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Message 3002
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| Subject: | [socialcredit] "Is the US Tax Reform Commission's Recommendation a Return to Protectionism?" (CITS Capital & Debt Watch) | | Date: | Wednesday, November 2, 2005 10:31:34 (-0500) | | From: | W. Curtiss Priest <bmslib @...edu>
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W. Curtiss Priest, Ph.D.
Center for Information, Technology & Society
466 Pleasant Street Melrose, MA 02176
E-mail: BMSLIB@MIT.EDU, Voice: 781-662-4044
November 2, 2005
Public Issue #:126
CITS Capital & Debt Watch
"Is the US Tax Reform Commission's Recommendation
a Return to Protectionism?"
Commentary by Dr. W. Curtiss Priest, Director:
The heart of the new proposal is a tax on consumption, and thus
is similar to other Value Added Taxes (VATs) as is prevalent
in Europe and Canada.
The report argues that such a tax both encourages growth and
encourages personal savings. One could wonder how both
can occur simultaneously, but, if there is merit to the
argument that through savings, financial capital is more
available for economic investment, we would have economic
growth and greater savings.
What I cannot easily discern, as I have no knowledge of how
VATs and import tariffs relate for other countries, is
whether the proposal is a 30% tariff, across the board, on
imports?
I have reproduced some key text from the report (below), and the
writers are careful to say that the 30% tax would be on
"credit-method VAT" which means that imports are taxed, but
exports are not.
So, I can only interpret this plan to be a wall-to-wall
30% import tariff or duty (at least compared to what we
have now).
As I believe this country is so fragile, and China has been
so unwilling to raise prices, we most likely need an era
of protectionism if we are to rebuild a broader base of
manufacturing, etc.
However, I was under the belief that we are in an era of
"free trade." And, unless we've simply been stupid, if
we impose a 30% tariff, why will this not set off a tariff
war around the world?
P.S. the report is extremely cautious in not mentioning the
word "tariff." Its one occurrence is not in the context of
US imports.
***
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***
Selected text from the "Simple, Fair, & Pro-Growth: Proposals
to Fix America's Tax System." Report of the President's Advisory
Panel on Federal Tax Reform, November 2005
Home Page: http://www.taxreformpanel.gov/
http://www.taxreformpanel.gov/final-report/TaxPanel_3_11-1.pdf
p. 350 (relative page, 18 of 72)
A destination-basis consumption tax levies the same tax on consumption
that occurs in the United States, regardless of where the good was
produced. Under this system, sales to customers in other nations
(exports) are excluded from the tax base while purchases from abroad
(imports) are included. Thus, if a domestic manufacturer produces a
product in the United States at a cost of $90 that it sells abroad for
$100, the manufacturer is not taxed on the $100. The manufacturer
receives a rebate of the tax on the $90 of production costs. This has
the e.ect of eliminating the tax burden on goods that are sold abroad.
The tax rebate that the manufacturer receives at the point of export
is commonly known as a border tax adjustment. Purchases from abroad
are taxed by either making them nondeductible to the importing
business or by imposing an import tax. The alternative "origin-basis"
system taxes goods based on where they were produced - their origin.
The tax base is domestic production, which equals domestic consumption
plus net exports. Exports are included in the tax base because they
are part of domestic production and imports are excluded because they
are not. If a manufacturer produces a product in the United States at
a cost of $90 that it sells abroad for $100, it is taxed on the sale.
This means that identical items produced for domestic and for foreign
consumption are taxed in the United States in exactly the same way.
Purchases from abroad are either deducted by the importing business or
not taxed at the point of entry into the United States.
p. 353 (relative page 21 of 72)
Refunds for Exports The border tax adjustment described above would
provide tax refunds to exporting firms. The amount of the refund would
be determined by the costs incurred in producing an export, including
the .rm's labor costs. For firms that sell primarily in the export
market, their border tax adjustment rebate could exceed any tax
liability that they face on their domestic sales. Exporting firms whose
border tax adjustments exceed their taxes on domestic cash flow would
be provided a refund for their excess border tax adjustment. In
addition, until exchange rates or domestic prices adjust after the
imposition of the tax on imports, businesses that import signi.cant
amounts of goods could operate at a loss after taxes, because they
would receive no deduction from income for the costs of their imports.
They could thus be paying taxes greater than their net pretax cash
income. Although the excess deductions generated by an export business
and those generated by a domestic business su.ering losses are
conceptually similar, they would be treated di.erently under the
Growth and Investment Tax Plan. Domestic firms suffering losses would
most likely prefer an immediate rebate of taxes if given a choice,
notwithstanding that their loss carryforwards would be increased by an
interest factor under the plan. Thus, special rules may be needed to
police the allocation of expenses between domestic businesses
generating losses and export businesses when both are operated within
the same firm or through afiliates.
...
Many developed countries with border-adjustable VATs couple
those VATs with a single-rate tax on capital income at the
individual level. Some of these countries also have wage subsidies,
progressive taxation of wages, or both. The Growth and Investment Tax
Plan is equivalent to a credit-method VAT at a 30 percent rate,
coupled with a progressive system of wage subsidies and a separate
single-rate tax on capital income. The Panel therefore believes that
the Growth and Investment Tax Plan should be border adjustable.
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