Guest view: Consider value-added tax, tort reform

Editor’s note: Several weeks ago, we asked readers to share their thoughts on what our state and region can do in the year ahead to help the economy — specifically, how to grow the good-paying jobs we so desperately need. We also asked business leaders to tell us what they’ve done to weather the tough times. Here is one reply.

Our local manufacturers in Rome such as Revere Copper Products Inc., Owl Wire, Varflex Corp., and Rome Strip Steel Co. Inc. face unprecedented challenges. Some of these challenges are beyond their and our control, but others — such as outdated tax policies, an out-of-control workers compensation system, high-cost power and unprecedented legal abuses – can and should be changed immediately.

In 2007, Randy Wolken of the Manufacturers Association of Central New York estimated that manufacturing accounted for almost half of our regional jobs and 10.5 percent of all jobs in New York state despite suffering with:

* Worker compensation costs 72 percent above the national average.

* Energy costs 57 percent above the national average.

* Property taxes 45 percent above the national average.

* Natural gas prices 37 percent above the national average.

* Liability costs 28 percent above the national average.

* Unfair international trade practices including artificial manipulation of currency and international tax policies that unfairly burden U.S. businesses.

For companies like Revere or Owl Wire, manufacturing world-class products is the easy part; it is getting fair treatment in the world marketplace that is the problem.

Two immediate actions that would make a huge difference would be the adoption of a value-added tax and tort reform, which could put an end to outrageous legal costs that put New York state at the third worst of the 50 states, according to New Yorkers for Lawsuit Reform and the Pacific Research Institute.

The value-added tax, which is used by the vast majority of industrialized nations, isn’t like most taxes and actually serves to favor jobs and protect a nation’s manufacturing sector. It could actually be used to eliminate tax returns for individuals and reduce the costs of tax compliance.

It could simplify business and personal income tax laws, and since the value-added tax is a consumption tax, it would generate more tax fairness.

It is different from our current tax process because it is applied on every business as a fraction of the price of every taxable sale they make. Each business, however, is reimbursed value-added tax on their purchases so that the tax is ultimately applied to the value added to the goods or services at each stage of production. From a practical standpoint, the system protects domestic manufacturers by providing tax credits while foreign businesses, which remain taxed, pay a higher rate. This gives American goods a competitive edge and puts American jobs ahead of foreign competitors. Still, no competitive edge can overcome a legal system gone awry.

New York state can and must eliminate wasteful and unnecessary lawsuits. While those who are injured should be compensated fairly, our current system inflates costs in all areas but particularly in medicine, where unneeded tests are routinely performed for the sole purpose of eliminating lawsuits.

Imagine if health insurance costs – which are one of the main expenses of any business today – could not only be slowed but actually reduced?

According to the New Yorkers for Lawsuit Reform group, eliminating these tests alone would save $14 billion. Other simple reforms, such as ending that state’s absolute liability law for worker’s comp or putting reasonable limits on “pain and suffering” judgments, could go a long way toward making the state and region competitive again.

There is a lot that we can do, that we should do. Now is the perfect time to start.

James Brown has been mayor of Rome since Jan. 1, 2004. Prior to that, he worked at Golub Corp. (Price Chopper) from 1976 until 2003, holding positions such as merchandising development manager, manager of special projects and zone director.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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