Smarter manufacturing policies, not tariffs or negotiators, is what America needs

By Gene Quinn
February 4, 2016

made-in-americaOver the last decade it has gotten harder and harder to obtain a worthwhile patent in the United States. Thanks to the Supreme Court’s decision in eBay v. MercExchange a victorious patent owner is no longer entitled to a permanent injunction that orders the infringing defendant to cease infringing in the future. Thanks to the America Invents Act (AIA) and the creation of the Patent Trial and Appeal Board (PTAB) commercially valuable patents are challenged in administrative proceedings before administrative law judges who ignore the presumption of validity a patent is statutorily promised (see 35 U.S.C. 282) and apply rules that move the proceedings along so quickly that due process is seriously compromised. Thanks to a tetralogy of misguided patent eligibility cases from the Supreme Court over the last five years software and biotechnology industries have had their innovations largely deemed unpatentable.

Yes, the last decade has been rough for patent owners and innovators in the United States. But as bad as the Supreme Court, Congress and the PTAB have been for the U.S. patent landscape, a far larger problem continues to loom.

By and large the United States continues to export our intellectual property so foreign companies and subsidiaries around the world can engage in manufacturing instead of making things in America.  Unfortunately, when manufacturing exits a country research and development funding dwindles in direct response, thereby creating an enormous problem for subsequent generations of innovation. This manufacturing vacuum has been and will continue to be an acute problem for the United States moving forward, yet none of the Presidential candidates seem to be discussing manufacturing or the prospect of bringing manufacturing back to America, at least not in any kind of coherent way.

With countless manufacturing jobs already gone what the American economy thrives on is intellectual property, particularly in the form of innovation. It is believed that as long as America is innovating we have no problems and will continue to have a robust and even dominant economy. But since the housing collapse the U.S. economy has been anything but robust and dominant economy. Indeed, stagnant growth and the feeling by many that the recession never ended more than anything seems to explain the rise of candidates like Senator Bernie Sanders (D-VT) and Donald Trump (R). After all, if the economy were growing at 4% per year over the last 8 years would either party be so enamored with so-called outsider candidates?

The American story of lost manufacturing jobs dates back for decades. Bruce Springsteen’s song My Hometown, which is actually about my own hometown of Freehold, New Jersey, immortalized the tale of a textile mill closing down, jobs leaving and never coming back, which leads to vacant stores throughout the town. The line – “Foreman says these jobs are going boys and they ain’t coming back” – has proved to be eerily prophetic, repeated in once thriving manufacturing and industrial communities all across America.

It doesn’t need to be this way! There is something that can be done, but turning the economy around requires our leaders to consciously focus on facts and reality rather than politics, myths and fear mongering.

Unfortunately, those that are talking about this issue are only talking about it indirectly, without sophistication and in a way that makes absolutely no sense. For example, Donald Trump promises high tariffs on imported goods coming from Mexico and China. He gets wild cheers because supporters seem to want the importers punished and the goods to cost more, but in the end tariffs would hurt the people buying those goods because they will simply have to pay more, and in many cases pay more for essential items.

The U.S. cannot win a trade war based on raising tariffs. China, for example, thinks in terms of generations at a minimum. U.S. leaders on the other hand think in terms of 24-hour news cycles. There is no possible way a high tariff that would hurt U.S. consumers would be able to be placed on goods coming into the U.S. for long enough to do anything other than harm the U.S. economy. Our trade partners know that there is no will to raise tariffs so high that it would guarantee a trade war that would devastate U.S. consumers, so the threat isn’t tough talk, it is stupid talk.

Rather than engage in a trade war that the U.S. can’t win, why not embrace smarter manufacturing policies? We don’t need better negotiators to cut better trade deals; we need smarter manufacturing policies that make it unnecessary to require better negotiators in the first place. After all, what exactly are better negotiators going to do? If the United States remains an inhospitable climate for business, with extraordinarily high tax rates and loopholes that only the richest corporations can take advantage of, why would we ever reclaim widespread manufacturing in the United States?

Would it surprise you to learn that China has but a 3.5% cost advantage for manufacturing compared with the United States? Regulations, taxes and an environment that makes it practically impossible to start a new business creates the disadvantage, and thoughtful policies to revitalize U.S. manufacturing would produce dividends, lead to a broader middle class, provide an economic boon to the entire country and lead to greater national security because we wouldn’t be relying on foreign producers for everything, like we are today. This is why it is all the more frustrating that the discussion, to the extent we are having it during this Presidential campaign, is about raising tariffs. Raising tariffs didn’t work for President Thomas Jefferson and it won’t work for a President Donald Trump.

If you don’t believe that a thoughtful national manufacturing policy is the answer then you need to read Great Again: Revitalizing America’s Entrepreneurial LeadershipA central and often repeated theme of Great Again is that America’s decision to give up on manufacturing has not only caused the obvious problems associated with the loss of high paying blue collar jobs, but it has and is causing an enormous loss of intellectual property assets as well. The author, Hank Nothhaft, who was an extremely successful start-up CEO in Silicon Valley with many years of experience, quotes what Harvard Business School Professors Willy Shih and Gary Pisano told him: “decades of outsourcing manufacturing has left U.S. industry without the means to invent the next generation of high-tech products that are key to rebuilding its economy.”

Nothhaft explained it this way in a speech in January 2011 in Washington, DC, at the Innovation Alliance Conference:

For 30 years now we have all been fed the carefully cultivated myth, that so long as America did the creative work, the inventing, then we can let other nations like China do the so called grunt work, the manufacturing. Simply, we would think; they would sweat. So we let manufacturing go and in so doing we lost the greatest economic force multiplier in history. For manufacturing not only supplies middle class incomes to the three-quarters of all Americans without a college degree, it also creates up to 15 additional jobs outside of manufacturing for every position on the factory floor.

Worse yet, every engineer in the world knows that innovations don’t always (if ever) ramp up from the micro level to the macro level as one might predict.  So when we outsource manufacturing we are handing over the follow-on innovation that will take place on the factory floor.  Therefore, by outsourcing manufacturing to the lowest bidder abroad not only have we destroyed the working middle class in America, but we are also increasingly turning over our last economic advantage – our intellectual property.

How long will the United States be able to remain one of the world’s leading economies if we continue to outsource that follow-on innovation that takes place through the manufacturing processes? Perhaps right now the U.S. remains in the lead with respect to first generation innovation, and perhaps second and subsequent generations of innovation made on the factory floor are not threatening the U.S. innovation economy. How much longer will that be the case? How much longer before the countries doing the manufacturing become more sophisticated in terms of first generation innovation? This problem is far more concerning than most are willing to admit.

Shortsighted decisions by CEOs and the lack of any leadership, let alone meaningful leadership, in Washington, DC, has placed America on the path of economic ruin. The lack of manufacturing in America coupled with the increasing loss of associated intellectual property and innovation explains the “new normal,” which is represented by stagnant growth and an abundance of the new jobs that are part-time, low paying, or both.

Unfortunately, the collective narrative supports the erroneous conclusion that there is nothing that the United States can do to turn things around on the manufacturing front. While simply untrue, our political leaders have so far not wanted to offer a business friendly environment calculated to make America a strong manufacturing nation once again. According to Nothhaft, “It’s the U.S. government’s myopic policy, not China’s lower payroll costs, that make our nation uncompetitive in the all-important solar and other high-tech manufacturing sectors.”

In Great Again Louis Vintro, vice president and general manager of the semiconductor product division at equipment maker ESI explains: “What we see from our data is that China has a roughly 50 percent advantage in labor costs. But since labor represents an average of only 7 percent of operating costs across all of the semiconductor sectors, that means China has a 3.5 percent overall cost advantage.”

But with that 3.5 percent Chinese cost advantage comes uncertainty.  The United States still offers a solid rule of law and there is not the political unrest here that could (and likely will) emerge in China as the rising middle class wants more and demands freedom.  But even this 3.5 percent advantage can be closed, as Nothhaft explains: “If you take as a guide the roughly 30 percent tax that Intel has paid in recent years on 10 percent operating profit, that would mean a 3 percent lower cost of operating a plant here. Add in an enhanced, permanent 20 percent R&D tax credit equal to what other nations offer… and China’s advantage drops to 1 to 2 percent.”  At 1 to 2 percent advantage is it worth the headaches of doing business in China?

What America needs to do is clear. We need to work together to reduce taxes on manufacturing in the United States. Approval processes for everything at every level need to be streamlined. R&D tax credits should be increased. Job killing laws and regulations, as well as laws and regulations that give incentive for companies to decrease hours, must be repealed. And, it shouldn’t have to be said, but making electricity cost more by killing coal fired power plants without any viable alternative technical solution is just idiotic.

A proactive manufacturing policy is what the United States needs, but will it be what the United States gets? It seems doubtful, at least as long as the only person talking about these issues is promising high tariffs and a trade war that will only cause real damage to the U.S. economy.

The Author

Gene Quinn

Gene Quinn is a patent attorney and the founder and Editor of IPWatchdog.com. He is also a principal lecturer in the PLI Patent Bar Review Course and an attorney with Widerman Malek. Gene has worked with independent inventors and start-up businesses in a variety of different technology fields, but specializes in software, systems and electronics. is admitted to practice law in New Hampshire, is a Registered Patent Attorney licensed to practice before the United States Patent Office and is also admitted to practice before the United States Court of Appeals for the Federal Circuit. CLICK HERE to send Gene a message.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 20 Comments comments. Join the discussion.

  1. A Rational Person February 4, 2016 11:28 am

    Gene,

    In a rational world, the US would institute a Valued Added Tax (VAT), give a rebate to everyone from the VAT revenue so the poor are not disproportionally hurt by the VAT, and lower our corporate taxes to compete with the corporate taxes in other countries.

    In a world in which most of the countries that compete with the US have a VAT and the US does not, the VAT acts as a hidden tariff on US exports and therefore causes US companies who manufacture goods in the US and ship abroad to be at a disadvantage in comparison to their foreign competitors.

    See, for example:

    http://www.forbes.com/2009/10/22/republicans-value-added-tax-opinions-columnists-bruce-bartlett.html

    But, of course, most Republicans oppose a VAT because they view a VAT as a hidden tax. Republicans also believe, in my opinion rightly, that the Democrats will abuse a VAT as an easy way to raise taxes to expand the government.

  2. Gene Quinn February 4, 2016 11:44 am

    Rational Person-

    I’m not a fan of a VAT because I think it is too easy to abuse, as you suggest. And another criticism is that proposals always seem to talk about a VAT in addition to an income tax, which could impose an extraordinary level of taxation on those in the middle not rich enough to employ avoidance strategies and not poor enough to receive tax forgiveness.

    A flat tax would be good, but that would still not address the many people who simply refuse to file and participate only in the cash economy. The older I get the more I’m in favor of a consumption based tax system. If people really knew what government was taking from them I think our policies would be very different and they would vote accordingly. We could have some kind of a rebate for those in poverty, but something needs to be done.

    -Gene

  3. Anon February 4, 2016 12:35 pm

    Gene,

    Consumption based system disadvantages the poor since a person consumes regardless of their income, and the rich have a far higher proportion of money not based on consumption.

  4. A Rational Person February 4, 2016 1:26 pm

    Gene@2

    If you are a multinational corporation and you have a choice of manufacturing in Country A with a 20% corporate tax and a VAT or Country B which has a 30% corporate tax and no VAT, all other things being equal, in which country would you locate manufacturing? (For simplicity of illustration, it is assumed that by having a VAT country A is able to offset 10% of the corporate tax).

    You can be against a VAT all you want, but in a world in which other countries have VATs and the US does not, the US is currently choosing to disadvantage companies that manufacture goods in the US. That’s reality, whether or not you keep the income tax.

    I would also get rid of the corporate tax on profits selling abroad. This tax also hurts US companies compared to their foreign competitors.

  5. Gene Quinn February 4, 2016 2:12 pm

    Anon-

    I understand what you are saying about disadvantaging the poor. That is why I’d be willing to provide a refund to those at or below a certain income level. But if you do not have a consumption based system that means that a great many people simply will not pay taxes. Not because they are using or entitled to loopholes, but rather because they are a part of the cash economy and never file any kind of tax return. Everyone should have to pay at least something and have a vest interested in my opinion.

  6. Gene Quinn February 4, 2016 2:16 pm

    Rational Person-

    The fact that everyone else is doing it isn’t any kind of justification for us to do it if it is a bad idea. I think a VAT is a terrible idea. Politicians simply cannot be trusted. A VAT makes it too easy to bring in huge amounts of tax revenue. Because it is hidden from the public no one really knows how much revenue is coming in. The lack of transparency is alarming. There are smarter, easier ways to tax than a VAT.

    Getting rid of world wide taxation on profits would be good policy and it is inexplicable why the US taxes worldwide profits when no one else does. Idiotic.

    I’m not against adopting ideas from overseas, I just want them to be good ideas that make sense.

    -Gene

  7. A Rational Person February 4, 2016 2:41 pm

    Gene@6

    “The fact that everyone else is doing it isn’t any kind of justification for us to do it if it is a bad idea.”

    What if the CEO of a U.S. company tells you flat out that the CEO is moving manufacturing overseas, because I can pay a lower corporate tax there because that country has a VAT?

    And, what if the CEO also say that the CEO’s company is at a competitive disadvantage because its competitors are exporting to the US tariff free while the CEO’s company has to pay a tariff, i.e., a VAT, when the company sells its manufactured goods in our competitors’ countries?

    And what if the CEO further tells you that their competitors effectively have their exports subsidized, because they pay no VAT on goods they sell in the US either in their home countries or in the US, while the US CEO’s company has to pay a corporate tax on goods it sells in the US (as well as abroad)?

    And what if the US CEO also points out that the money that the the US company is paying as a tariff (VAT) is also being used in part to subsidize its competitors by keeping their corporate taxes lower.

    Are you so against a VAT that you are willing to allow every large US company that can do so to move manufacturing overseas to be able to compete on a more even footing with its competitors?

    Whether or not a VAT is a good or bad idea for a particular country, if the other countries have a VAT and the US does not, you are clearly putting US companies who manufacture in the US at a disadvantage.

  8. Gene Quinn February 4, 2016 3:12 pm

    Rational Person:

    First, I’d point out that the CEO doesn’t seem to understand what a tariff is and what a VAT is. A tariff is a tax imposed on imported goods. A VAT is a value added tax that taxes the acquirer on the difference between the cost of the good and the materials the go into making the good, or in other words only the value added is taxed. It is a hidden tax because a VAT can be and is assessed throughout the chain of creation every time value is added. Of course, like all costs it gets cooked into the price at every stage, so for many goods there will be many layers of tax added to the cost of the final product purchased.

    After I pointed out that the CEO was simply mistaken to equate a tariff with a VAT, I’d point out the following specifically.

    “What if the CEO of a U.S. company tells you flat out that the CEO is moving manufacturing overseas, because I can pay a lower corporate tax there because that country has a VAT?”

    I’d tell him he can say whatever he likes but he is being intellectually dishonest. He isn’t moving there because the other country has a VAT. He is moving because the overall tax burden is less. If the US lowered its tax rate it wouldn’t matter whether we have a VAT or not. So claiming he/she is moving because the other country has a lower tax rate because they have a VAT is simply nonsense.

    You ask: “And, what if the CEO also say that the CEO’s company is at a competitive disadvantage because its competitors are exporting to the US tariff free while the CEO’s company has to pay a tariff, i.e., a VAT, when the company sells its manufactured goods in our competitors’ countries?”

    I didn’t say we should have any tariffs. Reasonable taxes seem appropriate. What is stupid are punitive tariffs that are intended to punish. All they do is create reciprocal punitive tariffs. Further, depending on the country of export I’d likely point out that the CEO is being disingenuous again. People in many (if not most) parts of the world simply cannot afford to buy anything because they have no disposable income. They don’t have income enough for even the basic necessities. So it would be far better to have policies that make manufacturing possible in the U.S. so as to capitalize on the U.S. market where 70% of the economy is consumer driven and there is a lot of disposable income. Manufacturing in the U.S. with smart policies that make it financially feasible also alleviate the need to deal with customs, shipping from half way around the world, the very real risk of political unrest, disruption in supply chain, etc.

    You ask: “And what if the CEO further tells you that their competitors effectively have their exports subsidized, because they pay no VAT on goods they sell in the US either in their home countries or in the US, while the US CEO’s company has to pay a corporate tax on goods it sells in the US (as well as abroad)?”

    I’d point out the CEO is again being disingenuous and assumes that the foreign competitors are not paying any taxes in the United States, which shouldn’t be true. Most foreign companies that sell in the U.S. have U.S. subsidiaries that do pay tax in the U.S. If they don’t that speaks to the corruption of the tax laws generally with all the loopholes that benefit the richest corporations. That is why we need a flatter, lower corporate tax that treats all companies the same. But hardly a justification to demand the US adopts a VAT.

    You ask: “Are you so against a VAT that you are willing to allow every large US company that can do so to move manufacturing overseas to be able to compete on a more even footing with its competitors?”

    The question is obviously faulty because it assumes (incorrectly) that unless the U.S. adopts a VAT that every manufacturer will move overseas. Manufacturers could compete on a level playing field easily with a reduced tax burden without need of a VAT. Streamlining rules that apply to business formation and lowering taxes, which actually can happen without the adoption of a VAT, would level the playing field.

    You say: “if the other countries have a VAT and the US does not, you are clearly putting US companies who manufacture in the US at a disadvantage.”

    That is simply nonsense.

  9. A Rational Person February 4, 2016 6:14 pm

    Gene@8

    Example to illustrate one of my points:

    Let’s say for illustration purposes the corporate tax on US corporations raises $100 billion annually.

    Lets say, once again for illustration purposes, 70% of the value of goods sold in the US is attributable to US companies and 30% is attributable to the value of goods from Foreign Companies when they arrive in the U.S.

    If I set the VAT rate on goods such that the US Raises $100 Billion and I can lower the corporate tax to $0 and be revenue neutral. But, in contrast to the situation with no VAT in which US corporations pay all $100 Billion of this tax revenue, with a VAT, US corporations only pay $70 Billion of the tax revenue and the remaining $30 Billion is now paid by foreign companies.

    The tax burden on commerce is the same in both cases, but you’ve effectively created a tariff on the foreign businesses, i.e., an import tax they did not have to pay before, without calling it a tariff.

    And other countries with VATs are undoubtedly doing similar, but more subtle things, with their corporate taxes and VATs.

  10. Gene Quinn February 4, 2016 6:37 pm

    Rational Person-

    I say fine, let other countries use complex tax structures if they want. The best tax policy would be one that is simple. It would be harder to cheat and easier to enforce. I don’t see that we need to use a VAT just because others are using a VAT, although I do get your point in your last comment.

    It would be better for us to have the most friendly business tax structure in the world. It would be smarter for us to have the most friendly manufacturing policies in the world. If we did that then we would be making products for consumption at home, and we would be making products for consumption abroad even if we have to pay a VAT or tariff.

    The one thing that gets missed in this equation is that in most parts of the world political unrest is real and supply chains can and do get interrupted by world events. Quality and safety is quite low also. There are a lot of reasons why manufacturing could come back to America, but no one really cares.

    -Gene

  11. Anon February 5, 2016 9:18 am

    Mr. Quinn,

    I think that one (very valid) point that Rational Person is trying to make is that in the modern world – especially with entities such as Big Corp that are truly trans-national and owe allegiance to NO single country – one simply cannot operate in a vacuum and set tax laws without regard to what else is happening elsewhere.

    It may be a sad truth, but it is a truth nonetheless: the laws of this Sovereign cannot operate as if there were no impacts from the laws and conditions of other sovereigns.

  12. A Rational Person February 5, 2016 11:21 am

    Anon@11. Exactly.

    And here’s a paper that supports the idea that a less drastic form of the scenario I presented in post 9 above may in fact being happening (see top of page 27):

    http://www2.itif.org/2012-fifty-ways-competitiveness-woes-behind.pdf

    “A large number of nations have reduced corporate income taxes and replaced these revenues with value-added taxes (VATs). In 1989, 48 countries, primarily located in Western Europe and Latin America, had adopted a VAT. By 2007, 143 countries had VATs.”

    By the way, one federal program that has been hurting US manufacturing that in a rational world should be easy to get rid of but has not been so easy in the real world is the Federal sugar program.

    The Federal sugar program currently protects a small, but politically well-connected, group of sugar growers at the expense of manufacturers, such as candy makers, who use sugar. Unsurprisingly, by keeping sugar prices artificially high in the US, many American food producers have chosen to manufacture their products in other countries:

    http://sugarreform.org/why-reform/what-the-experts-are-saying/

    I will also say that the inability of the US to even address the “low-hanging fruit” such as the Federal sugar program (seriously, such odd bedfellows as the Wall Street and Washington Post editorial pages have both called to get rid of the sugar subsidies), makes me skeptical of any significant tax reform supporting US manufacturing happening anytime in the near future.

  13. Gene Quinn February 5, 2016 11:53 am

    Anon (and Rational Person)…

    You say: “one simply cannot operate in a vacuum and set tax laws without regard to what else is happening elsewhere.”

    Perhaps you are correct, but I do reject that notion completely. I fundamentally think it is wrong and misguided, so we will have to agree to disagree.

    In business, if you want to be a market leader you do things better and smarter than your competitors. If you work hard to become the top company you do not look back at what the competitors are doing and dumb down what you are doing. Sure, you can look back and see what others are doing and if it makes sense to integrate into your business plan, but what you describe as the only way governments can work would be considered an oligopoly or cartel in the business world. I just reject that notion as the only way that government can and should operate.

    History and experience is on my side. We see companies move from one State to another State in search of better business climates, tax structures, incentives, tax holidays, corporate laws. Increasingly we are seeing inversion where companies are moving at least their headquarters to different jurisdictions. In the UK and other countries that have adopted patent box legislation manufacturing that was never domestically present is starting. So there are plenty of examples of smart tax policies attracting companies from one jurisdiction to another. We see it all that time.

    I just reject the notion that we have to do it like everyone else is doing it and the U.S. can’t possibly attract more businesses and manufacturing.

    -Gene

  14. Anon February 5, 2016 12:46 pm

    Mr. Quinn,

    Your choice to reject what “is,” will not – and cannot – change what “is.”

    Yes, I do “get” why you feel as you feel. I have no argument that what you want and that what you want would be a better thing in a perfect world.

    The problem is that we do not have that perfect world.

    However, I am not without a suggestion. I do realize that dual citizenship is an avaialble option for certain individuals, but I would make it part of the law (that Citizens United “codifies”), that ANY corporate or other juristic person may have only ONE citizenship, and must comport themselves fully as a such a citizen (of the country of their choosing).

    I think this would go a long way to removing what is a cancer (my obviously strong opinion) on the ability of Big Corp to play off one sovereign against another and be beholding to NO sovereign.

    To me it is eminently unhealthful to allow such Big Corp “voice” (read that as money influence) in the U.S. law setting environment, when they truly have no skin in the game, and can simply flit to the next lowest cost factor country of their choosing.

    This I believe answers your rebuttal, and does so in a way that does not choose to turn a blind eye to what “is.”

  15. A Rational Person February 5, 2016 12:48 pm

    Gene@13,

    There reason the US has to follow the lead of other countries in all ways in attracting manufacturing. As evidenced by the on-field success of the innovative coach Kevin Kelley of Pulaski Academy, sometimes, the conventional wisdom is wrong:

    http://fivethirtyeight.com/features/the-high-school-football-coach-who-never-punts/

    But one of the keys to Kevin Kelley’s success is his willingness to accept what crunching the numbers tells him (Unlike, for instance Andy Reid, coach of the Kansas City Chiefs, who chose to make the conventional decision of kicking a PAT when down 8 late in the 4th quarter against the Patriots in the playoffs, when crunching the numbers clearly indicated he should have gone for two).

    In contrast, if you are a Monopoly player, you can “innovate” all you want by employing a strategy of acquiring a monopoly of the green properties while other players acquire the orange and red monopolies. But crunching the numbers clearly indicates that the other players strategies will be more successful on average. Sometimes the common wisdom is right, and the US may need to consider a VAT to allow it to lower its corporate tax rate as other countries have done or choose not to do so and be like the Monopoly player who believes that obtaining the green monopoly is the path to victory. Sometimes you can win with the green monopoly strategy, but in general, a player pursuing this strategy is conceding an advantage to the other players.
    ,

  16. Gene Quinn February 5, 2016 3:06 pm

    Rational Person-

    You say: “the US may need to consider a VAT to allow it to lower its corporate tax rate”

    We are obviously talking past each other.

    Can you explain to me why in your opinion the only way to lower corporate taxes is to employ a VAT?

  17. Gene Quinn February 5, 2016 3:13 pm

    Anon-

    Thanks for explaining that the only possible choice for the US is assimilation and to reject that notion is to reject what “is.”

    Obviously, it is utter nonsense to say that the only choice for America is to adopt the tax structure found in the rest of the world.

    First, which part of the rest of the world would we imitate? There isn’t an exact uniformity of tax structures in every other country.

    Second, it strikes me as naive to the extreme to think that the only way to lower taxes is to adopt a VAT. Taxes have been lower at many times in the U.S. when a VAT was not employed. Sorry to burst your one-world bubble.

  18. Gene Quinn February 5, 2016 3:19 pm

    If you are a multinational corporation and you have a choice of manufacturing in Country A with a 20% corporate tax and a VAT or Country B which has a 10% corporate tax and no VAT, all other things being equal, in which country would you locate manufacturing?

    Pretty sure I know the answer, which should hopefully move us to a new point in this discussion where we can all recognize that it is clearly possible to lower taxes without a VAT.

  19. A Rational Person February 5, 2016 6:24 pm

    Gene@18

    Sigh.

    Unfortunately, here’s where we get political: I don’t think we can lower taxes much. For good or ill, I do not see a willingness by a majority of Americans or even a significant minority to substantially reduce what the government does anytime in the foreseeable future. Also, people are living longer, the population is aging, people are retiring and our healthcare costs are some of the highest in the world and I have seen no proposal on the table from either political party that would substantially reduce healthcare costs. And, on top of this you have the ever increasing debt payments and at some point the infrastructure of the US is going to need some long overdue repairs, because we have chosen to kick the can down the road on doing proper maintenance on our bridges and roads.

    So if you cut the corporate tax rate, that money has to be made up with other types of taxes, and of the other types of taxes, a VAT has the advantage of offloading some of the cost of the taxes on foreign companies, as is currently being done by other countries to US companies with other countries’ VATs.

    The two times when taxes could be significantly reduced in the last 70 years or so without ballooning the deficit were after WW2 and at the end of the Cold War when major cuts in spending could be made by reducing military spending.

    And I don’t see this type of opportunity be available anywhere in the near future.

  20. Gene Quinn February 6, 2016 10:18 am

    Rational Person-

    Now we are getting somewhere.

    Cutting taxes is not a zero sum game, although most politicians seem to think it is so you are probably right that they can never be lowered to a point where we can actually maximize revenues. But we know that lowering taxes and having a more simplistic tax code results in greater tax revenues. The frustrating thing is politicians do not run the government like a business. They are not interested in maximizing tax revenue. If they were taxes would be much lower.

    I am absolutely in agreement that we have kicked the can down the road to near the breaking point. Without extraordinary economic growth we will have to make very hard choices at some point.

    I am also perfectly comfortable with the prediction that nothing will be done until there is a catastrophe. Even then the odds of doing what would need to be done is pretty slim, so the future doesn’t look very bright. But that is what happens when generations of politicians continue to provide welfare handouts to the poor and the rich and the corporations. Pretty soon those of us who are comfortable (i.e., not poor enough for handouts and not rich enough to pay no taxes) don’t have enough money to confiscate to pay for the promises to the poor and rich.

    You are probably right that out politicians will think that a VAT is the only way out of this mess. I’m not convinced that it is. Taxes would go up, including on the poor who would have layers and layers of taxes cooked into every single purchase. There is no chance the income tax would be repealed or reduced. So it seems virtually certain that Americans would pay extremely high taxes, which doesn’t strike me as a winning solution for an economy that is overwhelmingly driven by consumer spending.

    I’d personally prefer we ignored the rest of the country. Worked to make America the best place to open and run a business of any kind. Enough with the misleading 4.9% unemployment rate made up of jobs that pay at or near the minimum wage with no benefits. Of course, making America the best place in the world to open and run a business would require SCOTUS to come to their senses on patent law, so all of this is at best an exercise in unrealistic wishful thinking.

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