How NOT to Save a Falling Dollar

The dollar has fallen, and can’t get up. Currencies around the world are making all-time gains on the dollar and people are beginning to get worried about the future of the U.S. economy.

Whether welcomed or not, we are increasingly operating in an interdependent, global marketplace where the activities of one nation directly impact the performance of another.

Capital is the name of the game, and those nations offering capital investors the greatest returns will prove to be the ultimate winners in this quest for a strong currency. The fact is, we are in a global competition for capital, and the high tax proposals by all of the leading Democrat candidates for president is, most definitely, not the way to go!

Many people point to the $600 billion trade deficit, (monetary surplus), as the main cause for our dollar’s decline, but this only tells part of the story. Legendary Economist Ludwig von Mises proved that trade imbalances themselves are not to be feared. Absent the socialist inclination for government intervention, the disparities of a nation’s trade balance will equalize over time with the natural, disciplinary forces of the free market.

When a nation’s imports exceed its exports, there is simply a momentary increase in goods with a simultaneous decrease in currency. Under normal circumstances- when governments don’t interfere- the currency sent abroad formulates a pool of available “capital” that ultimately flows back to the original country in the form of profit-seeking investments.

The key word there is PROFIT, aka “the profit motive” of incentivized capitalism.

With all of the countries now competing so desperately for global investment, it shouldn’t be assumed that those dollars will always find their way back here. It’s especially difficult to attract those dollars when we are currently pursuing two federal policies that are in direct conflict with investors’ demands: (1) low interest rates; and (2), high corporate taxation.

The detriment of the first condition is obvious. Investors are looking for the highest rates of return for their financial investments. This, however, is a catch 22 now for our policy makers in Washington, because there’s an overriding concern to keep rates low in order to help offset the weakness in the housing market. If we raise rates to where they “should be,” in relation to the realities of the market place, we will undoubtedly attract more foreign investment, but we’ll also severely jeopardize an already reeling mortgage industry decimated by the subprime foreclosures. That leaves only one option- the consideration of cutting our corporate tax rates.

Capital will flow to the highest rate of return. Interest rates are always a primary concern, but coming close behind is a favorable tax policy. Since 1993, European Union tax rates have fallen from an average of 38% to 25%. Finland has gone from a 43% corporate tax rate to 25%, Sweden has gone from 60% to 28%, and Ireland has dropped from 24% to 12.5%. In Estonia, the corporate income tax rate on earnings has been lowered off the charts. It’s zero! Most of these, traditionally, socialist governments have discovered, (the hard way), what John F. Kennedy, Ronald Reagan and Margaret Thatcher knew instinctively- that lower tax rates stimulate economic growth by attracting more entrepreneurship and greater capital investment.

There was a time when the U.S. led the world in pro-growth tax policies, but while we’ve been standing still, others have aggressively moved ahead.

Today, the United States is second among industrialized nations for the highest corporate tax rate: 39.4%, (combined Federal and State average). Only Japan is higher at 39.5%.

Of the 30 industrialized economies recognized by the Organization of Economic Cooperation and Development, (OECD), the U.S. tax rate is 35% higher than the average rate of 28.7%. Since 2000, the average OECD country has reduced their rates by 13%. With the UK’s recently announced plan to cut rates further to 28%, following Sarkozy’s initiatives in France, all of this points to one undeniable fact: we are in the midst of a worldwide, Supplyside Revolution! Available, venture capital is not stupid- it will flow logically to the place of greatest return, and increasingly, that place is not the U.S.

So, what do the Liberals want to do?

Raise Taxes! Hillary Clinton calls Bush’s 2001 tax cuts “irresponsible,” and like her fellow Democrat presidential candidates Barack Obama and John Edwards, she would prefer to allow the tax cuts expire from their current 35% rate and return to the 39.6% rate of Bill’s administration. Sunsetting the Bush tax cuts would also bring back the “marriage penalty,” the “death tax” and higher capital gains/dividend rates. Add to that, the Rangel plan of a 4.6% surtax, plus the new Medicare tax, and the total “effective” Democrat tax rate becomes 48-50% for the top income producers. With other competing nations slashing their rates like a Ronco Veg-O-Matic, this is no time to be “turning back the clock” and embracing Keynes!

Hillary and Obama were among the U.S. Senators who recently voted for the largest tax increase in history, (CQ Vote #172). This initiative, if signed into law, would amount to a tax bill of $900 billion over the next five years, or $3.3 trillion over the next ten. It would mean $2,641 in new taxes for each household in America. This budget proposal also called for a 9% increase, ($18 billion), in new discretionary spending. It is $205 billion more, (not less), than the Bush budget. There’s an old, political phrase for this type of Liberal impulse: “Tax ‘n’ Spend.”

The dollar is not all we have to worry about. There’s another financial crisis looming over the horizon: the Entitlement programs of Social Security, Medicare, et al. These wealth transfers are fiscally unsustainable given our current demographic deficiencies. Simply stated, there aren’t enough workers in our economy to support all of the growing number of retirees. The first wave of baby boomers will be retiring this year and they will be putting enormous pressure on these financial commitments.

The Liberals have no answer for these developing issues, in fact, they want to add to the Entitlement problem by creating more ‘guaranteed’ programs like universal, socialized medicine! The only responsible thing to do, (for those who understand basic math), is to try to honor these past commitments while reforming the system for the future. We must find a way to eliminate these burdensome pyramid schemes from our economy forever. They produce only temporal benefit for vote-buying politicians, while being inherently unfair and immoral to everyone else.

In order to have the money necessary to meet these commitments already made, it’s absolutely essential that we maintain a growing and expanding economy! With the Bush tax cuts, we now have the longest period of uninterrupted job growth on record, (50 months). Since May 2003, 4.6 million new jobs have been created, the unemployment rate is negligible at 4.9%, the growth rate is a healthy 4%, and tax receipts to the government, (despite lower tax rates), are at an all-time high.

Revenues to the government have increased 10%, on average, for each of the last two years, and our budget deficit is half of the 40-year average: 1.2% of GDP, or $163 billion out of a $14 trillion economy. This far surpasses Bush’s pledge to halve the deficit in his second term.

All of this economic success, amazingly, has happened during a time of war. The old adage about not having “guns” and “butter” at the same time doesn’t hold true in this case. You’d think people would know about this success, but as a recent Harvard Study has confirmed once again: the news media is overwhelmingly liberal, (90% of reporters vote Democrat). So, everything is slanted “bad,” even when it’s good, during Republican administrations.

The WRONG thing to do now is listen to the media and elect someone like Hillary who’s just dying to raise your taxes. She recently stated “I have a million ideas, but the Country can’t afford them all.” No kidding! As Justice John Marshall once said, “the power to tax is the power to destroy.” If you won’t take action to stop Hillary for yourself, then do it for the dollar! (send comments to WFC83197@aol.com, or mail to POB 114, Jacksboro, TN 37757)