Common Cents

Value Added

Ralph Murphy

(4/2019) Trade war talk between the United States and world partners to include importantly Europe, the Americas and the Far East now center more on stability issues than tax initiatives as the President downplayed formal summit engagements in favor of informal talk sessions to reach accords. It comes amid a self imposed moratorium on tariff taxes to world steel and aluminum imports that have all but collapsed along with the Chinese growth pattern now expected to match levels of the 1990s amid fund withdrawals.

What’s at stake in policy review seems to include overlap funding or billing with external taxes on selected imports providing revenue as tariffs that are already funded by income tax revenues. There is a current need to exactly define the costs of government services to include conventional defense and civil structure needs versus vague affordance to the revenue sourcing, subsequent control and expenditure. An objective of equity is important as well given the affordance of broadly variable tax policies, which can target a random group of producers or wage earners who may have little involvement with its outlying need.

The latest round of tariff talks or those related to a tax on imports of goods or services from foreign markets has revealed real incongruities to stated objectives as protectionism versus fund access. If the industry is taxed directly as with an excise tax that affects just that sector there seems to be an injury aspect that translates to policy review. If it’s deferred to the general populace as income tax measure it’s less likely noticed or redressed for appraisal. That concern draws scrutiny to the tax system itself as the fundamental needs are relatively low cost but the affordance to Law is very broad and policy makers take it as far as they legally can in billing and seem to want even more as witnessed by the tariff measures.

Personal income taxes are a relatively new phenomenon to the American economy emanating from legal affordance of the 16th amendment of 1909 that allowed Congress " to lay and collect tax on incomes from whatever source derived". Prior to that measure there had been brief civil war income tax measures but were repealed by 1872 in favor of existing ones. Key industries were domestically targeted and the customs duties drew money from trade concerns.

Tariffs were a major policy commitment of the early American colonists but the legal wording that permitted them was confusing and seemed contradictory in an import export clause that allowed state control of their export taxes but ultimately allowed federal control as a 5% tariff was agreed to by the 1789 treaty. That import and export tax reportedly covered most all the government billing without any income tax through the First World War when President Woodrow Wilson accepted the bipartisan consensus the variable tariffs were too high and harming trade.

The issues and problems remain as that initial tax was a flat rate at 7% of earnings but again the legal affordance was vague, need for the billing could be exaggerated and subsequent policy changes led to extreme complexity in brackets and payment exceptions. It reached the point where the original interests were almost lost in ability to usurp personal earnings. Now there’s an attempt to restore or elevate the tariff taxes as they never were entirely dropped but should be in favor of broader equity to sales and oddly Europe might have the groundwork for the answer. There and elsewhere a federal tax exists that replaces some of the income and trade ones and could further do so if closer controlled and scrutinized. The value added tax there is subject to variance to internal regions and markets but again it could be more effective if there was a relatively exact consensus on spending requirements and close scrutiny to the outlays as well as transient need given changes in the operating environment.

The billing would be reflected in the consumer sales prices but the available money would be higher without the personal income tax and would likely balance out cross borders. Official legal control would remain the host federal prerogative. Again to internal markets the tax would be uniform and not variable as no single sector would then be overburdened. That’s an issue with excise taxes as well as the tariff ones which can also vary widely between economic sectors.

An industry protected by high import fees could benefit but others with export costs lose market share. Trade duties can simply be too random or poorly scrutinized to meet seemingly well meaning commitments as protection better served by blocks or bans. If money is involved especially to federal legislative accords any reversals are painstakingly difficult even if the original objective has been met. Petroleum is a case in point with the federal gas tax at over 18 cents a gallon linked to a Federal Highway Act completed decades ago.

Another issue that has emerged is the relative strength of multi national corporations (MNCs) chartered in one nation but operating in sales or production capacity of another. There’s often a tax or regulatory advantage to the initial founding of the projects, but the MNC is subject to foreign and domestic laws and the perceived benefits then offset by policy changes either regulatory or taxing that make the operation too costly for a private sector return on the investment.

If a governing initiative is take or allowed to salvage that type of operation It’s unfair to the host industry and amounts to foreign intervention especially if the losses are large or chronic. As a rule if a foreign subsidy role is suspected the concern should be banned or subject to scrutiny as to objective as its likely political affecting more than that system and interest. MNCs can also play an important host benefit using regional resources but culture and production techniques have to be considered and higher technology ones thrust into relatively primitive areas routinely fail.

When monitoring official trade policy as it reflects consumer interest or behavior the public should be made aware of the objective to the framers goals and allowed to scrutinize its result for further action. Customs duties or taxes may variously protect a host industry but other means can be far more effective without cash changing hands. A standard federal tax that covers what really seems relatively low expenditure needs should be an option if the others can be politically dropped.