Skip to comments.How to fix the problem of off shoring
Posted on 03/12/2004 3:19:27 PM PST by det dweller too
The problem of off shoring jobs isn't fixed by limiting free trade, the problem is fixed by changing our tax STRUCTURE that is causing an UNSTABLE economic condition. By our emphasis on the income tax to fund government, we have put the burden on US residents to pay for ALL the costs created by government activity. Those costs become folded into our cost of living and become part of the cost of anything made here. Meanwhile some businesses have figured out they can avoid all those costs and keep their prices low by going outside of our borders.
In 1913, after much struggle and debate, congress got the income tax incorporated with the passage of the 16th amendment. Prior to that, almost all federal revenue was from tariffs. We also had a bad experience with commodity taxes before the revolution [remember the Boston Tea party and no taxation without representation], and the tariff was causing trade wars. But the final straw was that the tariff-based system just wasn't bringing in enough money for those politicians plans.
And the initial income tax rate was very mild, just 1% starting at 5X the median income. So even after the income tax was incorporated, the majority of the revenue still came from tariffs on imports. Interestingly in 1913 the Federal Budget was only about $1 Billion! Today it's about 2,500 times bigger.
Today 90 years later those horrible tariffs are gone, the nanny state is huge and expanding rapidly and virtually 100% of the cost of all this is born by the US taxpayer. By a cruel twist of fate, none of these costs are born on products and services that are sold here as long as those things are NOT made by any US citizens or residents. This is outrageous! The income taxes, corporate taxes, regulations and lawsuits drive the cost of living and producing products and services HERE through the roof and make it nearly impossible for us to produce anything HERE that we can sell HERE.
This is where the problem solving should be done. Shift some of the taxes from income to commodities.
..........TAX PRODUCTS ........... NOT PEOPLE!!!
If there is a tax on commodity sold in this market, and it is the SAME tax rate regardless of where it came from, then nobody can complain. This is fair because it costs something to keep this market here. There are no open sewers on the side of the streets, or thugs with machine guns in pickup trucks roaming the streets, or government officials demanding payoff. This is a peaceful, well ordered and the most profitable market to sell in. Remember, they are coming HERE to sell. It is entirely within our rights to expect ALL merchants selling HERE to pick up some of the costs of having access to this market.
Some will argue that sending jobs overseas has been going on for a long time and the net effect is good, that those are all low tech low pay jobs and that this change opens up opportunity here for the better jobs. Well it looked like that was happening for a while because the technology here could make productivity and quality advantages that could more than offset the cost advantage of going overseas, but nothing stays static. Flush with money from the increased business over the last many years, overseas operations have made quantum leaps in productivity, quality and service. Add the effect of broadband internet connections that put a supplier in China only one mouse click away and you have a situation where a foreign company can match any domestic source for quality, service, selection, delivery, etc. and overwhelm them with low pricing.
An analogy may make it easier to see. Suppose you have a big department store in a town that was very popular. This store offered a place for the local clothing and goods suppliers to sell their products, and in return asked for a 30% cut for the store. Now this system worked fine for many years, then one day some suppliers came in from out of town and, because of a quirk in the contracts, didnt have to pay the store their 30% cut. At first these out-of-towners only made a few lower quality, inexpensive products and nobody was very concerned about them. After a while though, these out-of-towners started to improve. They slowly got into the higher priced and higher quality products and because they didnt have to give the store a cut, they could beat everyone on price. The local suppliers worked feverishly to compete by cutting costs, then wages, then staffs, then products, but they couldnt overcome the advantage the out-of-towners had on pricing. Then the store told the remaining local suppliers that they had to increase their cut to the store to 40% to keep it open. Soon the local suppliers were so financially weak that the out-of-towners could get any business they went after and the local suppliers started to disappear. In the end, the out-of-town suppliers had nearly all the business, and the store went bankrupt.
Leaving the effects of regulations and lawsuits aside for now, If we want to have a stable society again, what we need to do is reduce personal and corporate income taxes and add the equivalent in commodity taxes. The net tax burden on US citizens and residents would not change, so it will be a tax shift and not a tax cut. But for the first time people who bring imports to the market will contribute to the cost of having that market there. The products and services made in this country will be more competitive, economic stability will return and costs will go down, and EVERYONE will be PAYING THEIR FARE SHARE!
The scoring itself could be done by a panel of 100 regular Americans selected randomly on a periodic basis.
Only people can pay taxes. You can change the basis for the tax assessment, but it will still be people who pay it.
And yes, people (American people) will still pay for the tariffs. They'll pay because the price of the product is higher after the tariff has been levied.
I am certainly no fan of the current income tax system, but I just don't see what this would accomplish.
Free trade bump.
IE, if taxes were 0% or 50%, it doesn't matter.
Modern outsourcing is due to differential wage rates - just one cost of business. To decrease that cost jobs are outsourced to lower wage areas, or illegals and mass immigration is insourced to depress wages at home for jobs that can't be imported.
It's a reality, it's govt. policy.
The analogy ends before that, but to continue it: The out-of-towners then buy the store and bring all the rest of their goods over. They set up a system for every supplier to pay a fee, but then give their suppliers a secret rebate with bank transfers back in their home town. They may be unscrutable but they are not stupid.
Perhaps you missed the dynamics. First the income tax is removed for the domestics, then a tax on the product is added for everyone. That makes the cost basis for the products either the same or much closer to equal. now the imports can't undercut the domestics into bankruptcy.
If I make a widget for $10 and the domestic can't make it for less than $13 then I can sell it for $12.50 and watch him starve to death trying to compete while I thrive. If it costs both of us $13 then we have the basis for real free trade.