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America needs to regain the fundamentals of a strong economy for a number of important reasons. National socio-economic health, political and diplomatic influence in the world for trade, defense, and standard of living all depend on a fundamentally strong economy. The fundamentals of a strong economy, from a non-economist’s view – mine, start with comparative advantage in world trade. This is something which our country and our leadership and labor unions have taken for granted over the last 20 years, letting this precious commodity dwindle away. We also have mistaken productivity and its usefulness toward comparative advantage with an effective trade economy. Remember, while productivity helps our trade advantage, it does little to help our trade related employment number or the quality of the trade related jobs. Simply put, the definition of comparative trade advantage is “what do we have to offer in the deal that makes us come out ahead of the other guy?”

We hear about free trade agreements and that trade is good – and it is! Entering into the world trade arena without a trade advantage or at least a trade equilibrium is just down right dumb and we have run headlong into this arena stark naked. We need to rediscover our comparative trade advantage or discover a new one, if we are to successfully compete in world trade.

Look around, the world has oil and we need it, the world has cheap goods and we need them to keep inflation down, the world has the capability to produce both quality goods and cheap goods that it could not produce 50 years ago, the world has cheap labor – shall I go on? What do we offer? Well we still have some bright minds, even though they may be heavily populated with foreigners, we still can grow food with the best of them, we still offer innovation, but we have no monopoly any longer on innovation. Our dollar is losing value which helps us produce relatively cheaper goods for the world market and thus lower the trade deficit.

A devalued dollar is a two edged sword as also it brings us a higher cost of living and a lower standard of living relative to the world. What do we plan to do about this obvious problem? Well Senators Obama and Clinton want to tax us more – mostly business and the rich – you know, tax the engines of investment and growth! Senator McCain wants to keep personal income taxes low and cut spending, but this will not bring us back to a fundamentally strong economy even though it is good start. It is how, when, and who we tax that is the problem. We are an economy that taxes income accumulation. We should be taxing the disposable money spent on “stuff” and not the money earned and used for growth re-investment.

Businesses pay a 35% Federal corporate tax rate and varying state corporate tax rates, bringing the total corporate income tax on profit to between 40% and 50% for the most part. Remember the corporations only collect the tax and anyone who buys their goods pays the taxes. If a corporation works on a 15% profit margin, and they make a set of golf clubs which they wholesale for $500, $65 is taxable profit of which the retailer pays $30 of the income taxes due on the item. When the item is resold at retail at $800, assuming a 15% profit margin, $105 is the taxable profit and $47 is the income tax due on the item paid by the end user, the consumer, you. Actually you pay a total of $77 of the corporation’s and reseller’s income taxes.

Granted, this example is clunky and probably filled with holes, but it does serve to demonstrate that when we tax corporations for manufacturing or reselling all we do is raise the price of the item. This works fine when all the competition is paying the same taxes. If does not work fine when world trade is involved, because our goods and services are then less competitive with the goods and services of other nations. We already start out with a disadvantage, in that we pay our workers more than the workers in far off lands receive, but this can be adjusted with productivity.

Unless we seriously look at our tax structure and make changes sooner rather than later – maybe move to a consumption tax or a fair tax and get away from inhibiting investment, growth, and production with income taxes, we can expect to have a lower dollar value, a lower standard of living, etc. Income taxes on domestic corporations foster a comparative trade disadvantage for us. Our government must find ways to domestically foster healthy manufacturing and servicing sectors so we can compete with the rest of the world without giving up good paying jobs. If the tax burden shifts from corporations to individuals, their will be no real change in who pays the taxes, except we will compete in the world trade markets effectively, create good jobs, and restore a fundamental of a good economy.

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Sounds confusing, doesn’t it. The cry around this country to “get those dastardly corporations – they are the cause of all our troubles” is so misplaced that it is almost like saying don’t put prisoners in prisons, because prisons are unsafe because there are too many dangerous people in prison.

Have I now cleared all this up? Okay it is simple, even if Senators Obama (now President) and (now Secretary of State) Clinton appear to not get it. Corporations factor in the income tax rate into their cost of sales and thus the price they set on what you buy at the point of sale. So, go ahead and tax the living day lights out of these corporations, they just collect their income tax for the government from you. There is one hiccup with this plan. These corporations are unable to incorporate their income tax into the price on sales overseas or in Canada and Mexico.

Senators Obama (now President) and (now Secretary) Clinton, please pay attention here as this is important and you act like you have never heard this before. When you tax a corporation and it cannot pass on that tax it either cannot survive internationally or it adapts by closing plants in the United States and opening these plants in another country. Are you still listening? When they do this, they create jobs in other nations and terminate jobs in the United States. This is called free enterprise. We could try to regulate corporations and force them to keep the jobs in the United States, but then they will not make any money and the investment capital will move to a company in another country and not here. It is like squeezing a balloon. Squeeze one end and it gets bigger on the other end – squeeze too hard and it breaks.

Our tax code and the fact that we tax our corporations at the second highest rate internationally may have something to do with out trade deficits and the loss of good paying jobs in this country. So yes, when we tax a corporation they bill us for the tax through domestic sales or sell us merchandise made in another country where the bulk of the profit is taxed at the other country’s favorable rate and the taxes go to the other country.

Senator (now President) Obama has a socialist solution for this conundrum. Instead of lowering taxes on domestic corporations so they can manufacture in the United States and create good paying jobs. These are jobs that make you more financially viable, jobs that make our economy healthier, and jobs that help us export to other nations. Senator Obama’s solution is to support the Patriot Employer Act. This act is right out of the socialist play book – we all know that the socialist economic system is failing all over the world. It is the second worst economic system, on how people benefit, only when compared to communism.

The Wall Street Journal quotes Peter Merrill whom they refer to as “…an international tax expert at PriceWaterhouseCoopers…” as saying “…Apparently Mr. Obama believes that by making U.S. Companies less profitable and less competitive world-wide, they will somehow be able to create more jobs in America.” http://online.wsj.com/article_email/SB120407121574294919-lMyQjAxMDI4MDI0ODAyNzgxWj.html

Honestly, they must have taught international economics at either Columbia or Harvard when Senator (now President) Obama attended. If he knows better and is sending us down the wrong path just to get elected, then he does not deserve to be President. If he does not know better, then he does not deserve to be President. The same should apply to Senator (now Secretary) Clinton. The solution, Senators Obama and Clinton, is to help these corporations become as competitive as we possibly can and then turn them loose on the world. This will create the right kind of jobs for this nation – we will not have to settle for jobs where you must learn the phrase – Do you want fries with that?

Senator (now President) Obama, drop your support of the misnamed Patriot Employment Act which is a form of reverse protectionism – it protects the world from us – and lower or eliminate corporate taxes. Yes, we all will personally pay more income tax which will be offset by lower prices for goods, since the tax will no longer be included in the price. This will stimulate domestic production of all kinds of goods and improve our standard of living by allowing us to hold better jobs. Aren’t you and Senator (now Secretary) Clinton about jobs?

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