Motus Mentis

In an essay distributed today, Patrick Buchanan suggests abolishing the corporate tax.

We read (long excerpt):

In a press release, “Avoiding Their Fair Share of Taxes,” the AFL-CIO hails Levin [that’s Senator Carl Levin, D-MI, who summoned Apple to the presence and berated Tim Cook for taking advantage of legal tax-minimization strategies] and bewails the fact that though the U.S. corporate tax rate is 35 percent, highest in the world, corporate income tax revenue has fallen to well below 10 percent of federal tax revenue.

“Cash tax payments by non-financial companies in the S&P 500 Index fell … to $222 billion in 2010,” moaned the AFL-CIO.

“Another corporate tax avoidance strategy is to move overseas to a corporate tax haven like Bermuda. By reincorporating offshore, companies avoid paying federal income taxes on profits earned outside the United States.”

Yes, they do. But instead of bewailing this, perhaps we should start thinking and acting as our forebears did. In the same Wall Street Journal that reported on Cook’s defense of Apple, former Sen. Phil Gramm described that earlier America:

“Over the late 19th century, real GDP and employment doubled, annual average real earnings rose by over 60 percent and wholesale prices fell by 75 percent, thanks to marked improvement in productivity.”

Astonishing. And what is the difference between that age and ours? A 35 percent income tax rate on individuals and corporations that did not exist then, and would have been regarded by Americans of the Gilded Age as the satanic work of Friedrich Engels and Karl Marx.

From the Civil War to World War I, our economy grew from one-half the size of Great Britain’s to twice Britain’s. American companies were capturing markets abroad. Today’s U.S. companies are looking for ways to relocate abroad.

Herewith, a modest proposal to turn this around.

Since the U.S. corporate income tax now produces less than 10 percent of federal revenue and less than 2 percent of gross domestic product, abolish it. Get rid of it.

Think of it. A continent-wide nation that doesn’t tax business.

Assume this would cost the Treasury $250 billion in lost revenue.

How to make it up? Put a 10 percent tariff on imports entering the United States, which last year added up to $2.7 trillion.

This tax reform would thus be revenue neutral.

And what would a corporate income tax rate of zero, with a 10 percent tariff on goods entering the U.S.A. from abroad, accomplish?

First, every U.S. corporation that had moved abroad in search of lower taxes in recent years would start thinking about coming home and bringing its production and its jobs back to America.

Second, that $2 trillion in income U.S. companies have stashed abroad would come roaring back into U.S. institutions.

Third, foreign companies would begin to relocate and produce here in America, both to get around the tariff and pay no taxes.

Fourth, U.S. producers would see sales soar inside the $17 trillion U.S. market, at the expense of foreigners who would pay a 10-percent admission fee to get into this market, a fraction of what they used to pay in the 19th century.

While this would cause a surge in unemployment among IRS agents and accountants, hundreds of millions of man hours could be redirected away from filling out tax forms and into productive work.

“Since 1980, the U.S. has run trade deficits in every year totaling about $9 trillion,” writes columnist Robert Samuelson.

That is 9 thousand billion dollars in trade deficits!

It is what unmade America as a self-reliant republic and made China a manufacturing marvel. And those trade deficits are how America became a dependent nation in hock to the world.

From 1865 to 1914, America had 10 Republican presidents. All believed in financing government by taxing imports, not the incomes of U.S. citizens or the U.S. companies that employed them.

Serious question: Can anyone explain to me why this is a bad idea?