elections are just over the horizon. Hop on board the bandwagon. Now is the time.

Mike Riley is the editor of Fabricating & Metalworking magazine. Share your views with him at 205-681-3393 or [email protected].