Address America’s real problems

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By The Staff

The Global Economy has reduced prices and accelerated trade and development throughout the world; however, it has also caused massive relocations of jobs and wealth that threaten U.S. stability. Without reforms, the U.S. will continue its spiral into economic mediocrity and bankruptcy.

The U.S. current account deficit — the difference in income from goods, services and investment income earned by the U.S. and by its trading partners — grew from $125 billion in 1996 to $809 billion in 2006. In other words, a staggering $809 billion (more than the financial bailout) in wealth left the U.S. in a single year. Cumulatively, the U.S. incurred trade deficits of more than $2.25 trillion from 2002 through 2008 and a trade deficit of $400 billion is projected for 2009, in the heart of the recession.

Pressure from cheaper, imported products has caused U.S. companies in many sectors of the economy to close their doors or relocate their manufacturing abroad. Among the affected sectors are clothing, small appliances, power tools, consumer electronics, hardware and major home appliances. This has created an “incomplete” U.S. economy.  Now, if Americans are to meet basic needs, they have no choice and must buy imported products, continuing the loss of billons of dollars from the U.S. economy.

As American factories move abroad, they also reduce the U.S. tax base. Under current U.S. tax laws, American-based corporations are rewarded for moving their factories abroad: they can write off the construction of out-sourced factories, avoid U.S. income taxes and have higher profits. In May of 2009, President Obama proposed changes in the tax code to correct this problem, but Congress has not acted.  

The trade deficit and the incomplete economy now hinder our ability to abate recession. From 2003 through 2007, prior to the 2008 recession, the U.S. government borrowed and spent $1.5 trillion more than it collected in revenue. Now, it is deficit spending over $1 trillion to service the unemployed and to “stimulate” an already subsidized economy.  Although economic activity may increase as the money is spent, recovery is unlikely to be sustained. In earlier recessions, spending and tax cuts worked, because the U.S. economy was nearly closed and self-contained. Money injected into the economy stayed there. Now, as the government continues unfocused spending and tax cuts, hundreds of billions of dollars are lost as consumers purchase imported essentials. Unless the trade deficit is reduced (more exports or fewer imports), the currency loss must be replenished by continued government borrowing and spending; otherwise, the U.S. economy will collapse. It is akin to maintaining the liquid (currency) level in a cylinder (the U.S. economy) with an open spigot (the trade deficit) near the bottom.  

Continued trade deficits, outsourcing and U.S. government deficit spending are unsustainable. Several corrective actions are suggested; due to space constraints, they can only be outlined.

First, the nation must reduce raw petroleum imports. Strong focused spending on energy production and electric vehicle development could produce multiple dividends. It immediately would stimulate the economy and have a clear goal: ultimate success would eliminate the need for petroleum imports, directly reducing the trade deficit by more than $200 billion annually. It should also reduce, by a similar amount, future deficit spending, currently required to subsidize the economy.  

Second, the U.S. should negotiate international agreements that reduce trade imbalances in consumer goods. This was one of President Obama’s concerns during his recent visit to Asia. If agreements cannot be reached, the U.S. should formulate schedules of tariffs that increase with the trade deficit. Such schedules should include (a) trade deficit limits, above which additional imports are disallowed and (b) energy/environmental considerations.

Third, amend the investment income tax laws to encourage more investment in the U.S. and pay for defense spending to protect the foreign interests of corporations and investors. This would entail (1) raising income taxes on capital gains and income derived from foreign manufacture or production, compared with those derived from domestic endeavors, and (2) eliminating foreign-paid taxes as U.S. tax deductions on personal investment income.

Fourth, increase research and training in basic sciences, engineering, technology and product development. The use of the developed technologies would require licensing, with reduced fees for U.S. production. A highly skilled American work force would facilitate production in the U.S.

Fifth, whenever possible, Americans should purchase products actually manufactured in the U.S. to reduce the trade deficit.  Please urge President Obama and your Congressmen to address these long-standing economic problems.

Joe D’Anna

Los Alamos