Hi Ventureofblood - In general, I am pretty much against the entire concept of subsidizing businesses to run. That includes banks, telecoms, and the manufacturing industries. There is a need for short term and long term approach.
There is a reality that our companies are not competing with "companies", but really with other governments - China, Taiwan, Japan, and frankly much of Europe. Regardless of how we feel about this concept / variation of capitalism, it exists and is quite effective.
A look at Taiwan (as a simpler example than China) shows some interesting points :
- Wages there are certainly not lower than the US for high tech products
- Product quality in Taiwan vs US is / can be nominally similar, esp in high tech goods. This isn't always true, but close enough.
- Equipment wise, Taiwan semi companies use exactly the same supplies and equipment as everyone else
The principle difference (as explained to me by a Taiwan excutive) is that by making things in Taiwan
- The govt' provides free / low coast loans for "work in progress" -IF it will be exported
- The semi foundry industry was financed / venture capitalized by the Taiwan govt - similar to China - although China took it to a new level.
- There is no / little income tax on semi goods made in Taiwan - mostly focused on the workers.
The effect, is that the US carries the social burden cost of taking care of not only itself, but also other countries (like Taiwan) who are too small to defend themselves.
The GDP of the goods we import are more or less hollow - they only carry burden, but no profit to the govt or to other NA firms (except a small retail profit)
In effect, the current tax system effectively subsidizes imported goods - by only taxing our own internal production. This is true regardless of where we buy goods from.
I really don't buy the concept that "profits from wages" are fundamentally different than "profits from investment". Both are the results of thought, work, and paying attention. We want to encourage profit to be gained from both sectors, while encouraging reasonable risk management.
A fixed National Sales tax (say 10% on every thing) that replaced the income tax would tax everyone and everything fairly. Since the majority of our consumer goods are currently imported, they would finally be carrying their share of the social / govt burden. The reduction in income tax burden on US workers and US companies would free up investment capital encourage them to make money - classic job creation.
One of the challenges we face on the investment sector is that our system encourages "fast and furious" investment churn. Regardless of what the adv say about "long term investment", the pros are not doing that. A real pro has computer programs finding small financial advantages that are executed (buy and sell) with only seconds or minutes of hold time. This is exactly the behaviour we need to moderate.
By putting a sales tax on investment transactions (not depositing your paycheck, but on things like stock, bonds, etc), the whole operation becomes more like the retail transaction it really is. If you know that you are going to pay 5 - 10 % on the value of a stock, then you are likely to hold it longer - as short shifts in price are not enough to bother with.
Options - An option is -at its heart, just a payment plan on buying a stock - with an out. From a tax perspective, you would pay tax on the underlying stock, not on the option value.
There is a very big short term problem in many sectors, so short term, we are subsidizing banks to the wall. I am not convinced this will have any positive effect at all, but I have no voice in the matter.
If the US auto industry completely collapses (similar to what has happened in US Semi industry and textiles), an entire core will be gone - and no amount of subsidies will help anyone. Nothing will stop the collapse of every bank in the world. US imports will drop to nearly nothing as consumption drops to the very bare essentials.
It is useful to consider that the US really does not need to import much of anything. America buys goods from overseas for three reasons:
a) Peace - it is cheaper to buy goods from countries and make them stable then to have wars.
b) Profit - while it is possible for us to be entirely self sufficient, it is not necessarily ideal profit wise
c) Financial Institution pressure - Banks want to loan money to more people so they make more money. Once everyone in the US is carrying a loan, they cannot expand that much more.
At a fundamental level - a weak US economy will drop demand from everywhere.
So after way too much writing here - short term, we need to "over equalize" the trading system to get the US economy going again.
After 3 - 4 years, we can bring it back to "equalized", drop the subsidies, and this will bring trade into balance. US consumption for goods from both domestic and a broader array of foreign sources will be even stronger.
If the EU would do the same thing, this would be even better than if the US does it alone.
Every trading block must achieve a kind of balance. Right now, China thinks they have a problem if they grow less than 12 % per year. If the "real" US GDP - in constant dollars - had 0% growth, we would not be having this discussion. It is entirely possible that China might have less than its ideal GDP "growth rate" while things go back into balance.
. If my math is terribly flawed I apologize in advance but you get the idea. Thats just for 1 trillion if I am not mistaken the last number I heard in regular to the ND was several trillion.
