America needs a whole new tax structure

A trip through Europe can inspire some dramatic thoughts about how America can best compete in a global economy. My journey started in Bucharest and continued to Sofia, Athens and Italy.
The increased level of prosperity in Hungary was noticeable, as was the decrease in the value of the dollar in Europe. Although the bill from one of my favorite restaurants in Hungarian Forints had remained the same as five years ago, the cost to me was double.
The improvement in Hungary’s fortunes can clearly be linked to its joining the European Union thus opening the doors for its products to all of Europe with no barriers. It also meant that Hungarian companies would now face European wide competition. The integration process for Hungary has not been without pain but it visibly has improved the lot of the country as a whole.
On the night train to Bucharest, I shared a car with three Romanians, another American and a Japanese person. The topic centered on the Romanian economy and Romania’s desire to join the EU. The conversation was so lively and interesting that we all agreed to stay up until we crossed the Romanian border. (It ended up meaning we did not get to bed until 3 a.m.) The conversation centered on the low level of the average Romanian wage and how Romania was to make the leap into the EU. The average wage in Romania is quoted as 61 Euros a month. That comes to about $3 a day. Close to the $2 a day often quoted for China. We wondered how people could get along on that wage.
Two of the Romanians in the car were working in Germany and had been for more than 10 years, and the other Romanian was a young woman whose family owned several businesses and she was also trying to start her own business. The two Romanians from Germany were returning to Romania after long absences.
In the light of the next day, the full impact of the discussion came home as our train sped through farm country where we saw a number of horse drawn wagons.
There was fear on the part of Romanians that inflation would create huge hardships for millions, and yet there was a belief that joining the EU would be Romania’s key to the future.
For an American tourist, Romania was a paradise, in many ways. The prices for meals, lodging, museums and whatever you would want to buy as a tourist were very low. At a wine tasting, I tasted some very good wines that I could have purchased for $1 a bottle. I wanted to buy a case, but I had no way of lugging the wine around on my trip. I thought I’d just have them mail it to me when I got back. When I investigated it on returning, I found out how un-free the wine trade is.
On to Sofia, where the story in Bulgaria was very much the same as Romania, except that the Bulgarians were further along the road to meeting the conditions for joining the EU. Of course, when I crossed into Greece, still considered one of the poorer EU countries, the level of visible prosperity climbed noticeably from its Eastern European neighbors.
But life in Europe is still tougher than it is in the USA. I stayed with friends in Athens and so could see firsthand their life style. It was a young couple starting out. They owned a single car made in the Czech Republic. Most the time, they did not drive, since it was easier and less costly to take the public transportation to many destinations in the city. (Parking was one of the biggest problems. Construction on infrastructure for the Olympic games was another.)
Still, their life was noticeably richer compared to what I saw and discussed with people in Romania and Bulgaria. The Eastern European countries are climbing out of the hole dug for them from years under Communism, but most the people I met saw the solution in joining the European alliance and opening their doors to trade.
Can you imagine the conversations among French and Italian wine growers when they will be confronted with the prospect of $1 bottle Romanian or Bulgarian wine? To my unsophisticated palate, the wines were as good as or better than any wines I’ve had from elsewhere in the world. Soon the Italians and French will have to compete, because Romania and Bulgaria will become EU members.
It was also interesting after my trip to come home and see the lack of trade issues being discussed in this election year. The Democrats are trying to make the lost jobs of the last recession a campaign issue, but it certainly is not the center of serious conversation as I sensed trade was in Europe.
In my opinion, trade and global competitiveness still should be debated. The long-term strength of this country will depend on a strong economy and our ability to compete on a global basis.
There is one philosophical point I would like to make, and that is governments cannot create real jobs. Jobs and industries that create wealth and prosperity are created by entrepreneurs and competent business leaders. Government can only create environments where business can prosper.
Neither political party at this juncture is getting good grades from me on this issue. Our huge deficits will sooner or later create very adverse conditions for new businesses in their search for capital. Also, the protectionist words and actions coming from both parties are counter productive.
There is one bright spot in this picture. In many of the articles I have written I have pointed out that one of the things that has made America less competitive is our tax system. The way we tax (IRS payroll taxes) puts as much as a 20 percent burden on our products when competing with products from Europe or Asia, whose counties depend on VAT or a consumption tax.
In my estimation (not scientific but I have confidence that it is not too far off), if we taxed on an equal footing with the rest of the world, at least half the jobs lost to China over the last five years would not have been lost. Job loss to Europe and the rest of Asia would have taken a similar trend.
In his new autobiography, Dennis Hastert, House Speaker and Republican from Illinois, comes out in favor of ditching the IRS and replacing it with an investor-friendly national sales tax. He makes the case that it would improve our trade competitiveness. In addition, he claims it would work effectively to accelerate growth. This is one of the most important concepts to surface this election year for business and is worthy of promotion by all pro-business groups.
It is an idea that will have stiff opposition from all those who profit from the lunacy of our current system.
If anything can level the playing field in world trade, it would be to have tax and health care financing compatible to the other nations of the world. At least the tax side of the discussion has started.
Joseph Geck is the principal of Accelerated Solutions, a Waukesha-based training and consulting company. He can be reached at geckj@execpc.com.
September 17, 2004, Small Business Times, Milwaukee, WI