Defending and Investing in U.S. Competitiveness

Finance, Fiscal Responsibility and Economic Growth: Defending and Investing in U.S. Competitiveness, July 14, 2021

For many years, trade policy has focused mostly on cheap prices over plentiful jobs. Selling products gathers income while making them incurs cost.  Advocating for or against tariffs provides campaign chairs a valuable resource to cultivate donors and hold them hostage in the face of changes.

The status quo will continue until the Dollars and Treasury Notes lose their status as world money and the premium investment for bond holders. Unless action is taken to raise taxes on those who we would otherwise borrow from, they will continue to privately be fine with increasing debt. The actual obligation to repay the debt is a function of income tax paid (FICA creates assets, not debt).  Please see the first attachment for more information on who owes and owns the debt and why it qualifies as class warfare.

Replacing tariffs with border adjustable value added taxes functions is also donor bait. Unless VAT enactment is broad based as part of a tax reform that leaves most families off of the tax rolls, industries will pour money into campaign coffers to try to get exemptions for their products. Please see the second for more about how trade policy and tax reform interact.

VAT enactment’s advantage is that incurring such taxes without inviting retaliation. Raising tariffs invites trade wars, as our recent experience proves.  The biggest improvement in our trade policy is the recent change in Administrations. Our current President will not pursue gunboat trade policy and will make infrastructure happen without having an elusive infrastructure week.

Trade is an area where climate change must be addressed. Global warming requires a global solution. On warming in general, there is no doubt that it is man-made.  While there was a warm period around the first millennium, we came to it gradually. 

Industrialization may have ended what is called the Little Ice Age, but that warming is sudden and has dire consequences. We do not know that it will stop the way it did in the Middle Ages, indeed, it is not likely to, which makes these hearings vital. Starting with the coasts, there will be sea level rise.The flooding shown in Vice President Gore’s latest film shows how bad it is getting. 

The wealthy don’t seem to care about sea level rise, because they have flood insurance. The most basic step to at least get wealthier taxpayers on board (including the upper-middle class) is to cap flood insurance benefits to a level where beach houses properties  can no longer be insured. Even that small step could never be enacted. Too many donors have beach houses.

Our economic system is the problem. Until we move to something more cooperative, the well-off will turn their economic power into political power.

Without a technical solution, (like fusion, which Koch et all are slow rolling) all the incentives in the world will not stop plutocrats from scuttling every attempt at regulating emissions. Historically, unless people start dying from the air, as they are in China and did in Pennsylvania from the smog, nothing gets done. The river had to be actually burning in Cleveland before anything was done. 

Expanding freight rail should be a big part of that story. It saves energy and emits less carbon. While this will impact long-haul trucking, a growing economy, fueled by families with more money, will more than make up the difference in short-haul delivery.

Many ports will need to change configurations to expand freight rail and reduce reliance on long-haul trucking. This is a luxury problem. Such problems are a perfect object for expanded federal assistance to our railroad infrastructure. Either loans or grants should fit the bill. Higher motor vehicle fuel taxes can help transport goods as well as people. 

A carbon value added tax (rather than a simple carbon tax embedded in the price) will better allow consumer choice for both consumers and distributors. Polluters will only accept carbon taxes as an alternative to direct regulation. If we dropped fuel efficiency standards and imposed carbon taxes instead, I suspect that car makers and the energy industry would jump on board. 

Some level of regulation, like some level of social welfare, helps save business owners from themselves. One need only remember the smog that blanketed Beijing during their Olympics to see what happens from minimal regulation. China is now going all in on renewable energy. Will we learn the same lesson?

We have the capacity to do both. Regulations need to be ramped up AND Carbon Value Added Taxes need to be enacted to fund infrastructure and research into technical solutions like Helium-3 fusion and electric cars which receive computer control and power from a covered roof deck - preferably one topped with grass. 

I use the term carbon value added tax (CVAT) because energy prices are tax inelastic. When energy is needed, it is purchased, especially for transportation. Unless gasoline taxes approach $4 per gallon, people simply fill up their SUV’s and cope with the price changes. There is plenty of space to increase gas taxes before consumers change their behavior.

Because energy expenses are inelastic, price information needs invoicing to help make intelligent choices and to educate the public on the necessity for these taxes. Nothing wakes people up like seeing something on an invoice.

The Fair Tax, the Green New Deal, Carbon Taxes, and Goods and Services (Credit Invoice) Taxes all assume some sort of subsidy to hold poor families harmless - some kind of rebate or prebate. Many even believe that levying such taxes could be a good way to increase household income to for poorer families, which would also produce economic growth. I agree that subsidizing families will increase growth, however I submit that the best way to do so is through either existing subsidies or wages. 

Recent changes to the Child Tax Credit are the best trade infrastructure we can hope for, although a higher minimum wage is even more desirable. People need more money to buy imported goods and to go back into the labor force. There are many discouraged workers, some of which turn to less than legal means to earn an income. It is time to allow them back into the light. Work does not meet the needs of many workers. Now is the time to change this.

Increasing the Child Tax Credit, making it permanently refundable and establishing a carbon VAT should all be elements of comprehensive tax reform. The nation has already taken steps on the journey to reform in passing the American Rescue Plan Act. Reform should be bipartisan so that it has staying power. One possible point of compromise is to end the requirement for all but the wealthiest to file income tax.

Our tax reform plan is designed to provide adequate income and services to families (both with increased minimum wages and child tax credits) through employer-paid taxes, funding government services through a goods and services tax, separating out taxation of capital gains and income from income to an asset value added tax and higher tier subtraction VAT collections on wage income up to the $340,000 level and above, with additional personal income taxation for incomes over $425,000. Please see our third attachment for details.

Attachment - Debt as Class Warfare

Attachment - Trade Policy

Attachment - Tax Reform