Raymond Richman - Jesse Richman - Howard Richman
Richmans' Trade and Taxes Blog
The Irresponsible Tax Compromise
The current leaders of both political parties have been totally irresponsible. They are following the same foolish strategy that some of my beginning economic students try in one of the simulation games that we play. They continually run large government deficits to keep their economy stimulated. At first the government deficit spending helps. But eventually debt payments become such a huge part of government spending that the government loses its ability to ever balance its budgets. From then on, the growing government spending causes hyper inflation which makes the economy totally unmanageable.
Peter Morici had a great Seeking Alpha commentary on December 20 (Downgrade U.S. Treasuries to Junk). He pointed out that the irresponsible tax compromise between the Obama administration and the Republican congressional leadership will result in huge budget deficits into the distant future:
Then he pointed out that this will cause term-term U.S interest rates to climb and climb, as has already begun:
The solution is simple. Balance budgets while balancing trade with the scaled tariff. If the scaled tariff were to just move the U.S. trade deficit back down from the $552 billion rate of the the third quarter 2010 to the $386 billion of 2009, it would provide $170 billion dollars of additional federal government revenue while at the same time providing the American people with $166 billion of additional income, due to the improved ability of American manufacturers to compete with imports and to the opening of the currency-manipulating countries' markets to American exports.
Some think that a tariff would violate WTO rules, but not the scaled tariff. WTO rules let countries with trade imbalances impose duties to balance trade. The scaled tariff's rate with a currency-manipulating country would go up when our trade deficit with that country grows, down when our trade deficit with that country goes down, and go to zero when our trade deficit with that country disappears. It would force the currency-manipulating governments to take down their many tariff, non-tariff, and currency-manipulation barriers to American products.
Tea Party leader, prolific author and talk show host Glenn Beck is fond of pointing out that the United States Constitution has within it the secrets for how to put our country back in order. Our founding fathers provided tariffs (duties and imposts) as a primary method for our government to pay its debts. In fact, Article 1, Section 8 of the United States Constitution begins:
The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;
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