If you've ever had the overwhelming desire to get a headache, open up and read the US tax code, specifically the Import/Export section of the tax code. The US taxes imports using various factors to assess taxes on imports. Some imports are taxed based on weight, value, per unit count, volume, etc. Part of the issue that complicates the import tax code are these various methods of calculating taxes. Simplification is key and should be pushed by any future administration. As described in this blog's opening description, if the "magic crayon of power" were placed in my hands, simplification and common sense would rule the day.

 Let's say, for the sake of this entry, that the US picks value as its tax rate measurement. It should be noted that, just as the Federal government does for replacing personal items damaged by the government during a move, the calculated value should be full replacement value, not depreciated value, not retail value, but the actual cost to replace that item. If Taiwan imports a shipload of t-shirts, valued at (again, easy math numbers) $500,000. The US import tax rate is set at say 25%. Then the tax on that shipload of t-shirts is $125,000. Although that sounds like an extremely high tax rate, many Americans pay at least that rate on their income. Also remember that the value of those t-shirts is REPLACEMENT value, not retail value. Each shirt might cost $1.00 to produce, but will be sold for $15.00 (again, easy math numbers). Even after paying the import tax, the company (which is probably owned by a US corporation) stands to make a hefty profit. This would be repeated throughout the nation on each and every import. Actual rates would need to be figured after comparisons to current import tax rates.

In conjunction with this rant about import taxes, I'd like to touch on the practice of the US companies who have their products made overseas and then import them back to the US with huge profit margins. I, after a huge restructuring of the corporate tax code, would be more than willing to give a significant tax break to US companies who do NOT import foreign-made products. For instance, if the Acme Shoe Company was previously importing shoes from Thailand, the would pay import taxes, just as a Taiwanese company would for importing their product. However, if Acme Shoes decided to open manufacturing facilities here in the United States, thereby employing hundreds of Americans in the process, they would be eligible for a tax break. I know that corporate tax breaks are a no-no in politics now-a-days, but hear me out. If Acme Shoes has a workforce of 1,000 employees of which 75% are here in America, they would be entitled to a tax break of say 10% (figures are again, only for easy math purposes). For every additional 5% of their workforce comprised of American workers, Acme Shoes would be eligible for an additional percentage in tax breaks, capped at a maximum of 20%. Let's look at the following example:

Acme Shoes headquaratered in Anytown, USA posts a profit of $5,000,000 in 2010 that is taxable under a simplified corporate tax code.

In 2009, Acme Shoes imported their product from Taiwan and paid a 25% import tax on $3,000,000 worth of goods (replacement value), for a total import tax of $750,000. It is important to remember their income is taxed under the simplified corporate tax code (using a flat 10% for easy math purposes). That $3,000,000 in shoes will eventually sell for a total of $12,000,000 here in the US. This is not an actual figure, and amazingly enough, profit margins of 50% or more are fairly common on goods produced overseas and sold here in America. Did you know that it is estimated that a pair of Nike shoes only costs the Nike company about 25% of the retail price to manufacture, import to the US, and sell to the retailers who in turn sell it to you the consumer. Just something to think about.

By moving their manufacturing to the US, and employing 1,000 non-union employees (unions will be addressed at a later date), the Acme Shoe Company would be eligible for a 10% tax break on taxable income ($5,000,000). If a standard 10% flat tax rate is applied, Acme is liable for $500,000 in taxes, before their "American Made" tax break of 10%, which comes to $50,000, making Acme liable for $450,000 in taxes for the year. I know some of you are wondering why I used these "flat tax numbers" and "profit numbers", etc. but it is only for the sake of simple math.

Acme has saved $750,000 in import taxes as well as received a 10% savings on their tax liablility. Beyond that, Acme has created jobs not only for the 1,000 employees that make their shoes, but for the laboreres that constructed the facilities, increased local demand for housing, increased distribution jobs for their product, and now have employees who will spend their money locally, further stimulating the local economy. And let's not forget that those employees will pay taxes. If we use Herman Cain's 9% flat tax, and the average yearly salary for an Acme employee is $40,000 ($3,600 per employee in income tax a year multiplied by 1,000 employees) we see that the income tax generated from Acme's employees is roughly $3,600,000 a year. Obviously some employees make more, some make less, some have tax deductions, as well as other variables, but this is a rough example. By affording a tax break to Acme, we have more than made up for what they get in job creation and subsequent income tax.

America needs to get competative in the world market. We need, collectively, to say we WANT to work, we WANT to produce quality goods that are of higher quality than the rest of the world, but are competatively priced. Americans have to say that they are willing to work and would rather for a living than live off of handouts from the government, but welfare reform is another topic.

We need to do better America, we have the ability and the people, we just need the direction and the opportunity.

Until next time..