Manufacture for a profit

By ERNEST F. HOLLINGS, former U. S. senator


JULY 27, 2015 -- Everyone in Congress and every candidate for President says "jobs and the economy" is the number one concern. Yet none of the 535 Members of Congress or candidates try to limit the offshoring of our research, technology, production and jobs - the economy. A nation competing for industry is the way to build and maintain a strong economy.

One hundred sixty four countries compete in globalization with a Value Added Tax that's rebated on exports. The Corporate Tax is not rebated on exports. The principal tax on offshore production is the Value Added Tax. Not having a VAT stultifies manufacture in the U.S. A U.S. entrepreneur has to pay the 35 percent Corporate Tax and a 17 percent VAT when his exports reach China. A competitor can produce the same product in China, import it tax free and put the entrepreneur out of business. Foreign countries use their VAT to produce in the United States. For example, BMW located in Greer, SC, with a 19 percent VAT in Germany, pays little or no tax. BMW ships the parts to the U.S., assembles them, and for years exported them back to Europe. BMW pays little or no U.S. Corporate Tax. In short, the U.S. subsidizes indirectly offshore production.

I helped bring Pirelli to Lexington County. Walter, who ran Pirelli, went out on his own in California. I noted Walter's stock was doing well, so I called: "Walter, when you expand to another state, please put a plant in South Carolina. We need the jobs." Walter answered: "I don't produce anything in the United States. I have my research and sales force in California but I produce in China. I lease a building from year to year; put in a young quality control executive to watch production; check it every day and I can get in nine holes of golf." With no legacy costs in China; with no labor, safety, health or environmental worries, the offshore competition is great.

Globalization is nothing more than a trade war with production looking for a country cheaper to produce. The United States was founded in a Trade War- The Boston Tea Party. The Founding Fathers pointed the way. Congress enacted the Tariff Act of 1787 - two years before the Constitution. The U.S. economy was built on protectionism. Protectionism worked so well that after 100 years Edmund Morris writes in Theodore Rex: "The United States was already so rich in goods and services that she was more self-sustaining than any industrial power in history." Congress thinks "free trade" built the U.S. economy. As JFK's Profiles in Courage, Henry Clay stated on the floor of the U.S. Senate in 1836 about free trade: "…It never existed…It never will exist." Doubling the minimum wage will not eliminate income inequality. To get rid of income inequality, the U.S. must compete for industry globally. Congress does nothing to make it profitable for Corporate America to produce in America. The biggest contributors to Congress - Wall Street, the Big Banks and Corporate America want to keep the offshore profits flowing so they contribute to Congress not to compete for industry; against the VAT and to do nothing to make it profitable for industry to produce in America. Congress does nothing.

Congress thinks about robbing the Strategic Petroleum Reserve or closing loopholes in the Corporate Tax to find money to fund the Highway Trust Fund. The VAT has no loopholes; is self-enforcing which permits the downsizing of government (IRS). Not the personal income tax, but replacing the 35 percent Corporate Tax with a 5 percent VAT immediately releases $2 trillion in offshore profits for Corporate America to repatriate tax free, create millions of jobs, build the middle class, and eliminate income inequality. Last year's Corporate Tax produced $327 billion in revenues. A 2014 5 percent VAT would have produced $898 billion - enough to balance the budget in two years rather than ten; enough to start repairing our bridges and highways.

Congress has a duty to make it profitable for Corporate America to produce in America.

Senator Fritz Hollings of South Carolina served 38 years in the United States Senate, and for many years was Chairman of the Commerce, Space, Science & Transportation Committee. He is the author of Making Government Work (University of South Carolina Press, 2008).

© 2015, Ernest F. Hollings. All rights reserved. Contact us for republication permission.

About Fritz Hollings

Ernest F. Hollings served the public for 56 years -- 38 years in the United States Senate and as South Carolina's governor, lieutenant governor and a member of the S.C. House of Representatives. Today, Hollings continues to be influential in public affairs and offers this website as a compendium of current and past positions on public issues. Learn more about Fritz Hollings.

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