The Puzzling Logic of America’s Debate on Taxes
I don’t hear anyone claiming that there is no need for taxes. Everyone agrees that countries must have revenue. Someone has to pay for the roads and schools and so on. But nobody likes the idea of paying taxes.
This paradox is at the heart of America’s current debate over taxes.
Republicans argue that if the government cuts taxes on businesses, they will be encouraged to expand, creating jobs.
And it’s true – so far as it goes.
Some businesses will expand but they will expand in the most profitable places. And the way things are going, that means creating jobs in foreign countries, not in America.
While presidential candidate Herman Cain is tying himself in knots trying to make sense of his 9-9-9 flat tax proposal, Democrats joined Republicans in Congress to pass trade deals with South Korea, Colombia and Panama. The agreements include tariff reductions for goods made in the three foreign countries and brought to the United States for sale.
Cain’s proposal would mean higher taxes for the vast majority of American wage earners and huge tax breaks for the richest 1 percent in the country. But a lot of voters seem to like the idea because it sounds simple.
I have news for candidate Cain: There’s nothing simple about taxes.
Here’s a Catch 22 question for Cain and his fellow-Republicans: Why cut taxes on imported goods, which shuts off an important revenue stream, while raising taxes on working people’s wages?
Yet Republicans vehemently support these conflicting policies.
In an article on the trade agreements, The New York Times reports that:
Economists generally predict that free trade agreements, which eliminate tariffs and other policies aimed at protecting domestic manufacturers, benefit all participating nations by creating a larger common market, increasing sales and reducing prices. But such deals also create clear losers, as workers lose well-paid jobs to foreign competition….
The [United States International Trade Commission] predicted that American farmers would benefit most, because of increased demand for dairy products and beef, pork and poultry. Conversely, it predicted that the pacts would eliminate some manufacturing jobs, particularly in the textile industry….
Opponents, including textile companies, said that the deals would harm the [American] economy by undermining the nation’s industrial base. They argued that South Korean companies would benefit much more than American companies because they were gaining access to a much larger market.
While he supports the free-trade policies favored by Republicans, President Obama wants to tax millionaires and billionaires to provide funds for job creation. He argues that the richest of the rich profit most from living (and doing business) in America and shouldn’t mind paying a few extra bucks for the privilege.
To me, the president’s proposals make more sense than the Republicans’.
But both sides are missing the point.
The bottom line is that America is trading away its jobs in exchange for lower prices at places like Walmart. And no amount of tinkering with the nation’s domestic tax structure is going to change that.