(06-12-2018 05:21 PM)Owl 69/70/75 Wrote:  

(06-12-2018 01:37 PM)EverRespect Wrote:  

(06-12-2018 12:21 PM)Owl 69/70/75 Wrote:  

(06-12-2018 11:10 AM)EverRespect Wrote:  The problem with the VAT is it is a tariff under a different structure and different semantics and requires congress to implement and/or take it away. Once implemented, it is here to stay and likely grow. Tariffs do not require congress and can be used as a carrot/stick approach to improving our position. Tariffs are much more flexible.

Agreed, but in return a VAT doesn't come under the auspices of the WTO and is less likely to invite retaliation.
Plus it raises a significant amount of revenues. If you look at the numbers, it is the only way to achieve a balance budget going forward. We can't cut enough spending to get there, and we can't raise income tax rates enough to get there. A consumption tax would actually allow us to reduce income tax rates to a level at or below world levels, which would further help to bring investment and jobs home.
Something that helps with balance of trade and balancing the budget goes a long way to solve a lot of our problems.

That's true, but I think we need to simply cancel any deal we have that is governed by international bodies like the WTO anyway, which would make whatever they think about it moot.

That would basically mean withdrawing from international trade altogether. We’d be 18th century Japan or today’s North Korea. I don’t think we want that.

We could still do bilateral agreements that make sense. I think all or nothing is a false choice.

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There is a school of thought that favors bilateral agreements over any other.

Hambone and Owl #s I'm not going to quote your posts because it's getting a little unwieldy, and I think I need to be more concise for everyone's sanity...

I think we're all in agreement on the dangers a trade imbalance *can* present, but we have to compare to the credit side of the ledger: Purchase power in the US is quite good. Businesses and individuals are getting more for their money because cheaper good quality goods and materials are available overseas. They are hiring and spending HERE because they've got more working capital as a result of their greater purchasing power.

So far, the solutions I've seen for balancing trade include tariffs, or subsidies, or VAT or something similar. And it usually seems to be focusing on how to make imports more expensive so US goods are more competitive. Import tariffs, a VAT, and I'm afraid the damage done with those mechanisms (by increasing the cost of goods to US consumers) outweighs the jobs saved in the targeted/protected industries. What I'd like to see is the cost of US goods being lowered. Lower taxes would be great; I'm not as much a fan of subsidies but I'd listen to the argument.

All that said, I haven't seen a lick of evidence that ANY of those things would meaningfully lower the trade deficit; protectionism doesn't correct trade imbalances. And international flow of investments may be the real controlling factor in trade balance anyway.

I don't fault the president for wanting to get the US all the best deals, but I'm just not sure that we don't get the best NET deal by freeing up markets and letting them perform. I know the counter argument is that bad actors will leverage the markets in their favor by using unfair mechanisms and I'm opening to punishing those bad actors, but, e.g., I'm not sure I'd consider Canada a bad actor.

Finally, Hambone, to your point about the US being taken advantage of (esp militarily), I think I'd say it a little differently simply because we actually set that system up on purpose. Bretton Woods proposed we would make the world safe for trade and everybody said ok and we never asked for anything back. So maybe a better characterization would be the world is taking our generosity for granted? Doesn't really matter - either way you end up where we are: paying to defend the world and wondering whether we're really getting a decent ROI. I sound like a broken record but Peter Zeihan writes about this much better than I, and if I go much further I'll be seriously derailing this thread. Bottom line: After a couple of decades of indifference and neglect of the Bretton Woods framework, we've now got someone in office who is a proactive antagonist. It's about to get very interesting.

(06-13-2018 12:56 AM)Brookes Owl Wrote:  Hambone and Owl #s I'm not going to quote your posts because it's getting a little unwieldy, and I think I need to be more concise for everyone's sanity...
I think we're all in agreement on the dangers a trade imbalance *can* present, but we have to compare to the credit side of the ledger: Purchase power in the US is quite good. Businesses and individuals are getting more for their money because cheaper good quality goods and materials are available overseas. They are hiring and spending HERE because they've got more working capital as a result of their greater purchasing power.
So far, the solutions I've seen for balancing trade include tariffs, or subsidies, or VAT or something similar. And it usually seems to be focusing on how to make imports more expensive so US goods are more competitive. Import tariffs, a VAT, and I'm afraid the damage done with those mechanisms (by increasing the cost of goods to US consumers) outweighs the jobs saved in the targeted/protected industries. What I'd like to see is the cost of US goods being lowered. Lower taxes would be great; I'm not as much a fan of subsidies but I'd listen to the argument.
All that said, I haven't seen a lick of evidence that ANY of those things would meaningfully lower the trade deficit; protectionism doesn't correct trade imbalances. And international flow of investments may be the real controlling factor in trade balance anyway.
I don't fault the president for wanting to get the US all the best deals, but I'm just not sure that we don't get the best NET deal by freeing up markets and letting them perform. I know the counter argument is that bad actors will leverage the markets in their favor by using unfair mechanisms and I'm opening to punishing those bad actors, but, e.g., I'm not sure I'd consider Canada a bad actor.
Finally, Hambone, to your point about the US being taken advantage of (esp militarily), I think I'd say it a little differently simply because we actually set that system up on purpose. Bretton Woods proposed we would make the world safe for trade and everybody said ok and we never asked for anything back. So maybe a better characterization would be the world is taking our generosity for granted? Doesn't really matter - either way you end up where we are: paying to defend the world and wondering whether we're really getting a decent ROI. I sound like a broken record but Peter Zeihan writes about this much better than I, and if I go much further I'll be seriously derailing this thread. Bottom line: After a couple of decades of indifference and neglect of the Bretton Woods framework, we've now got someone in office who is a proactive antagonist. It's about to get very interesting.

I think the most significant evidence that some protectionism does affect trade imbalances is what has happened under the Bretton Woods framework. We threw our doors wide open, they implemented protectionist measures, and over several decades we went from being a net exporter to those countries to being a net importer from them.

I agree that long-term investment is probably a bigger factor in trade imbalances, and that lower taxes are one way to increase long-term investment. Taxes and regulations are really the only two controllable factors. I have to mine iron ore where the iron ore occurs, but I can build the plant to turn it into steel in a lower tax jurisdiction. But we need so much money to run a government, and it has to come by taxing something. And the record of Europe in the modern era suggests that taxes on consumption are least harmful to the economy as a whole. They've been able to provide massive social welfare programs while at the same time offering investors a more tax efficient regime, primarily by the use of consumption taxes.

Interesting points.

Thank's Brookes... I really appreciate the thoughts.... and would completely accept the idea that our generosity after WWII has been taken for granted is a fair assessment. The generation that remembers that well is almost gone... so few in any power, especially social media power remembers or appreciates the scope, yet we keep doing it when they no longer need NOR appreciate it. I realize we set it up with a purpose, but its purpose is long since been served.

My issue is really more with the way we 'sell' taxes and tariffs. Most of these arguments (not ours) are filled with half-truths and generalizations and cause people who lack the understanding (which is lots of Americans on both sides) to make or support poor, but good sounding choices. Vat is a perfect example. OF COURSE it COULD be designed in such a way to be hugely detrimental to the poor, but the decades of experience in Europe gives us a lot of insight on the pros and cons... which is precisely why some European ideas work better than ours... because they've had the benefit of looking back on OUR experiences.

As we agree, the presumption that subsides MUST have the impact of a Tariff simply aren't true... yet that is what some who want to demean Trump's position on Dairy with Canada 'sell'. That doesn't mean that there aren't legitimate reasons to disagree with Trump... or that it is as simple as I've made it sound either...


To your comment on making goods cheaper by lowering taxes...

The experience in Europe seems to be that replacing at least SOME 'income' taxes with Vat broadens the taxable base, which is primarily an impact on top earners. Top earners though aren't actually negatively impacted because it most often 'costs' them to shelter their money. Most W-2 earners (which is MOST Americans) are indifferent since they spend 90+% of what they earn... and when you add a prefund, it is actually more efficient than our complicated tax and welfare systems which lowers compliance costs. We can learn from their experience and improve upon it....

but IMO the biggest reason we don't do this is again, because too many people have sold 'VAT' as a tax on the poor, which it COULD be, but that sort of system has never been proposed by anyone that I've seen. No democrat has proposed it so that's 50% of the population and while lots of Republicans have, I don't think it remotely has 100% penetration within the right.... so we have perhaps 60% of the population who still doesn't get it.

I think if you lower SOME taxes (like corporate taxes) and replace them with a VAT, the overwhelming majority of Americans would be indifferent. With corporate taxes no longer part of the 'cost' of production, goods actually DO become cheaper but that is replaced by a VAT, which is prefunded to lower earners and the poor, so for them, goods actually ARE cheaper. For everyone else, they're essentially the same.

and all of that really ignores the idea that if you broaden the base, you CAN arguably lower the rates and yet still generate additional revenues. ONE way would be that we would obviously import less, consuming more US product and export more... which means that we'd have higher earnings (and thus higher income AND spending tax revenues)... So maybe we CAN cut overall rates and thus lower costs not only via the prefund, but for middle and higher earners as well.

Really enjoy this convo. You have some great thoughts. thanks.