Another Issue With the Fair Tax
Another Issue With the Fair Tax.
How would the Fair Tax impact foreign investors? Which foreign investors are awash in dollars? Right now the answer to that is China due to the large trade imbalance and members of OPEC due to high price for a barrel of crude oil.
So let's pick an example. Let's say an Arab Sheik from Dubai chooses to invest in Boeing. If the Fair Tax is enacted, Boeing will not be paying any federal business taxes (although the new jetliners they sell to the domestic market would be taxed). Our Arab Sheik would receive a return on investment for anything that is exported (a large part of Boeing's profit market) tax free. He then withdraws the profits, doesn't pay any income tax because income tax has been abolished, and takes the money back home to Dubai to purchase American exports that are also tax free to support his lavish lifestyle.
It would seem that our Arab Sheik can invest in America, profit from the investment, take the profits back home and purchase American made goods (like F-16 jet fighters) without paying a dime in federal taxes. Sure seems fair to me! Sure it does. (Sarcasm intended.)
How would the Fair Tax impact foreign investors? Which foreign investors are awash in dollars? Right now the answer to that is China due to the large trade imbalance and members of OPEC due to high price for a barrel of crude oil.
So let's pick an example. Let's say an Arab Sheik from Dubai chooses to invest in Boeing. If the Fair Tax is enacted, Boeing will not be paying any federal business taxes (although the new jetliners they sell to the domestic market would be taxed). Our Arab Sheik would receive a return on investment for anything that is exported (a large part of Boeing's profit market) tax free. He then withdraws the profits, doesn't pay any income tax because income tax has been abolished, and takes the money back home to Dubai to purchase American exports that are also tax free to support his lavish lifestyle.
It would seem that our Arab Sheik can invest in America, profit from the investment, take the profits back home and purchase American made goods (like F-16 jet fighters) without paying a dime in federal taxes. Sure seems fair to me! Sure it does. (Sarcasm intended.)
posted by Little David at 1/01/2008 12:36:00 PM
18 Comments:
Did you ever think that there exists the possibly that tax would be assessed on foreign purchases from point of production? Or even better yet, all goods shipped out of country that hadnt already been previously taxed, would have the tax levied on them, would make it impossible for a company to simply "shift" assets to a more tax friendly country, and sell them there.
This is just a loop hole with a very simple solution.
The loop holes in the current taxation system could fill a 50 volume series, and I think it ironic that you never once seem to acknowledge that the American tax system is one of the most complex, flawed, and abused systems in the world.
That would do away with one of the strongest points of the Fair Tax.
Instead of taxing imports, you would have us tax exports. Sheez, that sure should help us balance the trade deficit wouldn't it? (Yes, sarcasm intended.)
Imports would be taxed at point of sale just like all other consumer goods.....In addition, I favor strong protective tariffs, and the immediate withdrawal from all free trade agreements.
There is nothing good about letting companies shift assets to other countries and produce or sell the products there. The lack of tariffs and taxes on god knows what items in all these screwed up worthless free trade agreements are the reason why the US has lost a majority of its manufacturing base.
There is nothing you can do to prevent corporations from shifting production outside our borders. However allowing them to manufacture within our borders free of taxation, while they would be subject to taxation if they manufactured elsewhere, is one of the strengths of the Fair Tax.
But you are losing track of your own argument. Your first post addressed exports and your second post addressed imports.
1. There is nothing you can do to prevent corporations from shifting production outside our borders.
- Yes you can. You make it not economically viable for them to do so. This is where tariffs come in.
2. But you are losing track of your own argument. Your first post addressed exports and your second post addressed imports.
- You shifted the discussion to imports in post two.
While tariffs might protect the domestic market, they would do nothing to protect foreign markets. If a corporation is going to be more competitive in foreign markets they will still shift production and likely still remain competitive in the domestic market even after tariffs. By the way, American products produced within America's borders would then be subjected to protective tariffs by all of the foreign markets who's goods are subject to tariffs by the US.
1. If a corporation is going to be more competitive in foreign markets they will still shift production and likely still remain competitive in the domestic market even after tariffs
- All businesses will chase the lowest production cost. If you force the cost to be higher to produce from foreign soil, they will move/and or stay here.
By the way, American products produced within America's borders would then be subjected to protective tariffs by all of the foreign markets who's goods are subject to tariffs by the US.
- so what? Very few American companies are benefitting from large amounts of exports any how. There are several books I can recommend, including China Inc., which show that the majority of US companies, producing in the US, that enjoy any kind of serious export, are those which produce a very specialized, usually high dollar, item. Nine times out of ten, its an item that is very difficult to pirate or replicate, and is in very high demand. The most common items are high tech precision machinery and machining tools. These take a very long time, and a great deal of investment to replicate on the black markets of the third world.
Unfortunately all the tariffs in the world are not going to replace our dependence on foreign oil. Since our dollar is no longer backed by the gold standard, in order to get foreign sources of oil to accept our dollars in exchange for it, such continuing acceptance depends on trade.
As I previously stated, if we put protective tariffs on foreign goods, there is nothing stopping foreign markets from doing the same to our goods. Machine tools and aircraft can be obtained from Europe and electronics could be obtained from Japan for example.
With free trade, the value of our currency depends on the balance of trade. Witness the current fall of the value of the dollar due to an excessive supply of dollars in the world market. Already there are signs that foreign production sources are starting to shift production to American soil due to the precipitious fall of the dollars value is now making production cheaper here. Of course China is still not playing fair by artificially maintaining a false low value for the Juan.
1. As I previously stated, if we put protective tariffs on foreign goods, there is nothing stopping foreign markets from doing the same to our goods.
- why should this be a problem? Per capita, the US is the largest consumer on the globe by far. The puny amount we export to any one country, is not worth the jobs and additional incomes added to our economy by forcing foreign producers to our shores to chase our consumer demand. Im sorry, Indonesia, Mexico, and whatever other third world dump that is stealing the US manufacturing capacity is at no time going to be able to absorb the US demand that would be lost by trying to get in to a tariff war. Are those factories going to just sit there and cry? No, they are going to find demand.
Since we have to import large quantities of raw materials (beyond oil) how are we going to pay for these raw materials (including oil) if it is not through trade?
What raw materials except oil is the US lacking in severe amounts?
I disagree that we actually "need" a great deal of resources from overseas, with the exception of oil. I think its simply cheaper to produce it there and bring it in, and thats why the US has become so dependent on imports for things we have an abundance of, such as grains, cotton and lumber.
How about these raw materials?
Aluminum - 41% of which is imported
Bauxite - 100% imported
Barite - 79% imported
Copper - 43% imported
Manganese - 100% imported
Nickel - 49% imported
Titanium - 65% imported
Vanadium - 100% imported
Zinc - 56% imported
1. How about these raw materials?
Aluminum - 41% of which is imported
Bauxite - 100% imported
Barite - 79% imported
Copper - 43% imported
Manganese - 100% imported
Nickel - 49% imported
Titanium - 65% imported
Vanadium - 100% imported
Zinc - 56% imported
- This is not an answer to my question. I dont care how much we do import, that is not neccessarily equivalent to what we "need" to import. For example, the US probably imports 95% of all shoes, yet we dont "need" to import shoes, its just cheaper to produce them somewhere else.
For instance, a little research on copper shows us that the US has one of the largest reserves by country of the mineral, but continues to abandon raw copper extraction and mining because of cheaper sources in China and strict environmental laws in the US that do not govern other sources.
They have limited stores of bauxite, but do not mine the mineral at all, and have significant stores of vanadium
The fact is, the US COULD produce a whole lot more resources then it does based on reserve deposits, it just doesnt because of economic .
Since you have forced me to site my sources, I think it is only fair that I be able to ask the same. What sources can you site that prove America is not dependent on foreign sources of raw mineral materials?
How much of remaining materials within the United States will it not cost an arm and a leg to get at?
1. Since you have forced me to site my sources, I think it is only fair that I be able to ask the same. What sources can you site that prove America is not dependent on foreign sources of raw mineral materials?
- Im not attempting to prove that America isnt dependent on some foreign materials, Im trying to prove that America is responsible for a majority of that dependence, not lack of resources. There are some resources America cant possibly produce enough to meet demand, and for those few resources, it would be neccessary to work out trade agreements.
2. How much of remaining materials within the United States will it not cost an arm and a leg to get at?
- I dont know, I havent found anything stating the cost of extraction, but cost shouldnt be a factor when its costing the US thousands of mining jobs to obtain it from a cheaper source.
If the resources were economically extractable they would already be being mined due to the high costs of commodities on the world market right now.
In mining areas (such as Wyoming) there are already shortages of skilled labor. When I travel through Wyoming I always keep my fingers crossed that I do not have a breakdown because there are very few mechanics available to work on trucks. The mining industry hires most diesel mechanics.
We should bar imports of these resources anyway? So I take it you would not mind if the next automibile you purchase doubles or even triples in price?
1. If the resources were economically extractable they would already be being mined due to the high costs of commodities on the world market right now.
- Key word is economically extractable. That doesnt mean "easily" that means mining the resources in the US is cheaper on a global level then buying them. The fact is that, in most cases, it is cheaper to aquire them, but then again, that doesnt mean the US doesnt have them, just that they are buying from the lowest bidder, which is costing us jobs and making us dependent on foreign things, which in turn, forces us to bend on these "agreements".
2. In mining areas (such as Wyoming) there are already shortages of skilled labor. When I travel through Wyoming I always keep my fingers crossed that I do not have a breakdown because there are very few mechanics available to work on trucks. The mining industry hires most diesel mechanics.
- Mining is not a stable job any longer, and therefore does not attract the candidates it once did. Thats the same reason why little Jimmy doesnt grow up wanting to work in the Ford plant any more. Turns out, it doesnt look so good after 2 of his uncles and his older brother got laid off. With mines closing every where because its "cheaper" to simply ship the resources in, even amongst people willing to accept the obvious negatives to working in a mine, there are few people who will do that, for fear of being laid off frequently.
3. So I take it you would not mind if the next automibile you purchase doubles or even triples in price?
- There is no evidence this would be so. At one point in time the US was the worlds biggest steel producer and parts maker, and even with wages higher then most industrialized countries, STILL put out some of the cheaper cars in the world. I think, with effective leadership, and less greedy execs, American manufacturers could return to the same era. Japan and Germany are not that much further behind us in per capita wages, and are able to make WAY cheaper cars, even on our soil.
1. The fact is that, in most cases, it is cheaper to aquire them, but then again, that doesnt mean the US doesnt have them, just that they are buying from the lowest bidder, which is costing us jobs and making us dependent on foreign things, which in turn, forces us to bend on these "agreements".
- If American industry starts buying from the highest bidder, it will make American manufactured goods that much more expensive on the world market.
2. With mines closing every where because its "cheaper" to simply ship the resources in, even amongst people willing to accept the obvious negatives to working in a mine, there are few people who will do that, for fear of being laid off frequently.
- Actually I belief that mines are opening and expanding due to commodity prices, not closing. Sure some mines might close after they are mined out. The unwillingness of workers to take up mining does not explain the labor shortage. Diesel mechanics were willing to hire on with the mining industry because of the high pay offered. Pay much higher then that offered by the truck stops and truck dealerships. In Wyoming, most of the available diesel mechanics are now working for the mines. Evidently these workers were not enticed by the decent wages and long term stability offered by the trucking industry (no matter whether it is imported or produced locally, it still has to be hauled by a truck).
3. Japan and Germany are not that much further behind us in per capita wages, and are able to make WAY cheaper cars, even on our soil.
If raw material prices go up the price of Japanese and German cars will go up as well. I believe the explanation for the price advantage of Japanese and German cars made in America is due to the relatively short time they have been producing them here. Legacy American producers have a larger pool of retired workers who are nothing but an expense. The Toyota, Nissan etc plants have fewer retired workers that would add considerable expense to each automobile produced. Retirees add $2,200 to the cost of each car manufactured by the American manufacturers. Some of the legacy automobile manufacturers retirees are over 100 years old (the oldest General Motors retiree will turn 110 this year). The newly negotiated UAW (United Auto Workers) contract the should result in considerable savings to the legacy auto industry by throwing the mushrooming medical coverage cost problem into the lap of the unions.
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