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A story on the BBC caught my attention last week:
 

China’s economy soars thanks to MASSIVE government spending on infrastructure

 

In a perfect example of “the tail wagging the dog”, the Republican minority… the very same group whose policies got us into this economic nightmare… are controlling the debate on how to revive the economy, convincing the American people that “massive government spending on infrastructure won’t do a thing to rescue our economy”. Well guess what, as the video above reveals, that is EXACTLY what the Chinese are doing, and while every other industrialized nation on Earth is in economic decline, China saw growth of 8 percent and a decline in unemployment… exactly the opposite of what Republicans say would happen if we tried it here.

They are wrong on the economy and now they are wrong on “healthcare”.

Pro-corporate Republicans are at it again, scaring the crap out of voters (link to a great Tom Tomorrow cartoon), telling them that a government health insurance option will result in (ooooh!) “Socialized Medicine”, “less choice”, “bureaucrats coming between you and your doctor” (uh, Hellooo? Guys? I hate to break it to you, but that’s the system we have NOW) and “will cost the government trillions”.

As Dubya famously said, “Fool me once…”, well, you know the drill.
 

Talk on The Hill is to “raise taxes on the top 2%” to pay for President Obama’s healthcare reform… a move that is sure to drive the Raging Right apoplectic, with screams of outrage over how “the Democrats solution to everything is to raise YOUR taxes” (because in Republican World, all taxes on the rich get passed on to the consumer, regardless of the “free market” that they insist keeps prices down. Do you see the flaw in their argument?)

Now, I’m not one to oppose raising taxes on a group that saw their taxes cut to the bone under GWB, But talk of “raising taxes” on ANYONE has never improved a person’s poll numbers (just ask Walter Mondale, who was crushed in the 1984 election 49-1 by Ronald Reagan after “promising to raise your taxes” (Mondale thought his honesty would win him support, instead, he gave the Republicans a sledgehammer to bludgeon him into obscurity.) If you want to win support for your program, nothing works better than telling them you’ve found another way to pay for it.

I got to thinking: “What if we reinstated tariffs, making foreign good more competitive with American-made good, thus creating jobs in the U.S. while raising money to pay for healthcare?” “Free Trade” Republicans that got us into this mess start crying “protectionism!” You’re damn right I’m a “protectionist”. Since when did “protecting ones self” become a dirty word?

Republican fear-mongerers will trot out terms like “trade war” (probably the only kind of “war” Republicans don’t like), telling us how other countries will impose tariffs on American-made goods imported into their country in retaliation for us raising tariffs on the items they try to sell here. There’s a problem with that argument: WE DON’T MAKE ANYTHING ANYMORE. Cheaper imported goods have undercut our own products and driven (or are driving) our corporations out of business.

Anyheww…

After some wading through government websites like “The United States International Trade Commission” (a repository of individual trade agreements) and the IRS, I couldn’t help but feel like I’d bitten off more than I can chew this week (you know the story about the dog chasing cars “wouldn’t know what do do with it if he caught one”? I feel like that dog right about now.)

I searched “the Internets” and found some interesting information on the IRS website:
 

United States Income Tax Treaties

Countries with whom the U.S. has import/export treaties with:
Armenia
Australia
Austria
Azerbaijan
Bangladesh
Barbados
Belarus
Belgium
Bulgaria
Canada
China
Cyprus
Czech Republic
Denmark
Egypt
Estonia
Finland
France
Georgia
Germany
Greece
Hungary
Iceland
India
Indonesia
Ireland
Israel
Italy
Jamaica
Japan
Kazakhstan
Korea
Kyrgyzstan
Latvia
Lithuania
Luxembourg
Mexico
Moldova
Morocco
Netherlands
New Zealand
Norway
Pakistan
Philippines
Poland
Portugal
Romania
Russia
Slovak Republic
Slovenia
South Africa
Spain
Sri Lanka
Sweden
Switzerland
Tajikistan
Thailand
Trinidad
Tunisia
Turkey
Turkmenistan
Ukraine
United Kingdom
Uzbekistan
Venezuela

(65 countries)

While most of these treaties are good treaties, many (most) of them are decades old. You CAN’T tell me that there isn’t SOMETHING that can be renegotiated in them to bring in more tax revenue to the Federal Government.

I spent a few hours perusing a few of these IRS Tax Treaties, filled with unintelligible legal-speak, to see exactly what they are meant to do. Here is a brief sampling of some facets that caught my eye. I’ve highlighted key points in the legalese to make it easier to understand (note the YEAR of these treaties and how old some of them are):

From our tax treaty with France – 1994 (pg12):

“France (pg12): “2. Such dividends may also be taxed in the Contracting State* of which the company paying
the dividends is a resident, and according to the laws of that State, but if the beneficial owner of
the dividends is a resident of the other Contracting State, the tax so charged shall not exceed:
     (a) 5 percent of the gross amount of the dividends if the beneficial owner is a company that owns:
          (i) directly, at least 10 percent of the voting power in the company paying the dividends, if such company is a resident of the United States; or
          (ii) directly or indirectly, at least 10 percent of the capital of the company paying the dividends, if such company is a resident of France;
     (b) 15 percent of the gross amount of the dividends in other cases.”

(* Contracting State = country named in treaty.)

From Germany – 1989 (pg3):

“The Convention will reduce the withholding tax on direct investment dividends, on a reciprocal basis, from the present 15 percent to 10 percent in 1990 and to the permanent rate of 5 percent in 1992.”

From India – 1989 (pg 2):

“The Convention provides maximum rates of tax at source on payments of dividends, interest and royalties which, in each case, are higher than the rates specified in the United States Model. Dividends from a subsidiary to a parent corporation are taxable at a maximum rate of 15 percent; other dividends may be taxable at source at a 25 percent rate. Interest is, in general, taxable at source at a maximum rate of 15 percent, although interest received by a financial institution is taxable at a maximum rate of 10 percent, and interest received by either of the two Governments, by certain governmental financial institutions, and by residents of a Contracting State on certain Government approved loans, is exempt from tax at source.”

With Indonesia – 1988 (pg3):

“The rate of tax at source on dividends, branch profits, interest and royalties is limited in general to 15 percent of the gross amount, with exemption at source on interest paid to the other government or its agencies and instrumentalities, and a maximum rate of 10 percent on payments for the rental of certain equipment.

China – 1987 (pg20):

“1. A person (other than an individual) which is a resident of a Contracting State shall not be entitled under this Agreement to relief from taxation in the other Contracting State unless:
     (a) (I) more than 50 percent of the beneficial interest in such person (or in the case of a company more than 50 percent of the number of shares of each class of the company’s shares) is owned, directly or indirectly, by any combination of one or more of:
          (A) individuals who are residents of one of the Contracting States;
          (B) citizens of the United States;
          (C) companies as described in subparagraph 1(b) of this protocol; and
          (D) one of the Contracting States, its political subdivisions or local authorities; and
     (ii) in the case of relief from taxation under Articles 9 (dividends), 10 (interest), and 11 (royalties), not more than 50 percent of the gross income of such person is used to make payments of interest to persons who are other than persons described in clauses (A) through (D) of subparagraph (a) (I), whether directly or indirectly; or
     (b) it is a company which is a resident of a Contracting State and in whose principal class of shares there is substantial and regular trading on a recognized stock exchange.”

S.Korea – 1976 (pg3, Note: a similar paragraph is found in most of these treaties):

“The Convention establishes maximum rates of withholding tax in the source country on income payments flowing between the two countries. The rate of withholding tax on portfolio dividends is limited to 15 percent, while on dividends paid by a subsidiary to a parent corporation the rate of tax may not exceed 10 percent. The maximum rate of withholding tax on interest is 12 percent except that interest derived by the Government of one of the Contracting States or by its local authorities or instrumentalities is exempt from withholding at the source. Royalties are subject in general to a 15 percent maximum rate of tax. However, the tax on literary and artistic royalties, including motion picture royalties, is limited to 10 percent.

And saving the best/worst for last:

Our treaty with Japan, last negotiated in 1971 and signed by then President Richard Nixon. (pg9 – Double Taxation):

“the United States shall allow to a citizen or resident of the United States as a credit against United States tax the appropriate amount of Japanese tax and, in the case of a United States corporation owning at least 10 percent of the voting power of a Japanese corporation from which it receives dividends, shall allow credit for the appropriate amount of Japanese tax paid by the Japanese corporation paying such dividends with respect to the profits out of which such dividends are paid.”

Got that? Any Japanese company with an office in the in the U.S. shall pay NO Federal “personal holding company” tax so long as it has “no American shareholders”. A “personal holding company” is one in which “60% of its business is derived from the trade of investments, such as dividends, rent, or financial services” and “has five or fewer shareholders”. Why do we give a tax break for this? Simple, because American investment companies want the same deal in Japan.I’m quite certain the number of Japanese PHC’s in the U.S. and not paying taxes doesn’t come close to the number of American PHC’s operating in Japan and paying no taxes. The mind reels at the amount of tax income the U.S. loses through this 38 year old loophole.

Think about all that has changed since 1971. There was no Nintendo. Sony was still making cheap B&W TV’s and transistor radios. Toyota was introducing it’s first car, the tiny Corolla, “Nissan” (called “Datsun” back then) was importing the new “510 two-door“, and new (to America) “Honda” had just introduced the “Civic CVCC”… basically a two-passenger roller-skate for under $1,200.

The U.S. still dominated the car and electronics markets. Most cars on the road were American. Our TV’s were made by RCA (“Radio Corporation of America”, now owned by the British) and the now defunct Curtis Mathis. And a California startup called “Atari” practically gave birth to the “video entertainment” business with the introduction of PONG, something they called a “video computer system” that became THE must have Xmas gift on every child’s list. (“Atari” now only exists as a brandname, purchased by a French software company a few years ago after Atari went bankrupt in the early 90’s trying to compete with Nintendo and Sega.)

No one wants to start a “trade war”, but you can’t tell me that renegotiating tax agreements from two, three, even four decades ago isn’t worth looking at. Would raising some of those “maximum tax rates” from “15%” to perhaps “17.5%” really be that detrimental to trade?

It is time to review some of these ancient treaties, analyze just how “fair” they are by today’s standards, renegotiate many of them, and start using some of that lost income to pay for healthcare. And if increasing taxes on foreign corporations raises the price of the products they sell, making them more competitive with American-made goods, you create jobs as well. Win-win.
 

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