How the Republican Tax Plan Could Crush US Growth

By: Guest Contributor - Apr 17, 2017, 10:07 am
Republican Tax Plan
There has been virtually no debate or public discussion about this new, horrible tax. (FEE)

By Steve Forbes

Republicans in the House of Representatives are inadvertently setting a nasty political and economic trap for Donald Trump. Yes, it’s the Republicans, not the Democrats, who are ready to administer an unnecessary black eye to the new President. That’s not their intention, but it manifestly will be the result.

The vehicle for this unwitting GOP punch is a new exaction called the border adjustability tax. This levy will cost American consumers at least a trillion dollars over the next ten years. Knowing how Washington politicians calculate these things, you can bet the amount will end up being considerably more. Prices for everyday items, such as socks, shoes and household appliances, will go up. So will tech devices like the iPad, not to mention automobiles and trucks. Gasoline? Millions of Americans will pay an additional 30 cents or more per gallon at the pump. Lower-income and struggling middle-class Americans will get hit the hardest.

Few people are even aware of what the Republicans are getting ready to hit them with. There has been virtually no debate or public discussion about this new, horrible tax, yet in one of those strange fits of collective, self-destructive behavior, numerous GOP lawmakers are ready to enact it.

Here’s how, in essence, this sneaky, anti-consumer tax works. Importers will no longer be allowed to deduct an item as a business expense. To simplify things, let’s say a store imports a pair of sneakers for $40 and then sells them for $50, making a $10 profit on which it would owe taxes. Under the Republican plan, however, the retailer wouldn’t be able to deduct the $40 it paid for the sneakers. In fact, it would owe taxes on the entire $50! And who, ultimately, pays this tax? You, the consumer, in the form of higher prices or fewer choices of where you can shop. Retailers and their customers will be hit.

Many oil refiners import crude oil to turn into gasoline. This new tax will sharply raise their costs, which will spell pain when you fill up your tank. Worse, some could be forced out of business or have to sharply curtail operations, as drivers cut back on buying the suddenly more expensive fuel.

Companies like BMW, Toyota, Mercedes, Honda, Nissan and Hyundai have major manufacturing operations in the U.S. that employ tens of thousands of workers in good-paying jobs. These companies’ costs will soar because they import numerous parts for the vehicles their workers assemble.

The Loophole of All Loopholes

But wait, it gets worse. Another feature of this bizarre GOP scheme gives exporters a gargantuan tax break by, in effect, not taxing their export revenues. Let’s say a corporation sells a piece of machinery to Iran for $5 million, which cost only $4 million to produce. That means $1 million in taxable profit. Under the new Republican scheme, however, that $5 million received from the mullahs wouldn’t be taxable. Instead of a $1 million profit, the corporation, for tax purposes, would have a $4 million loss. Loophole doesn’t begin to describe this “tax break.”

No wonder companies like Boeing, GE and other big exporters are orgasming over this GOP “reform.”

Big breaks for big companies, higher prices for beleaguered consumers. Why are the Republicans doing this? They say the revenue raised will help finance a huge tax cut, such as getting rid of the death tax and the horrific alternative minimum tax, cutting the corporate tax rate from its disastrous 35% to a highly stimulative 20% or less and very meaningfully lightening the tax burden on individuals. These are all extremely exciting ideas and would do wonders for the economy.

But enacting a big, brand-new tax to finance cuts in old taxes is a dangerous business, especially in the way the Republicans are going about it. Democrats will gleefully remind voters why prices are going up, conveniently ignoring the tax cuts. Moreover, the GOP border adjustment tax is a but a small step away from a full-blown value added tax, which has financed the bloating of governments around the world. Democrats will someday be back in power, and they won’t hesitate to either ramp up this GOP-created tax or go for the VAT. This would be hypocritical–rip apart the Republicans over this tax, and then go on to compound their felony. A VAT would crush future U.S. economic growth rates, just as it has in Europe and elsewhere.

Consider this astonishing fact: In the mid-1960s government spending in Europe as a proportion of their economies wasn’t much different from our own. Growth rates matched or exceeded ours. Then Europe discovered the VAT. Spending ballooned and growth slowed to a crawl, consistently clocking in at significantly lower levels than Uncle Sam’s.

Republicans also claim their new tax would help exports. In the real world it would do no such thing, as astute tax expert Dan Mitchell has explained (see this and this).

The GOP should drop this tax scheme. Why create unnecessary conflict and damage our new President? Republicans shouldn’t be constrained by the Congressional Budget Office’s antiquated way of measuring the economic impact of changes in taxes. Drop the green eye shades, and go for big cuts that would turbo-charge the economy.

Steve Forbes is an American publishing executive, who was twice a candidate for the nomination of the Republican Party for President. Forbes is the Editor-in-Chief of Forbes, a business magazine. Forbes was a Republican candidate in the 1996 and 2000 Presidential primaries. Forbes is the son of longtime Forbes publisher Malcolm Forbes, and the grandson of that publication’s founder, B.C. Forbes. This article was originally published on Read the original article.

The Economic Drive of Mara Gangs in Central America’s Northern Triangle

By: Adriana Peralta - @AdriPeraltaM - Apr 14, 2017, 2:59 pm

EspañolThe biggest illegal business of El Salvador's maras gang is extortion. It's their main source of income (not, surprisingly, the sale of drugs). One of the biggest challenges the maras are facing is the tendency for its members to leave upon finding economic support elsewhere. According to official figures from the National Anti-Extortion Force, there is an estimated US $390 million of extortion done annually in El Salvador, $200 million in Honduras and $61 million in Guatemala. Extortion results in massive displacement of people, who flee the maras when they don't want to pay. The maras use the money to support their families, bribe guards in prisons, pay lawyers and improve prison conditions — often setting up businesses laundering money in order to do so. Last July, Operation Jaque disarmed part of Mara Salvatrucha. Seventy people were arrested in connection with businesses that Mara Salvatrucha was using to launder funds. Extortion is also a means of territorial control. People living in maras-controlled territories pay for "protection economy," to ensure their safety. In Honduras, it's estimated that 79 percent of small businesses and 80 percent of informal traders are extorted. The transport sector is particularly vulnerable. In El Salvador, 692 drivers were killed between 2011 and 2016. In Guatemala, 498 drivers and 158 collectors were murdered between 2009 and 2011. In Honduras, 84 taxi drivers were killed in 2012 alone. Extortion by the maras fuels a cycle of violence. Breaking the Cycle In order to reduce the impact of extortion, the income of gang members has to be supplemented with something else — usually legal, formal jobs. But getting a job is often difficult or sometimes impossible in some parts of El Salvador if you were born in areas controlled by maras or if you have a tattoo from gang initiation. The League Collegiate Outfitters — a telemarketing service — has decided to break the cycle and offer jobs to former gang members. Twenty-five percent of its employees are former gang members, who also have the option of taking English classes through the company and to obtain financing for purchasing computers for their families. "Our goal is for 25 percent of employees to move to a call center, which means that an operator goes from making $300 to $600 a month," Rodrigo Bolaños, a company executive, explained to El Diario de Hoy in El Salvador. He said the company has grown 20 percent. League Central America is dedicated to making clothes for 3,000 universities in the United States and has approximately 400 employees. In November 2016, the company was recognized by the US Embassy for corporate excellence. "League is dedicated to taking what the community offers and transforming that workforce into a better educated one," Ambassador Jean Manes said. "This company knows that in any solution to El Salvador's security problems, it must include dignified employment, continuing education and the social reintegration of at-risk populations." googletag.cmd.push(function() { googletag.display('div-gpt-ad-1459522593195-0'); });   In 2010, League began offering classes for its employees who had not finished primary education and in February 2016 began an alliance with the Don Bosco University, offering university programs in its facilities. Ninety employees are reportedly enrolled in college classes. "We see ourselves as a company in the human development business," Bolaños said. "The employees are very enthusiastic because they'll learn enough to make a living." Government approaches to gang culture  Various governments have made plans to address the maras, such as the Strong Hand program in El Salvador, The Broom Plan in Guatemala, and Zero Tolerance in Honduras. These responses don't always include real programs of reintegration into society, nor do they seek to strengthen the rule of law in their countries. Rather, they try to control the maras' behavior. An El Salvador program called Extraordinary Measures — begun in April 2016 and renewed through April 2018 — seeks to control the prisons so that gangs can't control operations on the outside. Among the policies included in the program are not transferring prisoners between penal centers, restrictions on visits and movement within the prison. The transfer of inmates for any kind of court hearing and other judicial acts is also suspended. Read More: Why Activists Should Think Twice about #DeleteUber Read More: Three Myths that Distort US Debate on Immigration Prisons in El Salvador are experiencing 300-percent overpopulation, and several human rights groups are speaking out against the government with claims of prisoner abuse. The Attorney General of the Republic of El Salvador said prisoners are served food in their hands, not in plates, causing outbreaks of contagious diseases that doctors won't come to the prisons to treat. Inmates unable to receive visits from their relatives don't have access to personal hygiene products, made worse by a lack of consistent running water. A reported 130 people pack into cells reportedly only equipped for 28 people. The United States is also experiencing the consequences of the maras. Thousands of people seek to immigrate there illegally, which the United States has combatted through the 2015 Partnership for Prosperity in the Northern Triangle of Central America. The Partnership for Prosperity does nothing to ensure that the principles that ensure a free and prosperous society are strengthened. A check will not stop immigration. Giving money to countries with high rates of corruption in their governments means there's no way to ensure the money is actually reaching its destination. It also doesn't provide a way to integrate gang members into society or to prevent extortion. The evolution of the maras The maras started as youth groups, but mutated into highly sophisticated organizations. The effects of civil wars in Central America continue to shape these territories. Groups born in the United States have migrated to the Northern Triangle due to deportations of illegals. Currently, maras are responsible for murders, acts of violence, violence against women and forced displacement. Some reports estimated that in El Salvador alone there are 70,000 that arrived by sea. Other reports estimated that there are 20,000 gang members in El Salvador and that their network extends to as many as 400,000 people. The same study estimated that there are 22,000 gang members in Guatemala and 12,000 in Honduras. Children and adolescents who immigrated due to the civil wars of their countries and came to live in marginal areas of Los Angeles or New York were incorporated into existing structures. When they returned to their countries after being deported, they established structures similar to those they were raised in.

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