VAT, Tariff and industrial policy

Trump and his supporters have, as a matter of policy, rejected what was the Neoliberal consensus. Elections matter. See my video on this at

https://youtu.be/ELEjSnXOmpQ 

The question then arises on what tariff rates should be. If we wish to go country by country, the tariff should at least be equal to the exporter's value added tax rate that was zero rated at the border. Canada has a Goods and Services VAT at the Dominion and Provincial levels. The tariff needs to be that much.

If we want a general tariff, simply count up the benefit all countries extend when exporting to us by zero rating and divide it by total imports. Canada, China and Mexico would have biggest weighted impact.

Exempt form tariffs those products which we simply cannot make here at any time during the year. If we don't make something but could do so, then the tariff needs to be set high enough to make cost a wash - with the tariff funding subsidies to develop the industry - say growing cherry trees in California and Florida on a year round basis rather than importing them from Chile in the winter.

Tariffs (or a VAT replacing them - and exclusions can be used to do industrial policy as is suggested above - or could be policy free - should pay for health care subsidies that go beyond what employers could be incentivized to provide - say coverage of their retirees or long term care. Obamacare is crap - premiums and deductibles are too high for the working poor. Medicaid, Medicare and a cost-free public option to cover care for pre-existing conditions should all be VAT or tariff funded.

Domestic military (non-nuclear) basing should be tariff or VAT funded. If people want lower tariffs, they need to quit seeking defense facilities and contracts. This would be more useful if tariffs and VAT could be regionalized rather than uniform in all 50 states.

The portion of Social Security Old Age, Survivors and Disability premiums now paid by employers should be funded by tariffs or a value added tax and be credited to each eligible worker on an equal dollar basis (which removes an objection to personal retirement accounts).

A subtraction VAT should fund childcare and child tax credit subsidies so that employees need not file personal income taxes - with a VAT surtax collecting revenue in lieu of progressive rate structures for income from salaries, interest and dividends.

Capital gains taxes should be replaced by a separate value added tax at an internationally agreed upon rate (to prevent exchange arbitrage) and end the distinction between long and short term gains - as well as letting people hide profits by offsetting them with losses. That rewards failure and automatic trading scams that verge on insider trading.

Some of this has likely been heard before by policymakers. The question of using tariffs to account for the lack of a domestic VAT  should be discussed in the media. Ask members of the administration if this is part of the agenda. If not, it should be. This kind of policy should not be spit-balled. I suspect that part of the tariff calculus includes a VAT question. If not, it should.

And that is how to set tariff rates and what to spend them on.

Trump Ends Neoliberalism

Trump has broken the back of neoliberalism - as his voters wanted. He mimics their social biases (which he does not believe privately - except the racism) and has essentially thrown the wealthy and upper middle class under the bus. 

He has also created industrial policy, with tariffs which, with correct support, can be used to provide what his voters want while making prices rise for everyone else. He has also created conditions for value added taxes. The question is whether he or a successor adopt this solution and the extent to which exemptions and exclusions from the VAT are allowed and, if so, who controls them. The Congress cannot really do the fine work on doing this fairly that the executive branch can - like tariff policy.

The question is whether or how to give more money to the bottom third of income holders - which is about 77% of the population - either through a higher minimum wage & higher child tax credits - distributed through wages rather than either the IRS directly or indirectly through individual tax filing.

Also, the financial assets that hold pensions are not doing poorly. The speculative side is losing money. His voters don't care. I don't either. The bottom 77% of households have tax free income (and if they are invested in speculative assets, they are getting what they deserve) or are temporarily poor because they have had business losses - including those carried over. Switching to a VAT economy eliminates these advantages - especially if an ASSET VALUE ADDED TAX allows for employer based taxation of high wages, dividends and interest and ignores individual capital gains and losses. The latter can also lead to employee ownership - an essentially cooperativists concept that libertarian socialists support.

A tariff policy favors workers (and by implication overseas workers) over capital. Because it (or VAT) can be manipulated by the executive branch, using them (or VAT exemptions) creates industrial policy that the Soviets and Chinese would envy. 

While Trump voters do not understand this, the Russian and Chinese systems where the connected have the power are the same as the old Soviet system. Oligarchs and senior party members have the some crony relationships with the supreme leader  (and his secret policy) in either case. For some reason, American conservatives don't get the joke. Too funny.