Wednesday, August 24, 2011

Tax the Rich Because That's Where the Money is.

What happens when the guiding principle of an economy is to promote wealth?

The claim is that the opportunity to accumulate wealth motivates people to engage in economic activity. Putting aside whether people need a chance to get rich to be motivated (is that your motivation?), how is wealth accumulated? On the street it is called "The Profit Motive", and indeed, the explicit goal of business is to maximize profits.

What happens when the guiding principle of an economy is to maximize profits?

The value of the work done by wage earners and salary workers is split between the workers and the profits. And as worker productivity climbs, the value of the work done is split between fewer and fewer workers, and profits. But the split favors profits, not wages, and then competition for remaining jobs goes up, putting even more downward pressure on wages. It is the inherent tendency of for-profit business to eliminate workers, and reduce the amount of money paid to remaining workers, hence the money returned to the economy is doubly reduced, and demand for goods and services doubly depressed. As profits increase, the ostensible stimulative effect of a business having more money is canceled by the real effect of regular folks having less.

Putting aside the charge that the owners have "stolen" their profits from the workers, to whom does the ownership class expect to sell their goods and services if the wages they pay aren't proportional to the worker's productivity? That we are in the midst of a depression results directly from the simple contradiction that arises from this uni-polar ideology: All profits, all the time, no social investment, no sharing, no greater community well-being to worry about. And as a result, the economy grinds to a stop.

This would seem counter-intuitive to anyone who believes that the drive for profits drives the economy, but the drive for profits, the need to produce wealth from wealth, is the problem. It is the drive for excess profits which causes people and corporations to cut corners with worker safety, wages, social capital, the environment, etc. It is the drive for profits which sucks the productivity of the workers out of the economy and puts it into the bank accounts of people who already have more than they need and aren't inclined to spend it. The dirty little secret of capitalism is that if corporations were forced to spend their money - or lose it to taxes - the stimulative effect on the economy would be huge. But they are sworn to return their profits to investors. Who just take their money and look for new ways to accumulate more wealth -- but where are the new investment opportunities coming from when most people don't have enough to live on and can't afford what that new business might be selling?

Small "s" socialism, the idea that government protects the well being of the entire community of citizens, with high taxes for the wealthy and corporations, is a natural counterbalance to the drive for profits.

But similar results are possible otherwise. Corporations could be required to adhere to a triple bottom line - which includes social responsibility. Hence higher wages would be paid, people would have money to spend to meet their needs, and the economy would be more stable. We - the society with its various intellectual resources - could develop metrics to determine the real value of labor, and force corporations to pay the real value. One very helpful change would be to strengthen the social safety net, so that people in retirement are not fixated on high returns on their investments. We could have a progressive income tax for corporations, wherein the greater the profits, for the amount of capitalization, the higher the rate of taxation would need to be paid.

For example, one of the problems we have right now is that the really big corporations have big piles of cash they're not spending. They took the discretionary portion of their worker's productivity for profit, so the money is not circulating, and put it in the bank, or maybe paid dividends. But under the right kind of pressure they could be hiring people, repairing environmental damage, improving working conditions, and the economy would be stimulated by the improved incomes of ordinary people.

  Let's not confuse the need to have a sustainable livelihood, and the "right" to accumulate surplus wealth. If we were to think in terms of ensuring that people have the means to make a sustainable livelihood, a healthy life and a comfortable retirement, and made (excess) wealth accumulation a suspect activity, economic activity would support healthy communities and people, and really ambitious people just wouldn't have quite as much as before.

  And let's not forget that when the government collects taxes and spends money, they are hiring people, buying goods and services, and generally stimulating the economy. How is this not productive economic activity? Let's answer that from two viewpoints: For those who are rich and heavily taxed, THEY have less money, but does the economy? For those who benefit from those jobs, incomes are spent to acquire those things people need, the definition of prosperity. For the economy, the labor produced can be very cost effective, since it might mean education, health care, improvements to roads and infrastructure, protection of the environment, maintenance of parks, etc. These are all things that no one person would benefit from enough to pay for alone, but do benefit everyone enough to share in the cost of. It is a shibboleth that the government does not create jobs. The government, like any business, is a locus of productivity activity. The questions are "how do they get the money?", and "Is it meaningful work?".

Government gets its money by taxing us, and through a miscellany of fees. When we pay taxes, we are paying ahead for things we have decided - via democratic process - that we want. In business, we some times do this, such as in a CSA, a club fee, or a subscription, but usually we pay after the goods or services are produced. Here then the question is one of accountability. Most pay-after business is reserved for private enterprise. Accountability is at the cash out. Government is where we, the community and citizenry, lodge the pay-before economic activity, because is it accountable via democratic process. Do the politicians and the bureaucrats deliver the goods? Do they provide real services that are needed by people generally? We must be ever vigilant. (And when they contract to for-profit businesses, how do we hold them accountable?) But building schools and health clinics, hiring teachers and doctors, giving care to the elderly, are all very meaningful to general well being. And consider the improvement to the quality of life when parks are maintained and adolescents have good after-school programs for social, physical and intellectual enrichment! Consider the value of protected forests and clean water!

The problem is not that the government cannot produce any thing worthwhile. The problem is that some people want to maximize profit, by keeping wages low, taxes low, regulations few, by avoiding protections to the environment. They do not see government as the institutional expression of the community, where shared goods are paid for at large. They see the government as a competitor for economic activity and profit making. I say "Too bad!". I see our government as the place we - the people - go to do things we need to do together, and to guarantee general well being. Profit-making is inherently dependent on cutting corners that results in costs to other people. We all want a sustainable income, and profit making is inherently unsustainable because it cuts into the sustainability of the jobs which hinge on it.

The other dirty little secret of capitalism is that if profits are taxed and spent by government, MORE economic activity is produced than by business, if, as is now the case, there is so much money languishing in bank accounts. And when they tell you that new regulations just suppress the economy, they are snickering all the way to the bank. Let's look at Australia, which is in an upheaval because of the carbon-tax that has been implemented. Opponents charge it will reduce economic activity. But the money paid in taxes is going to be spent. If the government spends it to correct for the distortions it created by taxing carbon, the result will be huge new economic activity to build low carbon-emitting, sustainable infrastructure. The only parties that will be hurt are directly dependent on carbon, but soon enough even they could shift out of carbon and be part of the sustainable economy. No substantive harm in the long run. Only harm to profits.

The complaint is heard that the 50% of the country with more than the median income pay 78% of the taxes. But they also control 98% of the wealth. Shouldn't they be paying 98% of the taxes?

The most wealthy people, and corporations, assert they have made their wealth and deserve to keep it. I say, the economy produced their wealth and they happened to be in the right place with the right investment when the money came gushing out of the spigot. Who gets the wealth in good times is who must give it up in hard times. What is difficult to understand about that?

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