This essay may be inappropriate for Democracy Chronicles because although it discusses a political issue, it is not directly related to democracy. But I hope you enjoy!
Corporations are entities formed to exploit the physical and human resources of a community. They provide a means of attracting large amounts of capital to finance large projects. Some are beneficial and some are detrimental to the society that hosts them, but it is not always easy to tell which is which.
The myth that corporations exist for the benefit of their shareholders is false; shareholders merely hope to profit from corporate operations. Corporations exist for the benefit of the executives who control them; the individuals who enjoy high salaries, private airplanes, three-martini lunches, yachts, season tickets and luxury boxes at sports venues, limousines, chauffeurs and plush offices, costs that reduce profits by being passed off as business expenses.
Corporations have been ruled to be ‘persons’ under the law, but they are not taxed like humans. Corporations are taxed on their ‘profits’, while the humans among us are taxed on our gross receipts. This difference has allowed corporations to become “Too Big To Fail” because corporate money successfully influences our lawmakers.
Whatever the judicial rationale supporting the notion that corporations are persons, corporations are not human. They have no natural life-cycle of birth, adolescence, maturity, and death. They have no sense of right and wrong, so the adverse effects of devouring resources at a prodigious rate and polluting the environment have no meaning for them. The law may consider them persons, but we humans must provide their moral compass.
How Big Is ‘Too Big’?
Size is a descriptive term, it is neither good nor bad. Some firms, like public utilities, must be larger than others because of the nature of their business, so we have no yardstick to define proper size. Our lawmakers enact laws that enable corporate growth but fail to enact (and enforce) laws to protect us from corporate gluttony.
A society with no penalty for greed is flawed.
Corporations, like other organisms, consider self-preservation the first law of nature. Self-preservation is generally applauded as “survival of the fittest”, but carried to extremes, it can destroy the preserved entity’s habitat. Throughout nature there are moderating influences to inhibit excessive growth; living organisms of all kinds are kept in check by the cycle of life, competition for foodstuffs, predators, the force of gravity, the need for mobility, and a multitude of other controlling factors.
There are no such natural constraints on corporate size and our society has yet to provide one. Beneficial though Darwinism may be in a purely theoretical sense, if our society and our environment are the specifics being destroyed by cancerous growth, we must do what we can to stop it.
The Effect of Excessive Growth
A fellow named David DeGraw once told me:
“You can’t have free market capitalism when you have government policies favoring companies that have more political clout than others. What we have is socialism for the rich and trickle down economics for the rest of us. We have a market systematically designed to funnel money into the pockets of the richest. If the past few years have proved anything, they have proved that our economy is much more like a pyramid scheme than a free market, where the more money you have, the more money you make. So whatever your economic beliefs and theories might be, let’s all come together to admit that our ‘free market’ is an illusion. We need to make the economic playing field fair so we that can have real competition.”
We will not achieve a fair economic playing field until we break up the economic monsters that dominate our government. The best way to break them up is to make excessive size a burden. We can do that quickly, easily and directly by adopting a progressive tax on gross receipts, a tax that gets higher as receipts grow.
A progressive tax will benefit society by helping capitalism work. It will enhance competition by preventing market domination and ensuring that entrepreneurial talent and start-ups aren’t smothered. It will improve employment, permanently, because we know many small companies hire more people than a few large companies. It will contribute to the national budget, will make ‘pricing power’ counterproductive, and it will stop inflation – the curse of the common man.
An intended side effect of a progressive tax is that it makes inflation unacceptable. The evils of inflation are reserved for those at the lowest end of the economic ladder. A progressive tax will eliminate the curse of inflation by enlisting the major corporations in the fight to maintain a stable economic system.
The most striking thing about a progressive tax is that it harnesses our natural pursuit of our own interest in a productive way. It encourages corporate monsters that are ‘Too Big To Fail’ to reduce their size and become profitable, productive members of society. It is simple, it is direct, and it is obvious. The people win, free markets win, the government wins, and we achieve economic equilibrium.
Competition is the leavening force in a capitalist system. The quest for profit, though vital as a driving force, must never be allowed to eliminate competition. Competition is a necessary ingredient that ensures quality products and fair pricing. When corporate giants are allowed to absorb or suppress their competitors, we lose the only control a capitalist system provides as a protection for the people.
How It Happened
The seeds of our predicament were sown more than 100 years ago. By the early 20th century, big business had learned to manipulate our political process to its own advantage. In his State of the Union Address on December 3, 1906, Theodore Roosevelt, our 26th President, warned us about the “unholy alliance between corrupt business and corrupt politics”.
At the inception of the modern income tax, that unholy alliance introduced a dichotomy into our tax structure that favored corporations over people. Humans were subjected to a progressive tax on their gross receipts while corporations were only taxed on what their so-called ‘profits’. This travesty led to our present crisis.
Limiting Excessive Growth
Growth requires nutrients. We provide corporations with physical and human resources and a legislative environment that supports their operation. It is our right, indeed our duty, to see that these resources are not abused. When we let corporations become ‘Too Big To Fail’, we fail to meet that obligation.
To re-establish economic equilibrium, we must exercise our right to prevent abuse of the nutrients we provide. We need a gross receipts tax; a fee for the use of the resources we offer entrepreneurs to develop their ideas. The tax is not concerned with the profitability of the taxpayer. Whether or not the enterprise is profitable does not change the amount of resources it exploits in its operation.
If, by the nature of its business, an enterprise must be large, it is not injured by the gross receipts tax because all competing businesses must attain a similar size and will pay a comparable tax. However, when a company attains unjustified size by manipulating the rules in its own favor or dominating its competitors to the detriment of the public, the tax adds a cost to its operation.
When a corporation grows to a size that exceeds its value to society, the gross receipts tax acts as an umbrella, increasing its cost of operation and giving its competitors a cost advantage that prevents their suffocation.
Competition is critical to a free market economy and a progressive gross receipts tax enhances competition immeasurably by preventing the suffocation of smaller businesses. This allows the surviving companies to maintain their own direct employment as well as the indirect employment of the support services that supply them and their employees.
The Gross Receipts Tax
Corporate taxes are passed on to the consumer. That is why, if corporate tax rates increase as the gross receipts rise, the most predatory corporations will price themselves out of business when they grow beyond a justifiable size. A progressive tax on gross receipts provides an umbrella that prevents the suffocation of smaller businesses and their employees.
The gross receipts tax is levied on the annual gross receipts of all taxable entities from all sources and for all amounts received in their name (including franchises).
The tax is progressive. Assuming inception of the tax at one million dollars and a base rate of 2%, 2% is added to the rate each time the receipts increase by one decimal position, with the tax rate increasing proportionally from one order of magnitude to the next.
|Annual Gross Receipts||Tax Rate|
A Progressive Gross Receipts Tax has a number of beneficial aspects. It is gentle because it only becomes burdensome when companies exceed their benefit to society. It lets corporations pursue their own interest in their own way and leaves size decisions in the hands of management. It benefits stockholders because management is encouraged to pay profits out in dividends instead of funding voracious growth.
It makes huge corporations provide revenue for the government that nurtures them. It eliminates “Too Big To Fail” companies without additional regulation.
In addition to allowing the dynamic growth of small businesses, with the attendant direct employment of our people and the rebirth of the supporting businesses that are the cornerstone of vibrant communities throughout our country, this tax will eliminate inflation. Right now, huge corporations with ‘pricing power’ benefit from inflation because it adversely affects their smaller competitors. People and businesses at the lower end of the economic ladder never have pricing power. For them inflation is an unmitigated evil. The progressive nature of this tax makes inflation bad for large companies because their tax rate increases as their gross revenue rises. The progressive gross receipts tax will encourage large corporations to fight inflation.
Do we have the courage to fight what Teddy Roosevelt called the “unholy alliance between corrupt business and corrupt politics”?
Let’s find out!!!