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For 40 years, the United States has been signing trade agreements that are supposed to reduce or eliminate tariffs and thereby promote free trade. European countries sanctimoniously proclaim they are reducing their tariffs, but in fact they just replace their tariffs with a steadily increasing Value Added Tax, or VAT, which accomplishes the same objective. Foreign countries simply substitute high VAT rates for high tariff rates. Most foreign countries still have de facto tariffs against competition from U.S. goods that are as high as their tariffs of 40 years ago. Of course, this racket is flagrantly contrary to the announced goal of free-trade agreements. Congress has tried repeatedly to address this injustice by modifying our U.S. tax system. But the Europeans filed a case against us at the World Trade Organization and got the WTO to rule our legislation illegal. The VAT tax also plays a big role in providing incentives to lure U.S. companies to relocate their plants overseas. The VAT tax paid by companies located in foreign countries is rebated by their governments for products that are exported. Therefore, when a U.S. company relocates to a foreign country, it avoids paying U.S. corporate taxes, and the taxes that would be owed to the foreign government are forgiven (rebated) on all the products that are exported. This creates an irresistible magnet to attract U.S. companies to transfer their plants to a land where they can avoid most of both countries' taxes. It's no wonder that DaimlerChrysler will soon start building cars in China to ship back and sell in the United States under Chrysler names such as Dodge and Jeep. This decision means that 11,000 manufacturing jobs and 2,000 white-collar jobs will be eliminated over the next two years. The combination of avoiding U.S. corporate taxes and having Chinese taxes rebated (forgiven) will help DaimlerChrysler to sell new cars in the United States much cheaper than any it can manufacture in Detroit. The VAT rate in Germany is 19%, so the German carmaker gets a 19% tax rebate on every vehicle exported to the United States. That subsidy enables the German auto manufacturers to sell cars in America for much less than those same cars sell for in Germany. On the other hand, a U.S. manufacturer exporting an auto to Germany must pay the German government a VAT equivalent tax of 19% of the price of the car plus 19% of all the additional costs of transportation, insurance, etc. That means a U.S. car costs 19% more in Germany than the same car sells for in the United States. Today, 157 other countries use a VAT tax system that gives foreigners a tremendous unfair advantage over U.S. producers in both U.S. markets and in foreign markets. This massive economic disadvantage cost U.S. producers $327 billion last year, and resulted in the loss of three million U.S. manufacturing jobs in the last six years. After 40 years of tolerating this ripoff, we want to hear from national leaders who will demand a new strategy and a level playing field for American products. The United States should not play Uncle Sucker any longer. |
