Unfair Tax Prevention Act

— 792 — Mandate for Leadership: The Conservative Promise enhance our national security. Some Americans historically have supported open borders and offshoring under the flag of the Ricardian trade model, which assumes the free flow of both labor and capital. Yet it is equally true that open borders and offshoring also help American multinational corporations to maximize their profits by minimizing their labor and environmental protection costs. In particular, an open border policy, which allows for the unlimited migration of cheap labor, depresses American wage rates and thereby boosts corporate profits. At the same time, offshoring gives American corporations readier access to the sweatshops and pollution havens of Asia and Latin America. Our skies and water may be cleaner, and our products may be cheaper, Main Street manufacturers and workers bear the brunt of these policies. The obvious political problem in adopting many of the policies proposed here is that they will be opposed by the special-interest groups that benefit from open borders and offshoring and that contribute lavishly to both political parties. These special-interest groups range from the hedge funds of Wall Street and tech entre- preneurs of Silicon Valley to big-box retailers that stuff their aisles particularly with cheap “Made in China” goods. YES, TRADE DEFICITS MATTER [O]ur country has been behaving like an extraordinarily rich family that possesses an immense farm. In order to consume 4% more than we produce— that’s the trade deficit—we have, day by day, been both selling pieces of the farm and increasing the mortgage on what we still own. Warren Buffett37 Historically, one line of attack against attempts to implement fair trade policies in the name of reducing America’s massive and chronic trade deficit has been the claim that “trade deficits don’t matter.” The intellectual tip of this spear has often been think tanks that generate reams of analyses in support of a purely free trade (and open borders) American posture.38 Yet both common sense and several very good reasons tell us that trade deficits matter a great deal. Economic Security. The economic security argument that trade deficits matter begins with the observation that growth in any country’s real, inflation-adjusted gross domestic product (GDP) depends on only four factors: consumption, gov- ernment spending, business investment, and net exports (the difference between exports and imports). Reducing a trade deficit through implementation of the U.S. Reciprocal Trade Act, the application of tariffs, or renegotiating a bad trade deal like NAFTA all represent ways to increase net exports—and thereby boost the rate of economic growth.

— 792 — Mandate for Leadership: The Conservative Promise enhance our national security. Some Americans historically have supported open borders and offshoring under the flag of the Ricardian trade model, which assumes the free flow of both labor and capital. Yet it is equally true that open borders and offshoring also help American multinational corporations to maximize their profits by minimizing their labor and environmental protection costs. In particular, an open border policy, which allows for the unlimited migration of cheap labor, depresses American wage rates and thereby boosts corporate profits. At the same time, offshoring gives American corporations readier access to the sweatshops and pollution havens of Asia and Latin America. Our skies and water may be cleaner, and our products may be cheaper, Main Street manufacturers and workers bear the brunt of these policies. The obvious political problem in adopting many of the policies proposed here is that they will be opposed by the special-interest groups that benefit from open borders and offshoring and that contribute lavishly to both political parties. These special-interest groups range from the hedge funds of Wall Street and tech entre- preneurs of Silicon Valley to big-box retailers that stuff their aisles particularly with cheap “Made in China” goods. YES, TRADE DEFICITS MATTER [O]ur country has been behaving like an extraordinarily rich family that possesses an immense farm. In order to consume 4% more than we produce— that’s the trade deficit—we have, day by day, been both selling pieces of the farm and increasing the mortgage on what we still own. Warren Buffett37 Historically, one line of attack against attempts to implement fair trade policies in the name of reducing America’s massive and chronic trade deficit has been the claim that “trade deficits don’t matter.” The intellectual tip of this spear has often been think tanks that generate reams of analyses in support of a purely free trade (and open borders) American posture.38 Yet both common sense and several very good reasons tell us that trade deficits matter a great deal. Economic Security. The economic security argument that trade deficits matter begins with the observation that growth in any country’s real, inflation-adjusted gross domestic product (GDP) depends on only four factors: consumption, gov- ernment spending, business investment, and net exports (the difference between exports and imports). Reducing a trade deficit through implementation of the U.S. Reciprocal Trade Act, the application of tariffs, or renegotiating a bad trade deal like NAFTA all represent ways to increase net exports—and thereby boost the rate of economic growth. — 793 — Trade Suppose, for example, that under the USRTA the American President persuaded India to reduce its very high protectionist tariffs and Japan to lower its formidable nontariff barriers. America would surely sell more Florida oranges, Washington apples, California wine, Wisconsin cheese, and Harley-Davidson motorcycles. The resultant fall in the trade deficit would increase America’s GDP, and the real wages of blue-collar America would rise from Seattle and Orlando to Sonoma and Mil- waukee. But that’s not all. Consider, too, the investment term in the GDP growth equation. When U.S. companies offshore their production to chase cheap labor or manufacture in a “pollution haven” country like Communist China or India with lax environmental regulations, the result is reduced nonresidential fixed investment—and a GDP growth rate that is lower than it would be otherwise. Moreover, if such offshored production results in more foreign exports to the U.S.—for example, an American consumer buys a Made in Mexico Dodge Journey or Chevrolet Trax rather than a vehicle assembled in Detroit—the trade deficit rises along with the fall in invest- ment, further reducing GDP growth. National Security. The national security argument that trade deficits matter begins with America’s national-income accounting double-entry system and this accounting identity: Any deficit in the current account caused by imbalanced trade must be offset by a surplus in the capital account, meaning foreign invest- ment in the U.S. In the short term, this balance-of-payments equilibrium may indeed “not matter” as foreigners return our trade-deficit dollars to American shores by seemingly benignly investing in U.S. government bonds and stocks. Of course, this infusion of foreign capital lowers American mortgage rates and keeps the stock market bullishly capitalized, which appears to be all to the good. Over time, however, running large and persistent trade deficits leads to a massive transfer of American wealth offshore into foreign hands. This wealth transfer happens as foreigners use their export dollars to buy American real estate, companies, and financial assets like the aforementioned stocks and government bonds. The American investor Warren Buffett has referred to such wealth transfers offshore as “conquest by purchase.” To Buffett, the big danger is that foreigners will eventually own so many U.S. government bonds that Americans will wind up working longer hours just to survive and service that foreign debt. There is an even bigger national security danger, however, that Mr. Buffett has missed: an alternative conquest-by-purchase scenario. Suppose, for example, that one of the biggest holders of U.S. dollars is a rapidly militarizing strategic rival like Communist China that is intent on world hegemony. By buying up America’s com- panies, technologies, farmland, food producers, and key elements of the domestic supply chain, Communist China can thereby gain more and more control of the U.S. manufacturing and defense-industrial base.

— 698 — Mandate for Leadership: The Conservative Promise Fundamental Tax Reform. Achieving fundamental tax reform offers the prospect of a dramatic improvement in American living standards and an equally dramatic reduction in tax compliance costs. Lobbyists, lawyers, benefit consul- tants, accountants, and tax preparers would see their incomes decline, however. The federal income tax system heavily taxes capital and corporate income and discourages work, savings, and investment. The public finance literature is clear that a consumption tax would minimize government’s distortion of private economic decisions and thus be the least eco- nomically harmful way to raise federal tax revenues.28 There are several forms that a consumption tax could take, including a national sales tax, a business transfer tax, a Hall–Rabushka flat tax,29 or a cash flow tax.30 Supermajority to Raise Taxes. Treasury should support legislation instituting a three-fifths vote threshold in the U.S. House and the Senate to raise income or corporate tax rates to create a wall of protection for the new rate structure. Many states have implemented such a supermajority vote requirement. Tax Competition. Tax competition between states and countries is a positive force for liberty and limited government.31 The Biden Administration, under the direction of Treasury Secretary Janet Yellen, has pushed for a global minimum corporate tax that would increase taxation and the size of government in the U.S. and around the world. This attempt to “harmonize” global tax rates is an attempt to create a global tax cartel to quash tax competition and to increase the tax burden globally. The U.S. should not outsource its tax policy to international organizations. Organization for Economic Co-operation and Development. The Organi- zation for Economic Co-operation and Development (OECD), in conjunction with the European Union, has long tried to end financial privacy and impose regulations on countries with low (or no) income taxes. In fact, on tax, environmental, corpo- rate governance and employment issues, the OECD has become little more than a taxpayer-funded left-wing think tank and lobbying organization.32 The United States provides about one-fifth of OECD’s funding.33 The U.S. should end its finan- cial support and withdraw from the OECD. TAX ADMINISTRATION The Internal Revenue Service is a poorly managed, utterly unresponsive and increasingly politicized agency, and has been for at least two decades. It is time for meaningful reform to improve the efficiency and fairness of tax administration, better protect taxpayer rights, and achieve greater transparency and accountability. A substantial number of the problems attributed to the IRS are actually a function of congressional action that has made the Internal Revenue Code ridiculously complex, imposed tremendous administrative burdens on both the public and the IRS, and given massive non-tax missions to the IRS. But the culture, administrative practices, and management at the IRS need to change. — 699 — Department of the Treasury Doubling the IRS? The Inflation Reduction Act contains a radical $80 billion expansion of the IRS—enough to double the size of its workforce.34 Unless Congress reverses this policy, the IRS will become much more intrusive and impose still greater costs on the American people. The Biden Administration has also sought to make the tax system’s adminis- trative burden much worse in other ways. For example, it has proposed creating a comprehensive financial account information reporting regime that would apply to all business and personal accounts with more than $600. Banks would be required to collect the taxpayer identification numbers of and file a revised Form 1099-K for all affected payees, as well as provide additional information.35 This massive increase in the scope and breadth of information reporting should be unequivo- cally opposed. Management. The IRS has approximately 81,000 employees.36 Of those, only two are presidential appointments—the Commissioner and the Chief Counsel.37 As a practical matter, it is impossible for these two officials to overcome bureau- cratic inertia and to implement policy changes that the IRS bureaucracy wants to impede. That is why, notwithstanding decades of sound and fury, almost nothing has changed at the IRS. For the IRS to change and become more accountable, more transparent, and better managed, there is a need to increase the number of Presidential appoint- ments subject to Senate confirmation, and not subject to Senate confirmation, at the IRS. At the very least, Congress should ensure that the Deputy Commissioner for Services and Enforcement, the Deputy Commissioner for Operations Support, the National Taxpayer Advocate, the Commissioner of the Wage and Investment Division, the Commissioner of the Large Business and International Division, the Commissioner of the Small Business Self-Employed Division, and the Com- missioner of the Tax Exempt and Government Entities Division are presidential appointees.38 Information Technology. Despite the investment of billions of dollars for at least two decades, IRS information technology (IT) systems remain deficient.39 The IRS inadequately protects taxpayer information, its IT systems do not ade- quately support operations or taxpayer services, and its matching and detection algorithms are antiquated. These problems are not primarily about resources. The IRS has spent approxi- mately $27 billion on IT during the past decade, with $7 billion of that designated as “development, modernization and enhancement.“40 The problem is one of man- agement. The bureaucracy is not up to the task, and neither Congress nor a long line of IRS commissioners has forced changes. A Deputy Commissioner for Operations Support with strong IT management skills should be appointed by the IRS Commissioner or the President (once the position is made a presidential appointment). The various subordinates to the