Free trade is the Cat's Meow - shrieking when it comes to countries that have a trade deficit [1]. The key reason, the trade deficit's "reverse tariff". In a previous article I explained the key frightening facts surrounding a trade deficit [2]. In this article we will focus on the reverse tariff effect from the trade deficit. What is a reverse tariff? Like a tariff [3], a reverse tariff is a tax on imports. However, a reverse tariff is a tax on imports paid on trade deficit goods and/or services, by the importing country due to tax losses. Therefore there are two key differences. The first is that instead of the importer paying the tax, the importing country pays the tax through tax losses. The second key difference is that the tax losses are created by a trade deficit. Therefore, it is solely a tax only on trade deficit goods and services, since it is the trade deficit that causes the tax losses. These tax losses are real and effectively add to a countries national debt making it a debt that every citizen owes and must pay. Therefore, if you live in the United States which has massive trade deficits, it is your reverse tariff that you are paying out of your wallet. If you would like to prevent reverse tariffs explained here, we suggest you sign our petition at CitizensforEqualTrade.org and join the Coalition for a Prosperous America and support their trade reform efforts. Your actions can help prevent these reverses tariffs that are massive and create economic turmoil in any country, as they do in the U.S. To understand this we first need to comprehend why there are trade deficit tax losses? How do these come about?
There are both quantitative and qualitative reasons for tax losses. We will discuss the simpler qualitative reasons and provide the interested reader with reference to the quantitative ones. Here are basic examples of qualitative reasons for tax losses.
1) Imports create decreases in federal tax revenues for various reasons, such as products made by non U.S. citizens who do not pay federal tax compared to products or services that would have created tax revenues if the products were not imported. Thus as U.S. made goods are replaced with foreign imports, so too are U.S. jobs and lost taxed wages in addition to unemployment benefits. Seemingly temporary, yet U.S. displaced workers occur frequently enough that the U.S. taxes burden is yearly.
2) U.S. trade deficit provides extra dollars to foreigners who can reinvest and buy treasuries and American businesses. IRS data show that foreign-owned corporations doing business here typically pay far less in U.S. income taxes than do purely American firms with comparable sales and assets. This is because it's hard to determine how much of a corporation's worldwide earnings relate to its U.S. activities and therefore are subject to U.S. tax. There are many other tax issues that create serious tax problems [4].
3) Many U.S. CEOs outsource jobs creating service trade deficit tax losses, these "imported services" decrease potential tax revenues of the company's workforce compared to non outsourcing. This also creates higher unemployment. Unemployment causes more lost tax dollars due to U.S. government subsidies until workers can recover.
4) Foreign profits from the trade deficit that are reinvested typically do not provide the tax revenue that U.S. citizen reinvestments may provide. For example, currently foreign reinvestments are considerable in U.S. government obligations for the U.S. national debt and now total about $3 trillion. This provides tax liability as the U.S. has to pay interest on this money to foreigners. On the other hand, U.S. citizens pay taxes on many of their reinvestments when owning U.S. business and equities. Foreigners who reinvest in buying U.S. business will also engage in job outsourcing once a U.S. business is taken over.
These are basic examples, but serve to help in understanding the reasons for tax losses from a trade deficit that creates the reverse tariff. Therefore, the trade deficit reverse tariffs mainly originate from job outsourcing, product outsourcing, and off-shoring a country's factories and the ripple effect to our economy.
The next question to ask, how do we know that it is primarily due to the trade deficit? To answer this question requires a quantitative assessment. This author has provided a quantitative analysis from a correlation study between the free trade deficit and the national debt. This is published in my book and on the website, CitizensForEqualTrade.com. The actual dollar amount of the reverse tariff due to any yearly country's trade deficit is not quantified by any government to this author knowledge. However, the findings that are published do show that as the trade deficit is reduced, the effect on the national debt is reduced. Said another way, mathematically it is shown that when global trade is balanced (equal trade) no tax consequences exist. This is a key result in that it explicitly shows the economic flaw of free trade, its trade deficit's reverse tariff.
Free Trades Economic Flaw is magnified as in theory a reverse tariff (tax) can be interpreted as actually:
- An Illegal tax,
- An Unconstitutional violation
- A Violation of the World Trade Agreement
These violations are the subject of my next article that will be titled, U.S. Trade Deficit Creates A Reverse Tariff that Is Illegal and Threatens America's Future.
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