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Richmans' Trade and Taxes Blog
An Economist's Plan to Increase Economic Growth And Create Jobs
Raymond Richman, 8/22/2015
Mortimer Zuckerman, Chairman and Editor-in-Chief of U.S. News and World Report asked in an opinion piece in the Wall St. Journal, 8/21/2015, “Who Will Get the Dreary Economy Going?” We face another recession on the horizon, he says. “Yet there is little urgency from the White House these days regarding the economy. And what is the focus of the current presidential candidates and the media covering them?” They are focused on Hillary’s email, on illegal immigration and immigration reform, overturning the Affordable Care Act, and a wide number of domestic issues none of which have anything to do with economic growth or increasing employment. Little has been accomplished since 2009. Millions are employed part time, millions have left the labor force and given up on finding a job. “..(W)hat we need is a public discussion of where, precisely, America is headed economically.”
The rest of this article is an attempt to show how economic growth can be stimulated, good jobs can be created, prosperity regained, and, as Donald Trump claims, America can be great again. This is what he and the other candidates can pledge to accomplish.
- They should propose first and foremost balancing our international trade. My mentor Prof. Milton Friedman recommended that the U.S. adopt a free trade policy but at the time the USA was the world leading creditor. He would not be advocating a policy of free trade given our position as the world’s leading debtor and the fact that most of our leading trading partners are employing mercantilist policies intended to gain a trade surplus and grow their economies at the expense of the American worker. Trade deficits have cost us millions of American jobs, putting downward pressure on wages and living standards in the USA. There is a simple way to promote what all economists agree is beneficial to all trading partners, balanced trade. That policy is explained in a book of which I am a co-author, a single-country-variable-tariff, the so-called Scaled Tariff that is explained in the book, Balanced Trade (Lexington Books, 2014). The tariff goes up as a significant chronic trade deficit with a trading partner increases but diminishes as the trade deficit is reduced, disappearing completely when trade is brought close to balance. Countries with whom trade is close to balance would not be affected. Only large countries with significant chronic surpluses in their trade with us would be affected. The tariff would raise the price of imports from the country to which it is applied but would yield substantial tariff revenues that would more than compensate for the high prices.
- End the multitude of inefficient government interventions in the private economy. These range from laws requiring all government contractors to pay union wages on all federal contracts, minimum wage laws, barring the export of American-produced oil, and a host of regulatory bodies from those created by the Dodd-Frank bill, to the Community Investment Act which forced banks to make sub-prime loans and led to the severity of the Great Recession. (Incidentally, the first two mentioned, the Davis-Bacon Act are racist laws first enacted during FDR’s administration and urged on him by lily-white unions to prevent blacks from competing. Until the minimum-wage laws, blacks had lower unemployment rates and black families had a larger percentage of two parents than white families.
- Reduce federal government inefficiency and waste by eliminating some federal departments and agencies such as the Department of Education, the Department of Urban Housing and Development, the EPA, etc. Eliminate the property-trap laws that keep the blacks in urban ghettos and the poor in continued poverty. Education is a state function, cities and local governments are creatures of the States, and the EPA should be abolished and replaced by a law that prescribes environmental rules. Congress granted the executive numerous authorities which is an invitation to abuse, as the EPA has demonstrated, and to corruption. Eliminate regulatory bodies and similarly replace them by laws specifying the regulations. Congress should prescribe rules, not create authorities to implement its policies.
- Half of the revenue from the federal income and estate taxes should be distributed to the States in accordance with population. The 16th Amendment to the Constitution authorized the federal government to levy an income tax and changed the nature of our government giving enormous resources to the central government, transforming the U.S from a republic in which, under the 10th Amendment to the Constitution, all the powers not specifically granted to the federal government were reserved to the States or to the people. The federal government has become an all-powerful central government like all the European powers instead of the primacy of the state governments and the people as envisioned by the Constitution.
- The corporate income tax whose top rate is the highest of any major country constitutes a severe handicap to American manufacturers competing internationally. Many of the Republican candidates favor reducing the rate of the tax. Economists are not even sure who bears the burden of the corporate income tax. Some believe corporations selling domestically are able to pass the burden of the tax to consumers. Corporations that export are unable to pass the tax to consumers because of the need to compete with their foreign competitors. Regardless of who bears the burden of the tax, it is one of the worst taxes from an equity point of view. Middle-class and small investors have their income from corporations taxed at very high rates when their rate of tax under the personal income tax may be much lower than the 39.6% that all of the large corporations pay. We believe corporate income should be taxed as partnership income is taxed, namely under the personal income tax. The corporation would pay no corporate income tax but would withhold personal income tax at a fixed rate, something that applied in Britain for centuries under the historic Income and Property Taxes. The effect because of the absence of any corporate income tax at all would make American manufacturers the most competitive in the world.
No doubt, other measures would contribute to growth and the creation of jobs, but these would go a long way to returning growth to the U.S. economy.
Comment by Ron V, 8/25/2015:
Your article said it in a nut shell.