Value Added
Ralph Murphy
(4/2019) Trade war talk between
the United States and world partners to include
importantly Europe, the Americas and the Far East now
center more on stability issues than tax initiatives as
the President downplayed formal summit engagements in
favor of informal talk sessions to reach accords. It comes
amid a self imposed moratorium on tariff taxes to world
steel and aluminum imports that have all but collapsed
along with the Chinese growth pattern now expected to
match levels of the 1990s amid fund withdrawals.
What’s at stake in policy review
seems to include overlap funding or billing with external
taxes on selected imports providing revenue as tariffs
that are already funded by income tax revenues. There is a
current need to exactly define the costs of government
services to include conventional defense and civil
structure needs versus vague affordance to the revenue
sourcing, subsequent control and expenditure. An objective
of equity is important as well given the affordance of
broadly variable tax policies, which can target a random
group of producers or wage earners who may have little
involvement with its outlying need.
The latest round of tariff talks
or those related to a tax on imports of goods or services
from foreign markets has revealed real incongruities to
stated objectives as protectionism versus fund access. If
the industry is taxed directly as with an excise tax that
affects just that sector there seems to be an injury
aspect that translates to policy review. If it’s deferred
to the general populace as income tax measure it’s less
likely noticed or redressed for appraisal. That concern
draws scrutiny to the tax system itself as the fundamental
needs are relatively low cost but the affordance to Law is
very broad and policy makers take it as far as they
legally can in billing and seem to want even more as
witnessed by the tariff measures.
Personal income taxes are a
relatively new phenomenon to the American economy
emanating from legal affordance of the 16th amendment of
1909 that allowed Congress " to lay and collect tax on
incomes from whatever source derived". Prior to that
measure there had been brief civil war income tax measures
but were repealed by 1872 in favor of existing ones. Key
industries were domestically targeted and the customs
duties drew money from trade concerns.
Tariffs were a major policy
commitment of the early American colonists but the legal
wording that permitted them was confusing and seemed
contradictory in an import export clause that allowed
state control of their export taxes but ultimately allowed
federal control as a 5% tariff was agreed to by the 1789
treaty. That import and export tax reportedly covered most
all the government billing without any income tax through
the First World War when President Woodrow Wilson accepted
the bipartisan consensus the variable tariffs were too
high and harming trade.
The issues and problems remain as
that initial tax was a flat rate at 7% of earnings but
again the legal affordance was vague, need for the billing
could be exaggerated and subsequent policy changes led to
extreme complexity in brackets and payment exceptions. It
reached the point where the original interests were almost
lost in ability to usurp personal earnings. Now there’s an
attempt to restore or elevate the tariff taxes as they
never were entirely dropped but should be in favor of
broader equity to sales and oddly Europe might have the
groundwork for the answer. There and elsewhere a federal
tax exists that replaces some of the income and trade ones
and could further do so if closer controlled and
scrutinized. The value added tax there is subject to
variance to internal regions and markets but again it
could be more effective if there was a relatively exact
consensus on spending requirements and close scrutiny to
the outlays as well as transient need given changes in the
operating environment.
The billing would be reflected in
the consumer sales prices but the available money would be
higher without the personal income tax and would likely
balance out cross borders. Official legal control would
remain the host federal prerogative. Again to internal
markets the tax would be uniform and not variable as no
single sector would then be overburdened. That’s an issue
with excise taxes as well as the tariff ones which can
also vary widely between economic sectors.
An industry protected by high
import fees could benefit but others with export costs
lose market share. Trade duties can simply be too random
or poorly scrutinized to meet seemingly well meaning
commitments as protection better served by blocks or bans.
If money is involved especially to federal legislative
accords any reversals are painstakingly difficult even if
the original objective has been met. Petroleum is a case
in point with the federal gas tax at over 18 cents a
gallon linked to a Federal Highway Act completed decades
ago.
Another issue that has emerged is
the relative strength of multi national corporations (MNCs)
chartered in one nation but operating in sales or
production capacity of another. There’s often a tax or
regulatory advantage to the initial founding of the
projects, but the MNC is subject to foreign and domestic
laws and the perceived benefits then offset by policy
changes either regulatory or taxing that make the
operation too costly for a private sector return on the
investment.
If a governing initiative is take
or allowed to salvage that type of operation It’s unfair
to the host industry and amounts to foreign intervention
especially if the losses are large or chronic. As a rule
if a foreign subsidy role is suspected the concern should
be banned or subject to scrutiny as to objective as its
likely political affecting more than that system and
interest. MNCs can also play an important host benefit
using regional resources but culture and production
techniques have to be considered and higher technology
ones thrust into relatively primitive areas routinely
fail.
When monitoring official trade
policy as it reflects consumer interest or behavior the
public should be made aware of the objective to the
framers goals and allowed to scrutinize its result for
further action. Customs duties or taxes may variously
protect a host industry but other means can be far more
effective without cash changing hands. A standard federal
tax that covers what really seems relatively low
expenditure needs should be an option if the others can be
politically dropped.
Read past editions of Ralph Murphy's Common Cents