Taxes are good for Democracy
Our country’s democratic values are threatened by authoritarianism and libertarian tendencies. Having lived in non-democratic countries, I’m fortunate to be living in a democratic society and want to preserve its values.
By now, people have seen the impact of not having a government that works. Government is not some nether entity, it is US. We get to decide by voting how the government is constituted.
Taxes are a mechanism to pay for things in a democratic society. Those that do not believe in taxes, don’t believe in democratic values.
GDP Growth is higher with higher marginal rates
The Problem:
How to address #inequality that adheres to our democratic values?
Given that taxes are necessary to a functioning democracy, the laws and rules should level the playing field for people to pursue happiness as per our constitution, for everyone!.
This post is not going to address raising revenue or what services it should be used for — the voters get to decide that in a democratic society.
The Solution:
Both @RepAOC and Elizabeth Warren have proposed tax policies for higher rates on income and wealth, the analysis of which, is here, here, here.
This is a good framework to start the conversation.
Tax un-productive assets
In addition to higher marginal rates on “income”, un-productive “wealth” should be taxed at higher rates too.
Productive vs un-productive assets
These assets, taxed appropriately, must be inline with our democratic values AND the UN human rights commission’s principles — ie. productive for USA and other like minded democracies.
Productive assets:
Productive assets are people and equipment. People create products and services. Cash and Stock are only productive if they are invested in people and equipment to produce services and goods.
People:
Must be FTE (Full-Time Employee) with universal and portable health care coverage and a salary that is sustainable in the local region where they work and live. People should not be forced to move because they can’t achieve a reasonable base + sustainable growth (>inflation rate) in their standard of living.
Paying someone $40K in San Francisco is not sustainable.
Wages paid to contractors and part-time people cannot be deducted by the company as expenses because the incentive should be hiring FTE’s.
CEO or HPO’s (Highest Paid Officers) pay should not exceed some ratio relative to the lowest paid FTE — e.g. 25:1
Plant and Equipment:
Any company can either own their own plants — a la Tesla, or can outsource their manufacturing to others. However, if an American corporation regardless of where they are registered, outsources their manufacturing to an entity in a non-Democratic country, then that is not exempt from taxes. They should pay a penalty in the form of higher taxes.
$1 billion or $10 billion threshold:
“Investment, however, has not soared. In fact, it’s stagnated.” — Matt Yglesias
The cash above a certain threshold — e.g $1bn — that’s not invested in productive assets, should be taxed heavily.
Any company that holds Cash and Stock that’s over $1bn, should be taxed at higher rates because it’s not invested in hiring FTE or plant and equipment in a democratic country.
How could this work:
Lets say @Apple which has about $237bn in cash on hand. Apple’s site says they have 80000 Apple employees. However, we don’t know how many of these are FTE vs PTE.
Lets start with @RepAOC’s proposal of a 70% tax on “income” above $10mm, and Elizabeth Warren’s Accountable Capitalism Act. Any cash and stock equivalent that a company has above $1bn that is NOT invested in productive assets should be taxed at a higher rate — perhaps the same 70%.
Where does democratic values fit in?
If Apple invests their excess cash above $1bn in hiring more people in the US or invests in plant and equipment in the US (first) or other democratic countries, then they can get the benefit of taking the expense deduction.
However, if they invest in plant and equipment or outsource manufacturing to a non-democratic country — e.g. China or Russia or in a country that is in violation of the UN’s human rights principles, then a corporation should be taxed on those un-productive assets that are misaligned with our democratic values.
The officers and the board of a corporation should be personally liable for violating these laws.
The objective here is to incentivize investing in productive assets in our country that benefits our democratic values and society first, other like minded democratic economies second, and penalize investments in non-democratic countries or those that violate UN’s human rights policy.
The Challenges:
Enforcement — How to prevent people from under reporting or hiding “income” and “wealth”. This is addressed by Elizabeth Warren’s annual audit plan
Capital Flight — How to prevent people from moving capital to other coutries. This is less of a problem because the US is still the best place to do business. So as long as you want to do business here, it doesn’t matter where your entities are, they should be taxed appropriately. Financial engineering is not the solution.
Others? — There are others for sure. If there are solutions to address tax cheating, let’s hear it!
Hopefully, this will lead to the right incentives to correct runaway inequality while keeping in line with our market based economy and democratic values.