Roemer is the only formally trained economist among the field of candidates, and it shows. He offers a uniquely fresh take on the American economic malaise, which, in our opinion, deserves a serious look from the electorates. He asserts that none of the other candidates have grasped the true nature and magnitude of the crisis that we are facing.
A brief look at tariffs
The first Secretary of the Treasury, Alexander Hamilton, pushed for the adoption of a tariff system, which resulted in the enactment of the Tariff Act of 1789 (The Hamilton Tariff). The Act prevented imports from England from flooding the local market by equalizing the pricing gap, and thus, allowed the embryonic American manufacturing sector to compete with their foreign counterparts. Not only did it provide homegrown enterprises with the opportunity to grow and mature, it also gave them the ability to compensate their employees with reasonable wages.
Prior to the enactment of personal income taxes (through the Sixteenth Amendment and The Revenue Act of 1913), tariffs were the main source of federal income, (peaking at slightly above 80% of federal revenue in the years preceding the Civil War) until the enactment of individual income taxs in the early 20th century.
It is worth noting, however, that tariff is considered by many as one of the primary contributing factors to the outbreak of the Civil War (1861-65). The chief beneficiaries of the tariff were manufacturers concentrated in the Northern States, while the people of the agrarian Southern states were forced to pay for higher priced goods, both imported and locally produced. The sudden spike in tariff rate brought by the passing of the Morrill Tariff of 1861 (18.84% to 36.20%) is cited by some as the catalyst for the secession of the eleven Confederate states (seven declared their secession before the Act was passed and four more after).
Roemer believes that the key to rebuilding the economy is job creation, and the key to job creation is by leveling the playing field. He argues that tariff was one of the principle pillars of early American economic growth, and a reworking of the tariff system is an essential step in our economic recovery.
Roemer’s presents a three-pronged soution geared towards job creation.
•Tax Deduction Solution
Allowing tax deductions only for businesses that employ and buy American made products, legislated through Sections 162, 167, 179 and 212 of the Internal Revenue Code (US Code Title 26). This will encourage businesses (manufacturers and retailers) to but local products, even if it costs a little more, as they will be able to recoup the amount from tax deductions. It will also attract foreign manufacturers to set their operation here in order to compete in the American market.
•Elimination of the Foreign Tax Credit (Internal Revenue Code, 26 USC § 27a)
The Foreign Tax Credit provides businesses with tax deductions for any taxes paid to a foreign country. In one swoop, its removal will make foreign investments less attractive to American businesses and return millions of jobs to the American economy.
•Enacting the Fair Trade Adjustment Solution
To level the playing field between American and foreign businesses, goods imported to the country will be charged an ‘adjustment’ fee. Importers must appoint a certified analyst, who will calculate a fair ‘adjustment’ figure that takes into account the cost of labor, health, safety and environmental standards subjected to American companies.
Now let me be specific about the three things we need to do. I’m not a tariff guy. They worked fantastically for 160 years, but they were characterized by back-room, political dealing, with some Congressmen arguing for unusually high tariffs to protect their districts. Tariffs protected America, but I wanted something better.
I wanted to apply a means of protecting our industries based on economic necessity, to allow factories to survive with a small profit but not reward them with undeserved profits. I wanted to protect our industries using economics rather than politics. You knew I was different.
We have created two simple methods to save and revive the economy and bring America’s industries and jobs back. Each method has its own advantages.
I want to emphasize that these solutions will not end foreign trade. We will still import billions of dollars of goods from China and other manufacturing nations. But it will allow our own manufacturers to compete against unfair foreign producers, and it will encourage foreign manufacturers to move their factories here, using American labor, in order to compete more effectively in the U.S. market.
Number one – I call this the Tax Deduction Solution. I would allow a tax deduction only when businesses employ and buy American. Sections 162 and sections 212 of the Internal Revenue Code allow a deduction against income for ordinary and necessary business expenses. Sections 167 and 179 of the Code allow a depreciation deduction for business equipment purchased. It’s a clear law.
My solution will amend those sections and the definition of costs of goods sold to state that “any expenditure for any goods or services located and/or produced outside the United States shall not be deductible.”
This simple amendment to the Internal Revenue Code means that a business is free to buy and trade wherever it wants to. But if it employs or contracts with anyone in Manila or New Delhi to answer the telephone for technical support service, or hires radiologists in India to read x-rays, the expense would not be deductible. Also, any business equipment, such as a tractor, or a computer or office furniture made in Japan or China would not be a deductible business expense and would not be depreciable.<
Likewise, any materials, components, parts or goods purchased that were produced outside of America would not be allowed as costs of goods sold and would not be deducted from income under the Internal Revenue Code.
This will encourage American businesses to buy “American,” even if it costs a little more, so they can deduct the full expense. American retailers would want to fill their shelves with American products, so that when they made a sale, they pay tax only on the profit – the difference between the sale price and their wholesale cost, rather than paying tax on the entire sale price.
It will reverse the effect of the policy that China imposed on America. It will encourage foreign manufacturers to move their factories here, using American labor, so that they can enjoy a better chance to sell to American retailers or businesses and to obtain investors to buy their stock.
Two – I would eliminate the Foreign Tax Credit. That’s Section 27(a) of the Internal Revenue Code that gives a tax credit for taxes paid to a foreign country. Elimination of the foreign tax credit would close a major loophole – spell it with a capital “L” - that allows large corporations and wealthy individuals to avoid U.S. income taxes by moving their businesses and their investments out of the country. It is unfair to Americans, those that pay taxes, those that support the country, that these wealthy corporations and individuals receive this tax credit. They receive all the benefits and protection of U.S. citizenship, but they do not pay their fair share to support the country that supports and protects them. I hate to use their name, but this solution would eliminate a major trick used by such corporations as General Electric, always a good company, but it’s a trick using the tax code, allowing it to escape paying any U.S. income tax on its net income of $14.2 billion.
This tax deduction solution can be adopted immediately. It will require no additional federal bureaucracy, no government expense, because the provisions would be implemented and enforced by the same staff that is already in place.
The tax deduction solution, which consists of adding one sentence to the Internal Revenue Code and deleting one paragraph, will have an enormous effect. It will restore America’s industrial sector. It will generate millions of jobs. It is eloquently simple, yet profoundly effective.
Number three, and the final part of my solution, operates as follows. I call it the Fair Trade Adjustment Solution.
A new way to level the playing field and protect American industry from unfair foreign competition is to require importers to pay our government an adjustment equal to the unfair advantage they gain by using cheap foreign labor and avoiding America’s health, safety and environmental standards.
I shall ask Congress to adopt a statute that no product may be imported into the United States of America unless it is accompanied by a fair trade adjustment form, completed and certified by a foreign analyst who has been trained and authorized by the U.S. government but would be paid by the importer. The analyst will charge a fee to this importer to complete and certify the form. When the goods arrive in the U.S., the importer must pay to our customs agent the total certified adjustment in order to obtain a release of the goods into our country.
The fair trade adjustment form will contain blank fields where the analyst will enter the calculations to value the difference between labor costs here and labor costs in the foreign country of origin, showing differences between such costs as OSHA and the EPA here, and the costs there. There will also be an adjustment for unequal tariffs or other costs of import and for any export subsidies given by the foreign country.
The adjustment is simply an economic calculation. No politics are involved. It will cost the U.S. government nothing to implement it, all administration costs effectively being paid by the importers who will pay the certified analysts to complete the form.
For countries that have a wage structure and business regulations similar to ours, such as Canada, Germany and England, there will be no adjustment. But for China, for the bear, the adjustment could be substantial. It will raise the cost of Chinese imports to match the cost of producing the goods here. This will give our manufacturers a chance to compete.
This fair trade adjustment will level the playing field, but it will only reduce, not end, the billions of dollars of imports from countries with a lower standard of living, such as China. Trade will continue, but it will be fair.
The revenue generated by the fair trade adjustment and by the restoration of our industrial sector, growth, will balance our budget, pay down our national debt and still allow us to reduce income taxes. It will also allow our factories to compete fairly and will restore prosperity to America while eliminating our trade deficit and saving the value of the dollar. Growth is the key element in solving our current economic dilemma. This approach yields solid growth.
September 1, 2011: Roemer presenting his economic plan in front of the Chinese embassy in Washington D.C.