OK

The budget battle has begun and will get extremely ugly. The Democrats are trying to preserve Medicare for seniors while the Republicans want to end Medicare as we know it by turning it into a voucher seniors use to buy their own health plan. The Republican plan would save trillions by shifting health care costs from the government to seniors. The Republicans hope to convince the public they must give up guaranteed health care when age 65+ due to our excessive national debt!

I agree with Democrats who want to raise taxes on the wealthy. While I understand those who want to eliminate all the Bush tax cuts including those for the middle class I'm hesitant because I believe this would be political suicide. I'm open to other taxes.

But the budget debate has left out something I consider important and relevant - one reason we have a large deficit is due to our structural unemployment problem. Many economists have correctly said America's true unemployment rate is about double the reported 8.6%. In the 1980s we quit including discouraged workers who want a job but can't find full time employment. A country with a high structural unemployment rate is a country with a diminished tax base unable to fund needed programs.

In order to solve our structural unemployment problem, we need to create millions of new living wage jobs here in America. We need to restore America's middle class from the Republican "race to the bottom" economic policy.

The last decade hasn't been friendly to U.S. jobs. Many, including Democrats, took up the free trade market religion (now increasingly questioned including by Jack Welch)  deciminating U.S. manufacturing jobs. Also, corporations offshore service jobs. The AFL-CIO says since 2001, the U.S. has lost 2.5 million manufacturing jobs and more than 850,000 professional service jobs.

I found this to be an extremely complicated topic. I often felt like giving up writing this diary because it was so involved and often over my head. There were times I felt we may have no solutions other than to wait for U.S. wages to decline until corporations decide it is more cost effective to hire Americans. There seem to be many obstacles to meaningful change - the WTO, powerful corporations, and the right wing media.

I recently ran into the writing of Ralph Gomory who is a former Senior Vice President with IBM and President of the Alfred P. Sloan Foundation. He advocates a VAT based on where value was added to a product. If the value was added in the United States, there would be a very low tax or no tax. If the value was added overseas, a high tax rate. He also wants to base the corporate income tax on the value added per capita of its U.S. employees. The result would be corporations who invest in America would be rewarded with a much lower tax bill while corporations who don't would be seriously penalized.

If the United States passed such a corporate tax reform bill, would other countries file a compliant with the WTO?  How would the WTO view it?  Would such a corporate tax system constitute import duties?  Also, There is Article XII which allows a country to take action to safeguard a balance of payments problem. If the WTO ruled against the U.S., should we withdraw?

There was an article The Establishment Rethinks Globalization by William Grieder that addresses this concern.

Gomory's proposed solution would change two big things (and many lesser ones). First, the US government must intervene unilaterally to cap the nation's swollen trade deficit and force it to shrink until balanced trade is achieved with our trading partners. The mechanics for doing this are allowed under WTO rules, though the emergency action has never been invoked by a wealthy nation, much less the global system's putative leader. Capping US trade deficits would have wrenching consequences at home and abroad but could force other nations to consider reforms in how the trading system now functions. That could include international rights for workers, which Gomory favors.

Second, government must impose national policy direction on the behavior of US multinationals, directly influencing their investment decisions. Gomory thinks this can be done most effectively through the tax code. A reformed corporate income tax would penalize those firms that keep moving high-wage jobs and value-added production offshore while rewarding those that are investing in redeveloping the home country's economy.  

I listened to a one hour talk he gave to The New America Foundation "Does America Need Manufacturing?"  

As a country, we ask nothing of our companies and as a consequence they ask nothing of themselves but to make as much money as possible

In the Huffington Post Business, he wrote two interesting articles. The first Country and Company Part I - Divergent Goals talks about how corporations quit acting in the national interest and the second article Country and Company Part II - Aligning Goals  covers possible solutions.

There are a few solutions proposed. First, a balance of trade is necessary because with a trade balance the jobs lost through imports equal the jobs created by exports. To move toward a trade balance, the author supports the idea Warren Buffett wrote about in Fortune magazine several years ago.

In that article, Warren Buffett proposed the following:

We would achieve this balance by issuing what I will call Import Certificates (ICs) to all U.S. exporters in an amount equal to the dollar value of their exports. Each exporter would, in turn, sell the ICs to parties--either exporters abroad or importers here--wanting to get goods into the U.S. To import $1 million of goods, for example, an importer would need ICs that were the byproduct of $1 million of exports. The inevitable result: trade balance.

In other words, exporters would receive IC's equal to the dollar value of their exports. They would sell these to companies who wish to export to the U.S. or to domestic  companies that wish to import goods. In this way, the U.S. couldn't import more than our exports and we would have a trade balance. Would the WTO consider the Buffett plan an illegal export subsidy? The economists quoted in this article think mostly no, but Raymond Richmond author of the book Trading Away Our Future believes it would and prefers auctioning off the certificates which wouldn't be.

Now, Warren Buffett acknowledges the plan would have drawbacks - one being that consumers would pay more for imported products. But he correctly notes that our big trade imbalance can't continue forever and correctly says "if something can't continue forever it will stop." Economist Ian Fletcher has said

Because mammoth U.S. trade deficits are not sustainable forever, a profound change in U.S. trade relations is inevitable during the next 3-8 years regardless of any coming policy decisions and independent of any particular economic theories. A transformative crisis, be it an acute shock like the 2008 financial crisis or a period of chronic turbulence like the stagflationary 1970s, is now basically inevitable on the trade front.

I agree with this sentiment, but  hope it wouldn't take another economic crisis for us to change policy.

Would these changes to the U.S. corporate tax code plus the import certificates help bring jobs back to the U.S.?  I'm not an expert in international economics, but I think they have a fair chance to. I'll add the status quo is unacceptable with regard to both our long term trade deficit and the continued loss of American jobs. I searched, and I couldn't find any other ideas to bring these jobs back other than Dennis Kucinich's idea to have the U.S. withdraw from the WTO.

If these ideas don't work, I could find no other ideas out there other than for the U.S. to withdraw from the WTO. This idea has increasing public support, but not a lot of support on Capitol Hill. If our trade deficit is unsustainable - and clearly it is - then eventually something has to happen to bring it into balance.

And finally - something I don't understand. Why can Republicans tap into people's patriotism and persaude them into backing an unnecessary war under false pretense, but progressives can't tap into that same patriotism to persaude people to demand laws for corporations to keep jobs here?  

 

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