WILL WTO OR CONGRESS RULE?

Commentary by J. Bradley Jansen

March 20, 2002

Last week we witnessed a mixed blessing: the World Trade Organization started
lording over us and the Republican leadership in Congress signaled their intention
to stand up for America. Some of our European trading partners, most notably the
French, aim to use our membership in this global trading body to submit us to
their worldview.

The WTO’s Appellate Panel ruled that the U.S. approach to taxing Foreign Sales
Corporations is an “illegal” subsidy. Let’s be fair. The U.S. does use our tax
dollars to promote exports, um, subsidize, some of our large corporations. These
expenditures are corporate welfare, plain and simple. If the Bush Administration
were serious about fiscal discipline and basic fairness, we would defund the
Export-Import Bank, the Overseas Private Investment Corporation, the Trade
Development Agency, our Market Access Program, the International Monetary Fund and
scores of similar programs. There are even parts of the tax code that permit
“refundable” tax credits whereby someone can get back from the government more
than they paid in taxes.

With all of the good reasons to complain about our tax code’s treatment of
companies’ global activities, the WTO got this one wrong. What they call a
subsidy on exports amounts to nothing more than avoiding double taxation so that
the U.S. credits companies for their exportable goods—which the Europeans, for
example, then tax.

Our corporate taxes are already too high, and we must note that the U.S. taxes
income on a worldwide basis. This system of taxation is needlessly complex, is a
detriment to the free flow of goods and services and needs to be addressed.

“My hair bristles on the back of my neck when I have Europeans tell us how to run
our government,” House Speaker Dennis Hastert was reported to have said. “We
fought a revolution, you know, several years ago to make sure that we could have
some independence, and when they try to manipulate how we run our country and how
we tax our people, to give them an economic advantage in the world, I think this
is unacceptable.”

This month’s Cato Institute Tax & Budget Bulletin lists the Top Ten Civil
Liberties Abuses of the Income Tax. The fifth point is the “Lack of Financial
Privacy. The broad-based income tax necessitates a large invasion of financial
privacy that a low-rate consumption-based tax could avoid. The IRS regularly
gains access to a myriad of personal records, such as mortgage records, credit
card data, phone records, banking and investment records, real property
transaction data, and personal correspondence. This broad IRS authority to obtain
records without court supervision has been referred to by the Supreme Court
[United States v. Powell (1964] as ‘a power of inquisition.’”

In addition to the problems with high tax rates, needless complexity (anyone for
Forbes’ flat tax now?), and infringement on our civil liberties, now we have to
contend with encroachments on our sovereignty by the WTO. It is not only timely
but telling that we consider taxes to be not only an economic issue but an issue
with broader ramifications.

Analysts of the WTO decision have given the U.S. three main options. The easiest
would be to simply repeal the offending “tax break” and raise corporate taxes by
about $4 billion a year. Another option would be to simply pay off the Europeans
by a similar amount but that might seem like the extortion it amounts to. We
could also extensively revamp our tax code and move to a territorial system or
just copy the Europeans and adopt a so-called value added tax.

I am not a fan of the government planning the economy through our tax code or any
other way. However, if we are going to have to pay taxes I would strenuously
object to using the European dirigiste policies of no job creation, low economic
growth and endemic corruption as our model. Perhaps the French would do better to
try to understand the extent of the Credit Lyons scandal before casting stones.

The Republican Speaker of the House emphasized that U.S. trade rules will be
written on American terms and said he “will stand and fight for our rights,”
especially against the French, adding that “we are not about to be played around
with by the bureaucracy of the European Union.”

I would respectfully like to remind analysts that we have another option regarding
the WTO abuses. If we are forced to choose between our membership in the WTO and
respecting our sovereignty with our ability to set our own policies, I vote for a
return to the General Agreement on Tariffs and Trade and withdraw from the WTO.
The law gives every Congressman the right to call for just such a vote every five
years.