Philip L. Hinson
Member, AFFT Board of Directors
Georgians for Fair Taxation
August 12, 2014
Some of us who have been fighting so hard and sacrificing so much for the FairTax for years are occasionally asked the question of why we keep at it. Another way of expressing that sentiment is the view that Congress will never relinquish the power that the current tax system provides them and that we should just accept that we are here to serve them, rather than vice versa. While that sort of resignation is certainly tempting at times, there is one reason that many of us labor on at what we all recognize is a marathon, rather than a sprint, with little to gain from it personally. That reason was in the spotlight this week with a new poll released by the WSJ and NBC1. The poll included the startling finding that 76% of the American public now lacks confidence that “life for our children’s generation will be better than it has been for us.” Although that measure of public sentiment has been increasing for several years, 76% represents an all-time high (at least so far). A number that large obviously cuts across virtually all age, racial, educational, socio-economic, and political lines – as well it should. Another interesting finding of that poll is that many Americans are now blaming Congress for this almost incomprehensible failing.
Every generation in this nation’s 235+ year history has had challenges to overcome, and those challenges have typically been quite different from those that the previous generation overcame. In spite of two world wars, a gut-wrenching and disastrous civil war, the Great Depression, and numerous other huge challenges, prior generations have somehow managed to meet the challenges of their time. Our generation (I am a not-so-proud baby boomer) faces what is perhaps the largest transformational change in world history. That change is the manner in which the experts who have studied globalization view this trend, which by all reckonings is in its very early stages. There can be little debate that the level of global competition that we face today is much greater than it was ten years ago and little doubt that the level that we will face in ten years will be much greater than we experience today. To say that we in the United States, and most especially our elected leaders, fail to grasp the magnitude of this challenge would be a gross understatement. In a previous article I wrote entitled “US Tax Code Hurts Competitiveness,“ I made the case that we have the very worst tax system on the planet from the standpoint of global competitiveness. There can be very little doubt that if we continue to stand pat with such a huge impediment to our global competitiveness, our economy will continue to languish in the face of ever increasing competition.
Clearly the U. S. can and should be able to compete effectively in this new environment. We still have the best higher education system in the world, even if our secondary system is badly in need of reform. We have the best capitol allocation system in the world, at least when we can fight off crony capitalism and allow the free market to allocate capitol. Our intellectual property laws are the gold standard for the rest of the world and serve as a magnet for the world’s brightest and most creative minds. However, we cannot thrive in the 21st century when our tax system provides enormous economic incentives for companies to locate, expand, and produce their products elsewhere. The competition for everything is going global: capital, jobs, markets, educational opportunities — everything.
The response of some of our government officials would be amusing if the stakes were not so high. Under the leadership of Secretary Jack Lew, the Treasury Department is looking at financial penalties which could be used to stanch “corporate inversions.”2 West Virginia Senator Joe Manchin was recently widely quoted as saying that what his daughter did as CEO of a generic drug company should be illegal.3 So here we have the specter of our policy-makers in Washington creating enormous financial incentives for business leaders to transfer capital, plant, equipment, and jobs offshore — and these very same policy-makers demonize the business leaders who respond to the incentives that they put in place. What in the wide world of sports is wrong with this picture? The most encouraging aspect of this sad saga may be the WSJ/NBC finding cited above that Americans are beginning to place the blame where it belongs – on the Congressional policy-makers who are incredibly skillful at finger-pointing and evading responsibility for anything.
Here is the other bitter irony to all of this. As everyone who reads or has a TV in their home knows, the United States is a magnet for individuals from other nations seeking freedom, liberty, and economic opportunity. Our biggest problem is controlling the hordes who wish to reside in the USA for these reasons. However, on the corporate side, we have a problem with companies fleeing the nation that insists that they pay “their fair share” in taxes. Just what does this phrase “their fair share” refer to? The primary incentive for companies to locate elsewhere is that the United States (1) has the highest corporate income tax rate in the world, and (2) remains one of the few nations in the world that insists on taxing the world-wide income of its domestic companies. So U. S. based companies not only have to pay the highest corporate tax rate in the world on domestically derived income, but that same high rate applies to all their global income. When companies relocate their home headquarters to another country, they still owe corporate income taxes on income which originates in the United States (at, of course, the highest rate in the world). To most other nations, that would constitute “their fair share.” In other words, earn it here, pay taxes here; earn it there, pay taxes there. That is not the policy in the US, where the political ruling class insists that they and they alone have the right to define what “their fair share” means. So the response by our policy-makers to businesses fleeing an uncompetitive tax system is to hold these corporations hostage. Quite a contrast between our policies as it relates to individuals versus corporations, isn’t it?
There are countries in the world today which are growing their middle classes (some quite rapidly), even if they have never historically had much of a middle class. This is in stark contrast to the United States, which is seeing its middle class coming under assault, even though our middle class has traditionally been the foundation of our economy. How are they doing it? It is fairly basic, as it turns out. They are pursuing economic growth as a major policy objective. However, when pro-growth strategies are put forth in the United States, they are immediately derided as “trickle down” and a return to failed policies of the past. In his outstanding book That Used To Be Us, Thomas Friedman poses the question of how the United States has fallen behind in the world it helped create. A big part of the answer is the abandonment of the formula for American economic success just at the point in time when that same formula (or at least parts of it) is being adopted around the world.
One question that I have pondered since I became a student of the FairTax is this one: How can we have such an uncompetitive tax system when the need for a 21st century tax system is so enormous and the amount of economic pain being felt in this nation is so extreme? How can our elected representatives go to such contortions to try to “tweak” the current system when they know (or should know) that there is already a solution to this vexing dilemma that they have merely to vote on and pass? The latest example of this is a proposal that House Ways & Means Chairman Dave Camp introduced some months ago. Chairman Camp had been working on this (no doubt with tax payer funded staff support) for quite some time – perhaps a couple of years. When finally unveiled, three different independent organizations4 scored the proposal and found that it would produce very little economic growth. If I were the chairman of Ways & Means and I ignored the pleas of constituents and the general public, and used considerable taxpayer funded resources to arrive at a tax plan which after much fanfare offered little economic benefit, I would be embarrassed and chastened. Does anyone think that Chairman Camp felt that way? Does anyone think that the Republican establishment criticized him in any way for wasting time that we could not afford to waste? Think about this for a minute – Congress has had the FairTax bill for more than a decade now, and yet they continue to waste valuable time doing pretty much anything they can to save the foundation of the current system. Why?
The answer is obvious, once you understand how Congress really works. The current tax system, as uncompetitive as it is, and as big a job killer as it is, does one thing extremely well. It is a marvelous siphon to sweep cash from the bank accounts of well-heeled big money special interests and into the campaign coffers of career politicians and the K Streeters who facilitate this corrupt practice. The trade in tax preferences for campaign cash is an enormous industry, as evidenced by the tremendous growth in the cost of Congressional campaigns over the past few decades, as well as the increasing amounts of reported lobbying fees5.
The first six minutes of a recent episode of The Political Insiders highlights the problem perfectly6. In this segment, the three guest panelists lament the fact that jobs and the economy are extremely high on the list of the public’s concerns, but not so much with their elected representatives. The reason is that our “political ruling class” has largely protected itself from the financial distress that their policies have wrought on the rest of the nation. At one point, Pat Cadell refers to Washington, DC as “Versailles on the Potomac” and criticizes Congress for “feathering their nests while the nation goes into a slow decline.” Several excellent books have been written on the growing disconnect between Washington and the rest of the nation. The authors of those books are both Republicans and Democrats. Pollster Scott Rasmussen has done extensive polling on this subject and finds that large numbers of the American public believe:
- we would be better off picking names randomly from the phone book and sending them to Congress, rather than continuing with our current system of primaries and general elections,
- that their member of Congress does not care what they think about issues,
- that big government and big business work together in tandem at the expense of the general public, and
- that most members of Congress are corrupt.
Please note that the operative word for that last point is “most.” Not some, not a few, not many. Most. Let that sink in. For a nation in which respect for its institutions has been a key factor in the maintenance of law and order and a civil society, that is a chilling thought. And for a nation in which a self-reporting tax system must rely on the perception of at least some semblance of fairness that is critical to its continued operation, this is a trend which is ominous indeed.
If we lose government “of, by, and for the people”7 and allow it to be displaced by government of, by, and for the special interests, we will have lost a legacy that has been handed down to us at enormous cost in blood and treasure. If we allow our baby boomer generation to pass from this earth without assuring that the next generation will have at least as much opportunity for economic freedom and success as we were given by our parents’ generation, then future generations will have every right to curse our existence. If that happens, it will be because we allowed a very small group of self-entitled, greedy, and narcissistic individuals to hi-jack the finest model of representative democracy that has ever existed on this planet for their own personal power and financial success. This is not about partisanship; and those who see every public policy question through the prism of their hyper-partisanship are being used by the professionals who manipulate public perception for their own selfish personal motives. As several astute observers have noted, the biggest political divide in this nation is not between the political left and right; it is between the 1/10 of 1%8 who have hi-jacked our federal government at the expense of the other 99.9% of us. Will that vast and overwhelming majority wake up before it is too late or will we lose that precious legacy forever? I honestly do not know the answer to that question. What I do know is that I am privileged to continue to work with one of the finest groups of men and women that I have ever interacted with who want nothing for themselves and truly live John F. Kennedy’s immortal words: “Ask not what your country can do for you; ask what you can do for your country”. The other thing that I know is that we will never acquiesce to being the first generation in the history of this nation who will leave behind a country with less opportunity than the one we inherited. If that makes us fanatics, then I am proud to wear that label.
- The three organizations were the Heritage Foundation, The Tax Foundation, and JCT (Joint Committee on Taxation).
- The Gettysburg Address http://www.abrahamlincolnonline.org/lincoln/speeches/gettysburg.htm
- This tiny fraction of the U. S population consists of the 535 elected members of congress, their staffs, the White House and its various administrative and cabinet agencies, the lobbyists on K Street and elsewhere, and the big money special interests who manipulate the system through campaign donations and lobbying fees. Scott Rasmussen refers to this group as “the political ruling class”. Mark Leibovich wrote a book entitled This Town in which he refers to them as “The Club”. Peter Shweizer’s term for them is “the Permanent Political Class” in his two books, Throw Them All Out and Extortion. Regardless of what label you use to refer to them, they are the minute minority who have exploited the public trust and perverted the concept of representative government for their own enrichment and aggrandizement.