Federal Tax Proposal

Federal Tax Proposal

After World War II the United States emerged as the undisputed victor and the wealthiest nation on earth. The economies of all other countries were either broke or in ruins. The United States was unscathed with its industrial base totally intact and equal in size to that of all the nations of the world combined. American cities were untouched by the devastation of the greatest war the world had ever known. Having been born in the Great Depression and then to grow up in the post war years in the United States during those incredibly rich, halcyon years was to be extremely fortunate as a member of one of the luckiest generations in the nation’s recorded history. It was a time which will never again be repeated.

That was long ago and quite unlike this day and age. The extreme difference between then and now was once again brought to my attention a few days ago as I reflected on various economic forces then and now.. It was all brought into focus by the purchase a single item in a local store at a very good price. The label on the box indicated that the product had been manufactured by a well known American company and even indicated the firm’s United States address. What caught my attention was the price which was about half what I would have expected to pay. When I opened the box I saw that the appliance had been manufactured in China which explained the low price. In another instance I was displaying an item I purchased through the mail to a friend and as I was describing its uniqueness. “This is a marvelous precision instrument made in Germany,” I pointed out.

My friend looked at the device and said, “the small print on the label indicates it was made in Taiwan.” How times have changed. In recent years when visiting the United States mainland I have noticed within the great shopping malls around the country that very few items offered for sale today have been produced in America, the vast majority being manufactured in Asia and elsewhere. And we all know why – it is because of the low wages in Asia compared with those in the United States, the absence of bureaucratic government regulations such as OSHA, environmental, historic preservation, labor union demands, etc., all of which have increased the cost of doing business. Naturally these added costs are passed on us, the consumers. Many American entrepreneurs can no longer afford to remain in the United States if they want to continue in business. They move their facilities abroad to produce products at lower cost, Americans lose their jobs at home, the standard of living falls, communities lose tax revenue. When this happens very often the first government service to be cut is the allocation to education. Of all the areas in government to cut spending, education should be the last place. Without educated people trained to exist in the modern world, economies will stagnate and decline. Look at Chuuk where education is the basic problem of that economy. Columnist Lester C. Thurow pointed out in the Asahi Evening News, “ No country without a revolution or a military defeat has ever experienced such a sharp shift in the distribution of earnings as America has in the last generation.” At no other time have median wages of American men fallen for more than two decades while the per capita domestic product was increasing. The median real wage has dropped from $34,048 in 1973 to $30, 407 in 1993. Wages for men between the ages of 25 to 34 are down 25 percent while the GDP increased by 29 percent during the same period. This decline in the purchasing power of income is happening at a time the cost of living has been increasing.Thurow went on to point out that in today’s global economy new production and distribution methods require a better educated labor force. Since almost anything can be made anywhere it is no wonder that American manufacturers invest abroad where there is an abundant supply of well educated, cheap labor.

You can pay an engineer in Thailand for six months for what the same skilled American engineer earns in a month in the U. S. The vast majority of jobs now being created in the United States today are minimum wage, “Mac-jobs” with few fringe benefits. Most of us are aware of the long standing difficulties the U. S. economy has experienced. Consider this – have you ever heard, or read any one in the the United States Government recommend the following simple solution to increasing investment and thereby producing more jobs? Amend the U. S. Tax Code to permit all funds placed in a savings account to be tax free. What will happen? Enormous amounts will flow in the banking institutions with the result that the interest paid on such savings will drop. Savers may lose several points on interest paid but will gain on reduced taxes since no tax is due. The banks will soon be awash with money and since they must re-lend these funds in order to earn back the interest they have paid out to those with funds on deposit – plus their profit – interest rates on borrowed money will drop because banks will rush to meet the competition from each other. People will borrow money at competitive low interest rates to purchase homes, automobiles, etc. That will place the country on the road to real economic recovery. Have you ever heard an economist in the U. S. government recommend that solution? I haven't. There are several details that would have to be worked out in such a program such as placing a strict limit on the amount of government bonds a bank could purchase – otherwise that is where most of the funds on deposit would go with the result that the federal government would be off on another spending spree and the American people would be back where they were.

Of course such a revision in the tax structure will not help the country's deficit in the short term but over the long term, because of the economic stimulus created, it will. Trying to get U.S. Government bureaucrats to understand this is harder than trying to pull teeth out of a chicken. One of the principal reasons the United States has economic difficulties today is because it has one of the lowest rates of savings in the industrialized world. Indeed, to my knowledge the United States is the only country in the world that is in the process of de-industrializing.