Thoughts on Corporate Taxation
Taming Our Monsters
Dismantling "Too Big To Fail"
Organizations that become Too Big To Fail are uncontrollable. In a column titled "Too Big to Jail" in the March 11, 2013 issue of Barron's (a financial newsweekly), Randall Forsyth reported that Attorney General Eric Holder told Iowa Senator Charles Greeley he was "concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when (...) it will have a negative impact on the national economy, perhaps even the world economy."here
Holder's concern is borne out by Jack Willoughby's report in Barron's on March 23, 2013, describing how the Securities and Exchange Commission, in an abject failure to meet its obligation to protect the public interest, exempted UBS Securities from a mandatory 10-year ban on its activities after it was found guilty of securities crime.here
Corporations will not stop their criminal activities when they know they can't be punished.
Whatever the judicial rationale supporting the decision that corporations are persons, corporations are not human. There is no limiting factor to prevent them from perpetuating themselves. 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 enacted laws that enable corporate growth but failed to enact (and enforce) laws to protect us from corporate gluttony.
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.
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 and the only protection for the people.
Adverse Effects Of Excessive Size
When I was young, we had a small knitting mill in our town. That mill, in addition to employing 50 or so of our townspeople, supported an uncounted number of other small businesses; the sandwich shop on the corner where the mill hands had lunch, a couple of local pickup and delivery services, the bank, of course, and the shops and services patronized by the mill's employees.
That may seem like pretty small stuff - and it was - but it was typical of thousands of small businesses that were the mainstay of a multitude of communities throughout the country. Over the past 50 years or so, those small companies have been absorbed or driven out of business by corporate giants. The jobs they provided and all the support services that depended on them disappeared, too. To feed their families, the people could only find employment by commuting, depleting natural resources and polluting the atmosphere in the process.
The Bell System is a good example of the danger inherent in market domination. When it was young, dynamic and growing, it was a boon to society. After it matured and began perpetuating its own existence (something all of us would like to do, but are prevented by the cycle of life), it became injurious to society by suppressing alternatives. As soon as the Bell System was broken up, alternatives mushroomed and the market blossomed with diversity.
In another example, giant brewers eliminated the small local breweries throughout the country. In 1950, the top 10 brewers produced 38% of the beer. By 1980, the top 10 brewers controlled the market and produced 93% of the beer. Not only did we lose the local employment of those small brewers, we also lost the multitude of jobs offered by the providers of goods and services that supported them.
These losses, which seemed local and not very significant, pervaded the country. Every industry consolidated to increase the economic clout of the industry leaders at the expense of the self-sufficient communities that once made up our country. The auto manufacturers, seeking control of their markets, eliminated generic parts, ruining thousands of auto supply stores and small maintenance shops that helped maintain vibrant communities. As they eliminated their competition, they raised their prices to consumers so that it now costs $100 to replace the ignition key for my car.
How It Happened
The seeds of our predicament were sown more than 100 years ago. By the early 20th century the die had been cast; big business had learned to manipulate our political process to its own advantage. In his State of the Union Address on December 3, 1906here, Theodore Roosevelt, our 26th President, warned us about the "unholy alliance between corrupt business and corrupt politics".
By this time, party organizations around the country had became so powerful and so corrupt, they inspired widespread calls for political reforms. However, since the parties controlled the executive and legislative branches of the state and federal governments, the 'reforms' they enacted were merely cosmetic. New names were invented for old practices. In some cases, the lawyers who helped write the laws also drafted memos explaining the loopholes written into themhere, In spite of lip service to 'cleaning house', nothing changed. The unholy alliance continued to develop and is now so imbedded in our political system that big business writes the laws it pays our legislators to enact.
At the inception of the modern income tax, that unholy alliance of corrupt business and corrupt politics 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 they 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 can do that by making excessive size a burden; by levying a progressive tax on gross receipts, without reserve or allowance.
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
The gross receipts tax is levied on the annual gross receipts of all taxable entities, animate or inanimate, from all sources and for all amounts received in their name by entities they control (including franchises), less amounts paid to external vendors in which the entity has no managerial, directorial or financial interest of any amount or kind.
The tax is progressive. Assuming inception of the tax at $1,000,000 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 $1,000,000 2% $10,000,000 4% $100,000,000 6% $1,000,000,000 8% $10,000,000,000 10% $100,000,000,000 12% $1,000,000,000,000 14%
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 taxpayers pursue their own interest in their own way and leaves size decisions in the hands of management. It benefit stockholders because management is encouraged to pay profits out in dividends instead of funding voracious, anti-social 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.
Enacting the Tax
If we are going to get a progressive tax on gross receipts, we are all going to have to stand up and be counted. This is not something we can accomplish exclusively by classical non-violent means. Protesting and letters to the editor are not going to get those who control our political system to loosen their grip. We're going to have to 'invade' Washington.
All the people who gathered to spread the Tea Party and the Occupy Wall Street message are going to have to gather again, and they're going to have to bring all their friends and relatives.
When our public officials see that we, the people, are serious and that we are going to get this law enacted, we'll get their attention. We may be met with force, as was the Bonus Army during President Hoover's administration, and we may have to fight back!
Our best hope for a peaceful settlement will be if our President has the courage and the integrity to order the police forces and military to stand down and respect the wishes of the people. If we get that kind of support from our President, our Congress will enact this simple, obvious, and desperately needed protection for the people.
Do we have the courage to fight the "unholy alliance between corrupt business and corrupt politics"?
Let's find out!!!