It's the Taxes, Stupid
by Mark Luedtke
Unemployment is at 4.4%. The Dow is at 12.000. Unemployed workers can read about this great economy on their way to the classifieds. President Bush and Republicans wonder why they aren't getting credit for the booming economy, while workers face rising health care and education costs. Who is benefiting from the booming economy, and why? It should come as no surprise that the growing segments of the American economy are health care and education. The strong demand for these services has driven up the prices and created lucrative investment opportunities.
The health care field created nearly one-half of all new jobs in this recovery, 1.7 million. Government mandates and funding, obesity, diabetes, and an aging population have all driven up demand in the health care industry. Drug companies are benefiting from Republicans' prescription drug entitlement and their blocking of competitive prescription drug imports from Canada. Hospitals, doctors' offices, nursing facilities, and other services have benefited from the declining health of Americans. Boston, New York, Philadelphia, Chicago, Los Angeles, and Washington, D.C. benefit most from this health care economy.
But this economy is founded on the poor health of our workers. Baby-boomers have reached middle age. Obesity and diabetes are striking young adults and children. Health care dollars spent by these workers come with associated losses in productivity. Federal government outlays for health care are driving up the deficit. Medicare and Medicaid expenditures are growing faster than receipts. This economy is also protected by government regulations excluding competition, which keeps prices artificially high.
Government money is feeding the economic growth. As Richard K. Vedder of Ohio University testified before Congress:
“There are two sectors of the economy where the federal government involves itself heavily in financing private transactions, namely health care and higher education. It is not a coincidence that these are the two sectors with the greatest amount of price inflation in modern times.”
It doesn't take a Distinguished Professor of Economics to understand that increased demand causes increased prices. The more money the government puts into health care and education, the more demand is created, and the more prices rise. The cost increases the same amount the government adds to the system. Each new grant raises the price of education. Patients ask if a procedure is covered by insurance, not if it's necessary. The government is also buying equipment for the Iraq war, promoting growth in the defense industry. Armor Holdings Co. in Cincinnati benefits, as does Dayton through Wright-Patterson, but most of that money goes to states with more high-tech military companies like California, Massachusetts, Florida, and Texas. This government spending adds to the deficit, which must be paid later.
To his credit, President Bush's tax cuts foreshortened the recession after the dot.com bust and 9/11, but neither party has addressed the most fundamental problem with the economy. This economy is an unhealthy consolation prize for bad tax policy. Republicans and Democrats debate the income tax rate, but the income tax itself is putting Americans out of work, and no amount of rate changing will fix that.
Every product made in America includes the income tax in its cost. If you sell cupcakes at a bake sale, your cost includes the price of the ingredients, the electricity, part of the price of the oven, the utensils, the building, and the labor. There are embedded taxes in all of these, because the producers of those products had to pay income tax. You must add that embedded tax, plus part of your business income tax, to the price of your cupcakes to make a profit. It's the same with any product made in America, and the average additional cost of the embedded income tax is 22%, a competitive penalty imposed by our government.
America's major trading partners, including Canada, Mexico, Europe, Japan, India, and China, use an improved tax system called a Value Added Tax (VAT). A VAT is like a sales tax, so it doesn't apply to goods that are sold to another country. That means Japan can sell cars in America with no embedded tax penalty, while American cars have the embedded 22% income tax penalty. This penalty applies to all American made products sold at home or abroad. The income tax is causing the Midwest to hemorrhage jobs to countries with advantageous tax policies.
Ohio has gone from the fourth least taxed state in 1970 to the third most taxed state in 2006. Ohio taxes are added to the cost of products made in Ohio, and add a competitive penalty relative to products produced elsewhere in the U.S., in addition to the penalty added by the embedded federal income tax relative to foreign products. Health care mandates are an additional “tax” on companies that hurt competitiveness, especially for small businesses. Pension plans of older companies, devised during a time of explosive growth and little global competition, are a growing anchor on competitiveness in a global market as seniors live longer.
The major problem with our economy can be summed up in one paraphrase: It's the taxes, stupid. Even Hugo Chavez doesn't use the archaic income tax, but neither Republicans nor Democrats support tax reform that will allow us to compete fairly with foreign companies. Adopting the FairTax, an improvement on the VAT tax, will make American products and companies competitive in the global market and bring manufacturing jobs back home. The price and quality of health care and education will improve when we remove the federal money and mandates and allow the free market to work.
No comments:
Post a Comment