We are currently the only OECD country with no border adjustment element in our tax system. Soon we will also have the highest corporate tax rate.
Because the current system is not border adjustable, American producers face at least an 18% cost disadvantage relative to their foreign competitors, and then you add compliance costs on top of that. 18% is a very large figure when just a few percentage points can make the difference in the market place.
So there is no question that we have a huge educational challenge before us. We have to educate Americans relative to the trade benefits of the FairTax and we have to educate FairTaxers in regards to globalization.
Globalization is one of the largest megatrends in world history. There are hundreds of millions of Chinese moving from rural areas where they have been trying to eek out an existence for generations by farming plots the size of a condo back-yard (slight exaggeration). They are eager to move into cities living in huge dorms working for wages and under conditions that no one in the U. S. would tolerate. A similar transformation is taking place in India and in other third world countries. This is a big part of what Three Billion New Capitalists – the great shift of wealth and power to the east by Clyde Prestowitz is all about. Another terrific book on globalization is The World is Flat – a brief history of the 21st century by Thomas Friedman. I also recommend China, Inc. by Ted Fishman.
One of the major points made by all these authors is that Americans, as a rule, have no idea what is going on in China and other countries and they are therefore not demanding that their government address global competitiveness in a real and meaningful way.
Of course, the FairTax offers tremendous trade benefits and why must be a part of any serious attempt for the U. S. to adapt to the challenges of 21st century globalization.