Trade Deficit Tax Losses Violates Constitutional Law

From the Book: The Truth of the Modern RecessionIn Conjunction with CitizensForEqualTrade.Com

Violates Constitutional Law

Dr. Alec Feinberg Author of the Book

The Truth of the Modern RecessionAnd Founder of the website:

www.CitizensForEqualTrade.orgEmail – [email protected]

Trade Deficit Tax Losses

April 26, 2010


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Overview of Discussion

• Background of Dr. Alec Feinberg• Brief Introduction• Free Trade - The Good, The Bad, & The Ugly• The Trade Deficit and What It Means• Root Causes of the Trade Deficit •Trade Deficit Tax Losses• Simple Correlation Assessment – National Debt & Free Trade Deficit • Quantifying How Much Tax Loss is Due to the Trade Deficit• Is Forced Subsidizing of the U.S. Trade Deficit Through Tax Losses Unethical & Illegal• The Solution of Equal Trade

April 10, 2023 page 4

From the Book: The Truth of the Modern RecessionIn Conjunction with CitizensForEqualTrade.ComApril 10, 2023 Page 5

ST Microwave

•Dr. Alec Feinberg is • Author of The Truth of the Modern Recession

• Founder of the Website Citizens For Equal Trade• Inventor of Reliability Economics

• The book & contact information may be found on either website

– www.modernrecession.com– www.CitizensForEqualTrade.org–Book is listed on Amazon with excellent reviews ($19.95)

–Not-for-Author-Profit Book

Author Background Information


Book Not for Profit Educational Activities


•Learn the Truth of the Modern Recession, become empowered, and support the Not-For-Profit following activities at the same time:

• Sending copies of this book to Congress People (my cost is about $8 per book)

• Organizing Citizens for Equal Trade My cost to run the website is about $10/month

Petition for equal tradePlease sign at CitizensForEqualTrade.orgAll Author Profits support these educational activities


Article Information on this topic

• A Recent Article on this topic and others is on my book Website:– www.modernrecession.com–www.CitizensForEqualTrade.org

–Also a link to this slide presentation on both sites

• Free Trade ‘Deficit’ Violates Constitutional Law and the U.S. Free Trade Agreement (Find it at the bottom of this site with sample chapters)



Economy – U.S. Issues are All Inter-Related

April 10, 2023 page 8 /

Top Economy Issues Approximately Last 10 YearsNational Debt Doubled ($12.5 Trillion)Manufacturing Jobs losses - Up 33%

Free Trade Deficit – (2000 China enter US free trade)

Tripled ($7.5 Trillion since 1971)$5.1 Trillion since China’s Entry

Separation of Wealth Increases 1% per Year(Increase 28%, 1980-2007)

Unemployment DoubledBusiness Failure Rate Increased

Housing Failure Rate Increased


FREE TRADE The Good, The Bad,

& The Ugly


Free Trade Philosophy

• Comparative Advantage–In a Free marketplace, each country will specialize in its

comparative advantage (i.e. natural resources, skilled work, agriculture-friendly weather, etc.). Result should be all parties will increase their income.

–Theory refers only to aggregate wealth and says nothing about the distribution of wealth

–End up with big winners and losers–Does not speak to Trade deficits–Large separation of wealth



Free Trade: The Good, The Bad, & The Ugly

The Good:

• 1) Low-priced goods, 2) reduced inflation, 3) low-priced services, 4) new job

opportunities in foreign-owned businesses, 5) new global opportunities in

manufacturing, 6) imports/exports of agricultural and commodity, 7) export

opportunities, 8) reduced likelihood of war with our trading partners due to

foreign investors, and 9) manufacturing outsourcing raises the level of 3rd

world countries.

The Bad

• U.S. unemployment crisis due to job outsourcing primarily in the

manufacturing area, lack of protectionism, U.S. corporation failures have

occurred due to foreign competition that has had many advantages over

U.S. businesses. Some foreign governments are accused of subsidizing

products - cheaper labor. Example - Detroit automakers had failures and

needed bail outs.



Free Trade:The Ugly & The Really Ugly

• The Ugly: Global Cheating Crisis:

– Currency Manipulation

– Product subsidy to gain competitive advantage

– Product counterfeiting

– Unfair non tariff trade barriers by our trading partners

– Lack of intellectual property rights protection

• The Really Ugly: Losing America

– 3.6 Million Jobs lost to China, Mexico and Canada

– Job Losses = Tax Revenue Losses -> Increase in U.S. national debt

– Foreigners own U.S. businesses & U.S. Treasuries

– We are beholden to Foreign governments making regulations impossible

– l



Example - Accusation China Currency Manipulation•January 2009—Treasury Secretary designate Timothy Geithner said —backed by the conclusions of a broad range of economists was that China is manipulating its currency

•The Schumer-Graham bill had proposed a 27.5% tariff on all imports from China until the Yuan reached a fair value. Stopped by lobbyist influences Sept. 2006.



Example: Accusation on Japan

• In 2008 the U.S. had a $55.8 billion trade deficit in auto and auto parts with Japan that represented about 8% of our total trade deficit. U.S. exports of autos and auto parts to Japan were almost 27% lower in 2008 than in 2000

• Japan’s artificially weak currency provides a significant per-vehicle cost advantage that amounts to an outright annual subsidy of between $3,000 for small car to $12,000 for a luxury sedan or SUV for every vehicle exported to the United States.

• Japan also continues to block imports of U.S. auto parts using a combination of non-tariff barriers



THE TRADE DEFICIT AND WHAT

IT MEANS



What Does a Trade Deficit Mean?& How Large is it??• When a U.S. deficit occurs it means imports are greater than exports

• U.S. Total Trade Deficit started 1971, has accumulated to $7.5 trillion ($6.5 trillion last 20 years). Below we compare it to the National Debt (cumulative total).



Free Trade & Trade Deficit

•To be in favor of Free Trade means you must be Supportive of the:

– U.S. Free Trade Deficit

–Why do most economists support free trade yet do not support the free trade deficit?



Trade Deficit Implications

•Trade Deficit -> Foreigners own U.S. deficit dollars

• Money comes back in foreign investments

• Foreigners with excess U.S. dollars buy U.S. debt (treasuries) and businesses

• Effectively U.S. net worth is being transferred abroad

•We are more and more beholden to foreigners– This effects foreign political policies and our position



How Much in 2009 Do Foreigners Own of U.S.?• Current Estimate is $9.7 trillion (3 trillion in treasuries, 6.7 trillion in businesses)

• Total trade deficit is 7.5 Trillion since 1971.• Foreigner ownership is ~77% due to trade deficit• National Debt – about $3 Trillion of $12.1 Trillion about 25%

• U.S. Businesses Aug, 2008 - share of foreign-owned U.S. companies as a percentage of the whole has also jumped to 13.9 % (about $6.7 trillion)

• Business net worth in U.S. is about $50 trillion, household net worth is $54 trillion



Warren Buffet on Free Trade Deficit

• “The U.S trade deficit is a bigger threat to the domestic economy than either the federal budget deficit or consumer debt and could lead to political turmoil... Right now, the rest of the world owns $3 trillion more of us than we own of them” (Ref. Wikipedia)



Investigating 40 Years of Free Trade Deficits Effects

•Trade Def Equals $7.5 Trillion since 1971 ( $5.5 trillion dollars in just the last 10 years)

•No country can long sustain a trade deficit, Economics 101

April 10, 2023 page 21 /


US Trade Deficit


Year

U.S.Service Trade

Surplus

U.S.Goods DeficitBillions

$

U.S.Overall Deficit

Billions $2000 79.6 -459.20 -379.602001 69.7 -436.70 -367.002002 67.4 -491.70 -424.302003 60.2 -559.50 -499.302004 65.8 -681.20 -615.402005 83.3 -796.90 -713.602006 93.3 -850.60 -757.302007 128.1 -836.00 -707.902008 162.9 -832.10 -669.20

Total 810 -5944 -5134

Country/Area

Deficit in Percent

China 39%NAFTA 21%OPEC Nations 22%Others 18%TOTAL 100%

2008


Trade Deficit In Billions of Dollars


NAFTAYear China Japan Mexico Canada Others Total2009 $226.8 $45 $48 $20.2 $38.6 $378.62008 268 74 65 78.3 210.6 695.92007 258 84 75 68 216.4 701.42006 234 90 65 72 299.4 760.42005 202 83 50 78 302.3 715.32004 162 74 45 67 261.9 609.92003 124 66 40 52 213 4952002 103 70 37 48 163 4212001 83 69 30 53 130.5 365.52000 84 82 24 52 137.8 379.8

China, Japan, NAFTA, Others

www.census.gov/foreign-trade/balance/

In Billions of Dollars


Trade Deficit In PercentChina, Japan, NAFTA, Others

Year China Japan Mexico Canada Others2009 59.9% 11.9% 12.7% 5.3% 10.2%2008 38.5% 10.6% 9.3% 11.3% 30.3%2007 36.8% 12.0% 10.7% 9.7% 30.9%2006 30.8% 11.8% 8.5% 9.5% 39.4%2005 28.2% 11.6% 7.0% 10.9% 42.3%2004 26.6% 12.1% 7.4% 11.0% 42.9%2003 25.1% 13.3% 8.1% 10.5% 43.0%2002 24.5% 16.6% 8.8% 11.4% 38.7%2001 22.7% 18.9% 8.2% 14.5% 35.7%2000 22.1% 21.6% 6.3% 13.7% 36.3%

www.census.gov/foreign-trade/balance/


China’s Trade Surplus Leads to GDP Growth


Year

ChinaPopulation(Billions)

ChinaPop

GrowthSince 2000

GDPper CapitaChina in

U.S. dollars

ChinaGDP

Growth

in %

Billions

GDPChina

2000 1.26183 0.00% $3,800 7% 48002001 1.27311 0.90% $3600 8% 45002002 1.28430 1.78% $4600 8% 60002003 1.28698 2.00% $4400 8% 57002004 1.29885 2.94% $5000 9.1% 64492005 1.30631 3.53% $5600 9.1% 72622006 1.31397 4.13% $6800 10.2% 88832007 1.32185 4.76% $7700 10.7% 101702008 1.33004 5.41% $5300 11.4% 7800


U.S. Trade Deficit Leads to GDP Contraction


Year

U.S. Pop

(Billions)

U.S. Pop

GrowthSince 2000

U.S. GDPPer Capita in dollars

U.S. GDP

in Billions

U.S. GDPGrowth in

%2000 0.2756 0.0% $33900 9255 4.1%2001 0.2781 0.9% $36200 9963 5%2002 0.2806 1.8% $36300 10082 0.3%2003 0.2903 5.4% $37600 10400 2.45%2004 0.2930 6.3% $37800 10990 3.1%2005 0.2957 7.3% $40100 11750 4.4%2006 0.2984 8.3% $41600 12310 3.2%2007 0.3011 9.3% $44000 13130 3.2%2008 0.3038 10.3% $46,000 13860 2.2%


China and NAFTA U.S. Job Losses

•Cheaper Labor Causes Job Losses in U.S.

•Between NAFTA and China spanning 1993 and 2008 the total job outsourcing loss is at least 3.63 million

• www.epi.org/economic_snapshots/entry/webfeatures_snapshots_archive_11052003/

• http://online.wsj.com/article/BT-CO-20100323-713114.html?mod=WSJ_latestheadlines



U.S. Foreign Owned Business Equates to Job Losses?• Aug, 2008 - share of foreign-owned U.S. companies as a percentage

of the whole has also jumped to 13.9 percent. Back in 1971, foreign

companies owned 1.3 percent of all corporate U.S. assets.

• Foreign-owned companies in the United States have a work force of

more than 5.3 million, or some 3.5 percent of all workers

http://www.nytimes.com/2009/10/18/business/18excerpt.html

• U.S. trade deficit causes job losses

– Foreigner own 13.9% of U.S. companies yet only employ 3.5% of

work force!

– Extrapolating this, if foreigner owned 100% of all U.S. companies

they would employ 25% U.S. workers.


http://www.reuters.com/article/idUSN2744743020080827


ROOT CAUSES OF TRADE DEFICIT



Root Causes of Free Trade DeficitLabor Costs


• Main Root Cause:

Cheaper labor

Lack of government oversight

High- versus low-wage economies


Law of Financial Free Trade Equilibrium Between U.S. high & low wage economies

• If two economies have free cash flow, such as China and the U.S., the currencies will flow towards financial equilibrium (from richer country to poorer). The imbalanced monetary pressure causing excess trade deficit is due mainly to three key reasons: cost of wages, each country’s GDP, and the value of the country’s currency.

• Free trade can never be equal trade until all U.S. dollars reach equilibrium with the rest of the world – this would make the U.S. a 3rd world country but owned and operated eventually by outside investors.



Root Causes of Free Trade DeficitSecondary Root Causes• Economic Greed (Cheating the U.S. and its tax payers)

• Violations of WTO free trade policy–Foreign Currency Manipulation–Product subsidy to gain competitive advantage–Product counterfeiting–Unfair non tariff trade barriers by our trading partners–Lack of intellectual property rights protection

–Foreign currency manipulation: A country keeps its currency artificially low so its goods and services are cheaper increasing exports.


From the Book: The Truth of the Modern RecessionIn Conjunction with CitizensForEqualTrade.ComApril 10, 2023 page 33 /

TRADE DEFICIT TAX(TDT)

LOSSES!!


Trade Deficit Tax (TDT) Consequences

• Not well understood, quantified, and ignored by economists is federal Trade Deficit Tax (TDT) losses for various reasons:–Lost tax wages on non US Products: Products made by non

U.S. citizens do not pay federal tax compared to products that would

have created tax revenues if made in the U.S.–U.S. products replaced with foreign imports, less taxed

wages collected: As U.S. made goods are replaced with foreign

imports, so too are U.S. jobs and lost taxed wages.–Outsourcing Job Losses: Unemployment benefits and health

care government payouts associated with these job losses.



Foreign Owned Companies Pay Far Less Tax• Foreign corporations with operations in the U.S. tend to pay less in taxes than their

domestic counterparts and are more likely to pay no income taxes at all, according to a

federal report released this week.

• The U.S. Government Accountability Office report said 72% of foreign companies in the

U.S. reported no federal tax liability for at least one year between 1998 and 2005 versus

55 percent of U.S.-based corporations.

• The GAO report also found foreign companies had lower tax liabilities than U.S. firms - 1.4

percent versus 1.7 percent of sales receipts and assets.

http://www.bizjournals.com/nashville/stories/2008/08/11/daily37.html

www.ctj.org/hid_ent/part-2/part2-3.htm, “Tax breaks for multinational corporations)



Trade Deficit Tax (TDT) Consequences(Continued)• Reasons for TDT Losses:

– Foreign owned U.S. companies export services

– Employ many of their own

– Foreigner own 13.9% of U.S. companies yet only employ 3.5% of work force! (See prior slide)

April 10, 2023 page 36 /


SIMPLE CORRELATION ASSESSMENT

NATIONAL DEBT & FREE TRADE DEFICIT



Trade Deficit

National Debt

1990 - 2009


Year

AnnualTrade Deficit in

Trillions $Cumulative

Trade Deficit in Trillions $

National Debt inTrillions

$

CumulativeNational Debt in

Trillions $1990 0.081 1.01+ 0.33 3.211991 0.031 1.04 0.39 3.61992 0.039 1.08 0.4 41993 0.070 1.15 0.35 4.351994 0.098 1.25 0.29 4.641995 0.096 1.35 0.28 4.921996 0.104 M1 1.45 0.26 5.181997 0.108 M1 1.56 0.19 5.371998 0.166 M1 1.73 0.11 5.481999 0.265 M1 1.99 0.12 5.62000 0.380 2.37 0.03** 5.632001 0.366 M1 2.74 0.14 5.772002 0.422 M1 3.16 0.43 6.22003 0.495 M1 3.65 0.56 6.762004 0.610 M1 4.26 0.59 7.352005 0.715 M1 4.98 0.56 7.912006 0.760 M1 5.74 0.54 8.452007 0.701 M1 6.44 0.5 8.952008 0.696 7.14 1.04 9.99

2009 0.37 Est. 7.51 Est* 2.1 Est. 12.1 Est.


National Debt and Free Trade Deficit Per Year


Graph shows interesting correlation –

(See section on trade deficit)


Correlation Analysis From Data:Model for well behaved years - 1996 and 2007



Regression Results

•Correlations Found in Data: 84% to 89% (square root of R-Sq)

•X-Y relationship. Y=0.679X -.0726). –Y intercept(.0726) small indicated no deficit no tax losses. (small compared to values in Column 2 from 1996-2007)

•Y(National Debt) ~ 0.68 X(Trade Def.)–implies 68% of some trade deficit X-quantity is linked to lost tax revenue and effectively adds to the national debt

April 10, 2023 page 41 /


Quantifying How Much Tax Loss is

Due to the Trade Deficit



Math Model Assumption

•Assumption: Mathematical relationship is valid for any time period. That is, we have been able to identify an underlying relationship using select years; the relationship should still be reasonably valid for other time periods.



First Estimate from Graph Results

• Foreigners reinvest trade deficit dollars in businesses and treasuries. Foreign investment would not be there if it was not for the trade deficit Use treasuries of $3 trillion as an example for the X-quantity in Graph

• Multiply by 0.68 giving $2 trillion of effective trade deficit that is added to the national debt (=68 cents of every trade def dollar)

• 95% Confidence bounds in Figure between $0.8 and $2.8 trillion(the $0.8 trillion = 11¢ of every trade def. dollar adds to national debt).

• The $0.8 trillion of $12.3 trillion national debt implies about 6.6% of the national debt is due to the trade deficit



Estimate of How Much of Every Trade Def. $ is added to the National Debt

• Using the $0.8 Trillion amount as an example (95% Lower bound)

then

This is also between 10.7 and 26.7 cents of every trade deficit dollar

adds to the national debt. With the U.S. population of about 300

million, this equates to between $2667 to $6667 added to each

citizen’s national debt credit card! We see that free trade is not really

free!



Hand Waving – 2nd Estimate for Sanity Check• Rough 2nd Estimate we obtained as follows:

• NAFTA and China spanning 1993 and 2008 the total job outsourcing

loss is at least 3.63 million (see earlier slides)

• Harvard economist Martin Feldstein in 1971 estimated a tax loss of

$10.61 per hour on even a $15 per hour job.

http://www.econlib.org/library/Enc/Unemployment.html

• Using this underestimated value and providing and overestimate of

displaced workers for 1 year of salary, the outsourcing cost to tax

payers (2000 hr. work year) is ~ $77 billion.

• Using a recent EPI estimate of about $700 week including Cobra

subsidies, the taxpayer cost is $131 billion.

http://www.epi.org/publications/entry/jobs_crisis_fact_sheet/



Cascade Factor

• GDP consumer spending loss from this outsourcing creating less

product demand and effecting other layoffs is hard to factor. The EPI

estimate is 8.4 million recent jobs lost. The cascade effect may be a

factor of 10 with housing and bail-out issues. This is ~$1 trillion in tax

losses from the trade deficit effect.

• Therefore our final estimate is $1 trillion is most likely reasonable

– Current national debt is 12.5 trillion

– Free trade deficit is estimated here as about 8% of the national debt

• Reader Caution: This is a crude estimate. It is most likely the best

estimate one will find since economist have ignored the TDT quantity.



IS FORCED SUBSIDIZING OF

THE U.S. FREE TRADE DEFICIT

THROUGH TAX LOSSES

UNETHICAL & ILLEGAL?



Question

•If US citizens suffer free trade deficit tax losses, and are forced to pay off this as part of a national debt increase, then

– Is the free trade policy/deficit illegal??

– Is it unethical??



Is it Unethical if U.S. Citizens are subsidizing the Deficit?

• Ethical greed issues (see prior slides): Currency manipulation by U.S. trading partners, 2) Excessive Job outsourcing, 3) Product subsidies by foreign governments, 4) Unfair non tariff trade barriers by our trading partners, 5) Lack of intellectual property rights protection, and 6) Product counterfeiting.

• In effect, U.S. citizens are forced to enable job outsourcing, currency manipulation, and these on-going greed issues through forced tax subsidies

• Is this Unethical – What say you??

.



Is it Illegal in Violation of Constitutional laws?• Does it violate constitutional law? We have identified one possible constitutional

law that speaks to tax on interstate commerce. This constitutional law states (Article

1, Section 9, Clause 5): “No Tax or Duty shall be laid on articles exported from any

State.” The argument is then, U.S. tax payers are actually paying a forced tax on

moving imported trade deficit goods from state to state through tax losses due to the

trade deficit (that we discussed in this chapter). In other words, U.S. citizens are

paying an interstate tax since the import trade deficit goods have tax consequences

that increase our National debt. Therefore, it is a violation of constitutional law that

tax payers are subsidizing the free trade deficit on imported deficit goods that are

moved from state to state across America. From our graph in Figure 9.3, tax losses

diminish to zero if trade deficit approaches zero. Therefore, only equal trade will not

violate this law. www.house.gov/house/Constitution/Constitution.html



Is it Illegal for U.S. Citizens to pay tax on the Deficit Consequences?• Does it violate free trade agreement? The agreement between our trading partners requires elimination of tariffs and quotas on most (if not all) goods and services traded between them. Our argument is similar to that above, U.S. tax payers are actually paying a tax on imported trade deficit goods through tax losses due to the trade deficit (that we discussed in this chapter). Since the trade deficit is partially funded by U.S. tax payers, then this is a self-imposed tax on trade surplus of imports and is a tariff that U.S. citizens are paying our own government on deficit imports. Therefore, a trade deficit violates free trade policy itself!



Is it Stealing ?

• Is it stealing for U.S. citizens to be paying for corporate Americas products through TDT losses??

• What Say You?

Example:

You are paying a tax on every free trade ‘deficit’ item sold at Walmart!



THE SOLUTION OF EQUAL TRADE



Equal Trade Has No TDT Losses

• Results of our graphical analysis indicate that if the trade deficit were near zero, the contribution to the national debt would be near zero.

• This implies that Equal Trade would create TDT losses, or thus not violate constitutional law.



Balanced Trade Restoration Act of 2006 Corrective Action

• Warren Buffett’s plan: Create a market for import certificates that would

represent the right to import a certain dollar amount of goods into the United

States from other countries. These certificates would be issued to US

exporters in an amount equal to the dollar amount of the goods they export,

and can be sold to importers, who must purchase them in order to legally

import goods.

• Results: This Plan does essentially create a tariff

• Alternate Plans are needed

• U.S. Government has failed to act on proposed legislation

Balanced Trade Restoration Act of 2006 (Bill has vanished??)



Congress Neglect of 2006 Bill and the free trade deficit•2006 Bill faded•Nothing was ever issued on the Bill•Failure by Congress to provide information or act on one of the biggest threats to the U.S. economy is an indication of – Poor Economic decisions possibly ideologically based

– Influence of big business– Shows a lack of understanding of issues since free trade is supported by most economists



What Would Equal Trade do for U.S.

• Create Millions of Jobs

• Help us pay off the National Debt

• Reduce unemployment to minimum levels

• Reduce separation of wealth

• Stop housing failure Rate

• Stop business failure rate

• Stop foreigners from buying up America

• Stop foreigners from buying up our National debt

• Stop U.S. from being Beholden to unfriendly countries like

China

• Assure America’s Future

• Stop illegal taxation




What You Can Do

• Go to the Website:

– www.CitizensForEqualTrade.org

– Sign the petition for equal trade on the website

– Support this movement and learn : The Truth of the Modern

Recession, with your purchase

– Book at Amazon.com $19.95



Addressed Solutions in the Not-for-Profit The Truth of the Modern Recession, Root Causes and Reliable Solutions

• Reliability Economics - A Bipartisan Solution through Root Cause Analysis:

Using Reliability Economics - Solutions Addressed in book:1. Taxation Plan to Reduce Separation of Wealth2. A Seven Year Plan to Eliminate the National Debt3. Job Creation and Retention Investing4. Free Trade Deficit Mitigation Plan5. Middle East Long Term Solution6. Check and Balance for Lobbyist Problems 7. Many Solutions Without Bailout


Please see book reviews and information at Amazon.com