In a capitalistic society, individuals and businesses aim to earn a profit with the production of their investment and labor in a free market operating largely by supply and demand. Socialism is when the government owns and/or controls productive enterprises. A mixed economy is aspects of both.
The United States appears to be moving toward a mixed economy.
To make the case, look at the tax code and labor market that tend to send our factories outside the U.S. This limits our economy not only by losing wages paid to foreign workers, but by losing the multiplier-effect of wages circulating throughout economy.
A dollar or its equivalent has a multiplier effect when we pay out it to a worker who then uses it in another part of society. When we pay wages and taxes outside the U.S., our gross domestic product is affected negatively. This problem multiplies itself when that foreign tax paid on profits made overseas becomes a U.S. tax credit or an itemized deduction from our domestic tax.
As the leading world economy, the U.S. depends on the creation of new jobs. Exporting jobs coupled with unprecedented financial occurrences, such as a poor housing market, banking and other financial institutional failures, and two severe recessions, has undermined our economy.
Before we had income tax, government income came from tariffs on foreign goods imported and excise taxes on goods being exported. When tariffs and excise taxes became insufficient to support the government, the federal income tax became law in 1913.
Since many of our necessary goods are coming from foreign countries, foreign manufacturers hold a larger stake in our financial future.
Since we need the products as cost-efficient as possible, we continue to import everything China can produce. We could bring the jobs home by modifications to the U.S. Tax Code to favor “Made in America.”
As it has become easier to do business in foreign countries, it has become more difficult to do business domestically.
As the dollar drops in value, it costs more to buy the same goods and services. According to the CPI (Consumer Price Index), what $1 would buy in 1960, now takes $2.65 to buy. Any financial recovery, personal, business, or government, is dependent upon a reduction of spending and/or an increase of revenues.
Doing both at the same time works best. That means cuts in government spending and increases in non-government jobs.
The national debt has risen to $17,862,215,633,182.88 as of Oct. 9, according to the Treasury Department’s Bureau of Public Debt, making the interest alone the fastest growing portion of the federal budget.
The Washington Examiner indicates that servicing the nation’s debt in the near future could cost more than the current annual Pentagon budget, including funding wars. The U. S. Census Bureau says the poverty rate in 2013 was 14.5 percent of the U.S. population, down from 15.% one year earlier.
Congress could adjust the U.S. Tax Code to encourage doing business at home and promote growth of U.S. jobs.
If corporate income tax on production in America were zero, no tax need be passed on to the consumer. This would mean more consumer dollars available within the economy. Foreign profits, on the other hand, could continue to be taxed. Tax deductions on foreign investment could be adjusted lower. Corporate investment in America could potentially increase.
A direct by-product could be the creation of jobs we need that pay taxes and proliferation of a multiplier effect of the U.S. dollar within our gross domestic product. The “dollar” could become more valuable, not less.
Raymond C. Horton, Sr ChFC® is a member of the Ark-La-Tex Chapter, Financial Planning Association, whose members contribute to this column weekly. If you have questions or topics you would like to see addressed in this space, send inquiries to Financial Fundamentals c/o The Times, Money/Business, P.O. Box 30222, Shreveport LA 71130-0222 or email shreveportmoney@gannett.com.