Should the federal government give assistance to American auto makers?

No

1 of 17

by Mark Luedtke

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A video floating around the internet shows a state of the art Brazilian auto plant capable of producing 5 different models of cars so production could instantly be switched to respond to dynamic market conditions. Assembly lines for suppliers integrated into the plant seamlessly insert sub-assemblies into the main assembly line. The highly automated plant has its own port next door for easy shipping. You won't be surprised that the Big Three auto makers have nothing this advanced in the US.

But you might be surprised that the plant is a Ford plant. Contrary to what the mainstream media has led us to believe, the management of the Big Three auto makers have foresight and ingenuity, but the auto workers union won't let them build plants like that here.

Flush with power from crowning Obama with a propaganda campaign rarely seen since Pravda at the height of the Soviet Union, the mainstream media continues to push its leftist agenda. The current narrative is that management of US auto makers are dinosaurs and unlike foreign auto makers, they were unprepared for the changing market. But as the video shows, the dinosaur is the auto workers union, not management. If they could build plants like that in the US, the Big Three wouldn't be asking for a bailout.

The narrative also misinforms that bankruptcy for the Big Three would mean the end of the Detroit auto makers. Southwest Ohioans know better. We watched Delta enter bankruptcy in 2005, and after reorganizing, Delta is profitable and growing today. Bankrupt companies don't disappear. Bankruptcy gives the company leverage to reorganize its commitments so it can return to profitability.

But the biggest commitment that the auto makers would renegotiate is labor contracts, and that conflicts with the leftist agenda. If the auto manufacturers declared bankruptcy, the auto workers union would have to accept lower wages and concessions on pensions. That's why the media and Democrats and press are pushing for a bailout, and that's why the United Auto Workers are begging for a bailout.

But we shouldn't bail out the auto workers union for the same reason we shouldn't bail out anybody else Americans can't be free to succeed beyond our wildest dreams unless we are also free to fail. Auto makers unions are making their employers uncompetitive, and they should be allowed to fail. If they fail, workers will replace the union management with management that makes them more competitive.

And we know that non-union American workers can make great money and competitive cars. Non-union workers at Toyota's Kentucky plant make more money than auto workers at the Big Three in Ohio and Michigan. But Obama and Democrats want to pass card check and other pro-union laws so unions can use coercion to damage more industries just as they've damaged the auto industry.

A more fundamental reason the American auto makers are in trouble is our punishing federal tax structure. When a car manufacturer sells a car, it has to pay income tax on that sale. When it pays its employees, part of that pay is the embedded income and payroll taxes of the workers. The auto maker has to raise prices to account for these taxes, embedding them in the price of the car.

The same is true for the manufacturers of auto parts. The taxes of every auto part in the car, all the way down to the nuts, bolts and ball bearings, to mining the ore for those parts and raising the cattle for the leather all end up embedded in the price of the final product. The average embedded federal tax for products made in America is 22 percent. That means for a $30,000 car, a US auto maker only gets $23,400 because $6,600 goes to the federal government.

The US is the only major country in the world with this archaic tax system. All our major trading partners have adopted a business friendly value added tax (VAT). With a VAT system, the government rebates all those embedded taxes on exports. So when a company from Japan, Korea, or Europe exports a car and sells it for $30,000, the auto maker gets $30,000. American companies and workers are at a 22 percent disadvantage for every product we make. State income taxes compound the problem.

Everybody in the world understands this but Americans. This is the real reason why foreigners point at us and laugh. We're our own worst enemy.

The FairTax would solve this problem. The 23 percent FairTax would replace the 22 percent embedded federal taxes at the point of sale, leaving prices of US made goods and services practically unchanged. Every American would keep 100 percent of their paycheck. Every Fortune 500 country in the world has promised to open its next plant in or move its headquarters to the US when we adopt the FairTax, enabling labor mobility and wage increases for workers.

The FairTax would apply to all goods and services sold in the US, fairly, including imports. As soon as we adopted the FairTax, foreign auto makers would be forced to cut $6,600 off the price of their $30,000 car to stay competitive with US companies. The shoe would be on the other foot, our trade deficit would instantly become a trade surplus, and the flood of manufacturing jobs returning to the US would create an economic renaissance unlike any in US history.

We shouldn't reward the auto workers union or our bad tax policy with taxpayer money. We should fix them.

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