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Replace the job-killing, Corporate Tax System with a border-adjusted, business consumption tax.*

*As originally proposed by Austin businessman David Hartman

Since 1974, manufacturing employment has fallen from 24% of total U.S. jobs to less than 9% in 2011.

Total US Non-farm Employment

Manufacturing Employment

74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

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Since the official start of the most recent recession Jobs in the manufacturing fell
further proportionally than any other sector of the economy except construction.
In April 2011, Manufacturing jobs remain nearly 15% below pre-recession levels, while total U.S. non-farm employment has regained 95% of levels on Dec. 2007.

Total US Non-farm Job Changes

Manufacturing Job Changes

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Dec-07 Jan-08 Feb-08 Mar- Apr-08 May- Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar- Apr-09 May- Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar- Apr-10 May- Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar- Apr-11

U.S. Manufacturing job losses over the last decade

18000

17000

16000

15000

14000

13000

12000

Essentially all (U.S.) job losses are high wage manufacturing, and most gains are in low-wage services. In essence the U.S. economy is restructuring downward, while the Chinese economy is restructuring upward. -Kurt Richebcher

11000

10000 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10

May-02

May-01

May-03

May-04

May-05

May-06

May-07

May-08

May-09

May-10

Jan-11

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May-11

Sep-06

Sep-01

Sep-02

Sep-03

Sep-04

Sep-05

Sep-07

Sep-08

Sep-09

Sep-10

Decline of Capital Goods Made in the U.S.A.

0.0275

Chemical Products
0.0225

Computer and electronic products Motor vehicles, bodies and trailers, and parts Machinery

0.0175

0.0125

Other Transportation Equipment

0.0075

Electrical Equipment, appliances, and components

0.0025 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Source: Bureau of Economic Analysis

Capital Goods as % of GDP (all industries)

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Leveling the Playing Field with an 8% Business Consumption Tax (BCT)

The Business Consumption Tax (BCT) is a revenue-neutral replacement of the Corporate Income Tax and the employer portion of the payroll tax. All goods and services coming into the U.S. pay the 8% tax; all companies exporting receive a comparable tax credit. Exported goods and services would not be subject to the BCT and would receive rebates or credits on BCT payments made on capital inputs.
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Border-Adjusted Business Consumption Tax (BCT)

What is a BCT?
A consumption tax collected on goods and services entering the country (and domestic sales) and rebated for taxes paid on capital purchases.

Who uses it?

Nearly every OECD nation except the U.S.

What are the advantages?

BCTs benefit exports over imports because outside sales do not have to pay the home nations BCT. The increased revenues from BCTs also have allowed our largest foreign competitors to lower statutory and effective corporate income tax rates.
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U.S. Tax Disadvantages with Our Trading Competitors

Nation(s) Border-Adjusted Tax Rate

United Kingdom
France Germany EU 15 Avg.

20%
19.6% 19% 20.77%

China
Canada Mexico India

17%
5 to 13% 16% 12.5%

Rates for India and Canada vary by region/province. Canada's current VAT rate is 5% (down from 7%) - harmonized tax rate includes province sales tax.

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E.g., Auto Sales between U.S. and Germany

For an American-made Cadillac seeking to compete on the German market with a Mercedes Benz of comparable value: The Cadillac sells for $50,000 in the U.S. but is hit at the German border with a 19% border-adjusted tax. Selling the same car in Germany puts the U.S. manufacturer at a 19% disadvantage against the European-made Mercedes. Meanwhile, the Mercedes manufacturer competing in the U.S. does not have to pay our corporate income tax or employer portion of the payroll tax, nor does it have to pay a border-adjusted tax since the U.S. doesnt have one.
Producer United States (Cadillac) US Market Add 19% $50,000 Foreign VAT Subtract 19% $59,500 German Market

Germany (Mercedes)
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$42,016
Foreign VAT

$50,000

Reducing the Corporate Tax Burden

Between state and federal income taxes, U.S. corporations face statutory rates roughly 14 percentage points above the average for all OECD nations. The revenues raised by BCTs have allowed many exporting nations to increase competitiveness by lowering corporate income taxes or tailoring tax to protect specific industries. By eliminating the corporate income tax and allowing for the expensing of capital, the U.S. could better compete for new businesses and capital investment.

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Reducing the Corporate Tax Burden

Average Book Effective Tax Rates, 2006-2009
30% 28%

25% 20%

23%

22%

20%

17% 15%

10%

5%

0% United States 58 Countries, excluding U.S. OECD-28, exc. U.S. Non-OECD Countries EU-18

Business Roundtable Study: Global Effective Tax Rates, April 14, 2011. PwC calculations based on data from S&Ps Global Vantage database.

A recent study by PricewaterhouseCooper found that [A]mong the companies on the Forbes Global 2000 list for 2010, U.S.-headquartered companies had an average financial statement effective tax rate of 27.7 percent over the 2006-2009 period, compared to an average rate of 19.5 percent for their foreignheadquartered counterparts.

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Changing the way we tax U.S.-based businesses will benefit small businesses
Per Employee Cost of Tax Compliance
$8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,155.00 $2,000 $1,000 $1 to 5 employees 6 to 10 employees 11 to 15 employees 15 to 25 employees 26 to 50 employees More than 50 employees $1,348.50 $1,081.00 $7,274.00

$768.50 $296.50

A joint study by IBM and the Internal Revenue Service found that businesses with fewer employees have a significantly higher compliance cost for paying taxes under the current structure.

Source: Estimates of U.S. Federal Income Tax Compliance for Small Businesses

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The corporate income tax encourages tax-driven decision making rather than business-based decisions
Business Tax Classification Trends
4,250,000

3,750,000
3,250,000 2,750,000 2,250,000 1,750,000 1,250,000 750,000 250,000 1980 1981 1982

The chart to the right illustrates the number of businesses that have changed tax status to avoid double taxation on personal incomes and capital gains.
2002 2003 2004 2005 2006 2007

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1983

C Corporations

1984

1985

1986

1987

1988

1989

1990

S Corporations

1991

1992

1993

1994

1995

1996

1997

1998

Partnerships

1999

2000

2001

Corporate Income Tax: An Inefficient Revenue Source

Taxes as a Share of Total Government Receipts
50.00% 45.00% 40.00% 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00%

Individual Income Taxes

Corporate Income Taxes

Social Insurance and Retirement Receipts

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The Corporate Income Tax is only collected by Corporations

The current tax system punitively taxes capital investment, employment, and savings in the U.S. It encourages tax-driven strategies of debt accumulation because debt is tax-deductible. A study from the American Enterprise Institute showed a negative correlation between high Corporate Income Taxes and workers wages (Hassett and Mathur 2010). I fundamentally don't understand the logic of corporate income taxes, said C. Larry Pope, CEO of Smithfield Foods. If I have a 35% tax, all I do is take that 35% tax and I transfer it into the price of bacon and the price of pork chops. (Wall St. Journal, April 2011)
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How a Business Consumption Tax works

For clarity, the example uses a 10-percent BCT.

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How the Business Consumption Tax works from an export-import standpoint

Industries receive a rebate or credit on exported goods leaving the country, so as to avoid double taxation on foreign consumption taxes.
Foreign exporter is taxed 8% at the border

U.S. exporter receives a tax abatement on goods sold overseas.

The tax is levied in full on imports entering the U.S. the same as in other countries we export to.
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Bring Jobs Home to America

Eliminate the Corporate Income Tax and employer portion of the payroll taxes, and replace with an 8% border-adjusted, Business Consumption Tax. It is border-adjusted, i.e. all goods and services coming into the U.S. pay the 8% tax; all companies exporting receive a comparable tax credit. Exported goods and services would not be subject to the VAT and would receive rebates or credits on foreign VAT payments. Changing our corporate tax system in this fashion would be revenue-neutral, and, in fact, revenues would grow as jobs return to America and the private sector starts growing again.
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Bring Jobs Home to America

Tom Pauken is Chairman of the Texas Workforce Commission (TWC), where he has served since being appointed by Governor Rick Perry in March 2008. He served in the White House Counsels Office under President Reagan, and was appointed by the President to serve as Director of ACTION, now known as AmeriCorps. At ACTION, Mr. Pauken founded the Vietnam Veterans Leadership Program and implemented Nancy Reagans Just Say No to Drugs campaign. For his meritorious service as director of program, he was awarded the Ronald Reagan Medal of Honor by his fellow Reagan administration alumni. In 2007, he served as Chairman of the Governors Task Force on Appraisal Reform. Chairman Pauken is a United States Army veteran. He received a commission in Military Intelligence and served in Vietnam as a Province Intelligence Officer and as a senior analyst for the Office of Strategic Research Analysis. Founder and President of Dallas-based TWP Inc. Chairman Pauken has also served as a board member of various public and private companies. Chairman Pauken is the author of the book, The Thirty Years War: The Politics of the Sixties Generation, and most recently, Bringing America Home: How America Lost Her Way and How We Can Find Our Way Back. He holds a bachelors degree from Georgetown University and a law degree from Southern Methodist University. He and his wife, the former Ida Ayala, have seven children and 12 grandchildren.

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