I'm not in favor of tax and spend politics. I'm not in favor of increasing taxes just to spend it on social programs. But one can just revamp the taxes without increasing tax revenue and still get the economy going. The Government playing Robin Hood may not be such a bad idea, but it's not exactly giving money to the poor. It's more like making the rich pay their fair share while the the poor are pretty much left to their own devices.
(If you think being poor is simple, go to Spent and play a game or ten. Bet you starve.)
"Tax and spend" is a phrase used by conservatives to imply that the government increases taxes to create social programs to give extra money to the poor without any expectations. Often times, it means spending more than is taxed. And that is the context in which I'm against Tax and Spend. I want some value for my tax dollars being increased. But in this case, I don't want any increases unless they are specifically budgeted for deficit reduction. Rather, I'm looking at a shifting of the tax burden away from the poor and middle class and onto those who can most afford it: the wealthy. A shift of the tax burden will reduce the deficit (by stimulating the economy) without increasing tax revenue or adding to the deficit and without increasing or creating new "welfare" programs.
As I have mentioned, in the last 20 years or so (ever since 1990), we have seen the biggest a shift of revenue from the poor to the rich in global history. This gap between the Haves and the Have Nots was mentioned here earlier this month.
The idea has been floated that we should start taxing the rich more than we have and I agree - to a point. Tax the rich, yes, but no more than we actually need given necessary cost-cutting and fiscal responsibility. Then cut the taxes on the rest of us. We don't NEED to generate more tax revenue. We heed to shift the tax burden from the middle class and poor to the rich. Just doing that will stimulate the economy and make things better for EVERYONE.
Now, before we go much further, I have to explain how an economy works. You don't need to take notes and keep in mind, this is a thumb-nail version of the thing.
In the beginning there was barter. People would trade goods and services for goods or services. But there was an inherent inequity in barter in that some goods given seemed to be more valuable than what was received. So the concept of money was created. In essence, money placed a quantitative number to the value of things - be they goods or services. It worked so well, that money became what we use to trade for goods and services today.
But money has a problem. In ourt modern society, those who don't have money must acquire it in order to acquire the goods and services they need to live. They do this by trading their labor or talents in exchange for money. We call this work. A person who has the need of their labors (usually someone who is engaged in the manufacturing and sale of goods and/or services) hires people to trade their labors for his money.
All is well and good.
But some people have more money than they can spend in one spree. For a very long time, they kept this money (and other valuables) in their homes, but this became impractical. So banks were created. Banks operate as repositories of your money, who then use that money to sponsor other ventures with the expectation of being paid back with "interest", which creates an income for the bank so they can operate without paying themselves with the money of the depositors.
Again, all is well and good.
In an ideal economy, people labor for wages they spend on goods and services, the surplus of which they deposit in banks which use that money to loan to people or businesses who pay them back more than they were loaned in order to acquire goods needed in their lives, the excess of which is used to pay for the operation of the banks and offer a small incentive to the depositors for the privilege of using their money in the first place. As long as people are working, getting wages, spending wages and depositing excess wages in banks, things get better for everyone.
But then we have human nature to deal with and the major one here is greed. The greed is everywhere. The depositor who deposits their money wants the little extra the banks offer. The banks want more depositors because if they can make more loans, they make more money when people pay the loans back (Emphasis added for later effect). People getting loans want to get the loans, so can lie or fake the information necessary to get the loans if they're greedy, or find a banker who will give them a loan even if it can't be paid back because the bank looks at its income not so much as what is coming in NOW, but what WILL come in later. And the business owners are greedy realizing that if they can make their minions do more work for less wages, the business owner can make more money.
All of this has happened already. Hence why the world is screwed up. Going back to our model, the banks gave away loans to people who shouldn't have gotten them, meaning they have no income and no money to lend, and no money to give back to the depositors. (The FDIC isn't there for nothing, you know, but it, too, is running out of money). With no money coming in for businesses, they can't expand their operations or, occasionally pay their workers. So they lay the workers off. Fewer workers means less wages for the labors being traded, which means fewer people buying goods or services which means less business which means more workers are laid off.
But the bankers got paid. The business owners got paid. The poor don't. The middle class struggles.
From our (overly simplistic, but still relevant) economic model, we see where the money went: To business owners and bankers. In our society today, we call them "the wealthy".
Now, taxes were never mentioned in our economic model, but let's toss them in now and see how it all works out.
The government is in charge of maintaining the military, the roads, sewers, bridges and other public works we rely on to go about our daily lives. It also provides a safety net for those who for whatever reason can't exchange their labors for wages. It is financed by a tax on the wages of the people who live in that country. Now, a little about the people who live in the country. We'll split them up into three groups: The Wealthy (top 20% who hold the money), the Middle Class - the 60% of people who have been hired by the wealthy to labor to produce goods and services for the wealthy - and the 20% Poor (which are those who usually work, but at jobs which do not pay much, or those who can't work for whatever reason.)
The top 20% of the wealthy control 85% of the TOTAL WEALTH. If the total wealth of the economy was a million coins and the total population was 1000, the 200 wealthiest would have 850,000 to split between them, 600 would have 149,000 and the bottom 200 would have 1000.
The Wealthy have 4250 coins each.
The Middle Class have 248 coins each.
The Poor have 50 coins each.
Okay, let's move back to our model and see how this works. In a good economy, people trade labor for wages because the business owners has a demand for their goods/services. The greater the demand, the more laborers are needed. If the demand falls, so, too, does the need for laborers, which in turn means fewer people getting wages which means less spending for goods/services. The flow of money through demand is what keeps the economy working. If the money stops flowing, usually through a lack of demand (cause in this case by low wages), the economy falters and fails.
There are only 200 rich. They have a lot of money, but how many goods or services can they buy? 200. Their spending power is gigantic, but the demand they generate is small. The Middle Class and Poor are gigantic in potential demand, but compared to the rich, on an individual basis, their spending power is poor. If they don't have the money, they can't spend it on the goods and services their demand may potentially be.
Back to taxes. The Wealthy pay a lot of taxes, but they also control most of the wealth of the nation. In our model, even if they pay the 33% they pay today, the amount they have left over is still an order or two of magnitude greater than it is for the Middle Class, who control nearly a magnitude of order more than the poor. And that money IS NOT FLOWING as it should in a healthy, working economy. Rather than using their wealth to reinvest into the economy by creating new jobs, investing in new industries and making new opportunities, they're holding on to it.
Greed.
The Middle Class and Poor are spending almost all of their money on the necessities of living. They can't get enough well paying jobs to be able to pump more into the economy.
So the shifting of wealth from the wealthy to the less wealthy is in order. Since the wealthy aren't doing that on their own, the government has to do it.
Now, I understand the wealthy pay a lot in taxes, but historically, they pay barely a third of what they used to have to pay. They control 85% of the wealth. They should be paying 85% of the taxes. They aren't.
Let's look at what the taxes does to the coins people have:
33% of 4250 = 1403 leaving 2847
15% of 248 = 37 leaving 211
10% of 50 =5 leaving 45.
Clearly, the rich remain substantially wealthier than the middle class. That 33% in taxes represents 35% of the total taxes collected today. The 15% in taxes represents 60% of the taxes collected. The 10% the Poor pays represents 5% of the taxes collected.
The rich still have 10 times the wealth of the middle class.
But let's remember what the middle class does: Spend. A little goes a long way. 60% of the taxes means there are a hell of a lot of middle class. A small increase in what each of them has translates to a gigantic spending potential. By shifting the tax burden 10% so the rich pay 45% of the taxes, the middle class 55% and the poor 0%, then 10% of the TOTAL INCOME TAX REVENUE is shifted to a large number of people who are willing to spend it, all this without in any way, shape or form decreasing the quality of life among the wealthy. Given that the wealthy control 85% of the wealth, this shift isn't what one would call onerous.
In 2009, the US collected 2.4 TRILLION dollars in tax revenue. 10% of that is 240 BILLION dollars. Imagine that 240 billion dollars, every year, being pumped into the economy in the form of spending or even savings (which helps generate revenue banks can use to make loans which stimulates business, investment and hiring) without adding to the deficit. The "Economic Incentive Plan" we got from the government was a one time tax bonus intended to have people go out and spend it to stimulate the economy. It didn't help much because the public perception was it's one-time only, the economy sucks, let's NOT spend it.
A major tax cut for the 80% of Americans who actually do the largest amount of spending would be seen as a positive step toward helping them. Doing that without actually increasing the deficit, nor adversely impacting those who will be shouldering a fairer share of the tax burden will be even better.
As has been mentioned, the gap between the rich and the poor and Middle Class has never been larger. A shift of wealth is in order. It will take the money from where it's been (stagnating while only enriching the rich) to stimulating the economy.
The infusion of cash into the middle class would most definitely create more spending power and more willingness to spend it. This would fuel demand for goods and services, which in turn fuels demand for workers, which in turn puts more money into the economy.
This is a redistribution of the tax burden. Taking it one step further, increasing the taxes on the rich to actually generate extra tax revenue could ALSO be done. This extra revenue could be used to reduce the national deficit as well as help fund emergency social programs like FEMA or even bolster Social Security. But what would be best is using the money to stimulate business by investing it in the things government is supposed to take care of: Infrastructure. Just creating those jobs to repair/maintain/build the vital infrastructure the nation needs to keep moving would put more money into the economy and improve the quality of life for everyone. Putting more people to work generates more jobs which generates wages which can be taxed increasing the amount of taxes being taken in which can be used to reduce the deficit and further stimulate the economy.
But it all starts with shifting some of the wealth away from the few wealthy to the many of the rest who are willing to spend it. That can only be done through re-balancing the tax structure to place far more of the total burden onto those who can most afford it and away from those who can least afford it.
While some in Congress (who, by the way, are among the "wealthy"), call this idea "Class Warfare", the fact is the wealthy will benefit from a shift in the tax burden just as much as the rest of us over the long term. They're just too greedy to see it.
Showing posts with label economics. Show all posts
Showing posts with label economics. Show all posts
Sunday, September 25, 2011
Wednesday, August 17, 2011
The Necessary Demise of the Free Market
One of the views I tend to hold regarding economic models is often cited (when such things are cited) as why some folks believe I'm a screaming liberal. This conservatively offensive view is that a free-market economy is doomed to fail.
In essence, a free market economy is where businesses compete openly for customers without much (if any) regulatory control. Supposedly with its own built-in checks and balances it is thought (erroneously, as it happens) that the market is self-stabilizing and that any necessary corrections for imbalances will happen automatically by enlightened captains of industry and finance because it's for the good of the market. Yes, people actually believe this nonsense. But the flaws in this thinking were highlighted all too glaringly when the flaws in the free market model destroyed the world economy two years ago, the effects of which are still being felt today.
On paper, it DOES work. Then again, so do all pie-in-the-sky economic models. Paper isn't human and the human factor is why they all fail. In fact, there's only ONE human factor involved in all economic models which causes them to fail: Greed.
Dress it up howsoever you want, but greed is the nexus that breaks all economic models tried so far. Greed drives people to better themselves economically (keeping up with the neighbors' acquisition of "things", getting a better job to buy the things that mark one's status in society). No economic model so far created has ever adequately taken human greed into account.
Communism fails because people aren't interested in the greatest good for the greatest number. They are looking out for number one - themselves. Socialism fails because if you satisfy the needs of the people without requiring the people to work, the people won't work. After all, why bother? And with capitalism, if you are a have, you only want more, to the expense of the have-nots. And you will do everything you can to keep the have nots from becoming haves.
These economic theories all fail to take into account human greed.
Now, one could say we need to change as human beings, and I couldn't agree more, but realistically, that ain't gonna happen anytime in the next thousand years. Mankind is still too close to his animal roots to know when he has "enough" and that more than that is too much, not a good thing and can lead to disaster. Unfortunately, we live on a planet where the resources are limited and when one person has more than enough, it's inevitable that others don't have "enough".
So the trick here is to acknowledge greed as a driving force, but to place breaks on it so that when one has enough, they strive to be satisfied with that. All the while you have to provide incentive to continue to excel, so a reward system has to be in place for the go-getters and the doers which doesn't necessarily result in tangible rewards, but in rewards which are satisfying enough to seek none the less.
This is probably an impossible task on paper, and let's face it, there are people out there who will defy all attempts to plug them into any economic model.
So instead of inventing a new one, let's look at modifying one that is somewhat more successful in acknowledging greed: Capitalism.
The problem with capitalism is that people don't acknowledge when enough is enough. I'm not saying that everyone should have a yacht in their back yards. After all some people just aren't that motivated. Nor am I talking entitlements. Those who can't work at a conventional job should have some kind of task they can perform for an income. Regardless of one's ability, employment of some kind - even if it's just to do the work of living - by everyone is vital to the revised capitalist economic model. Everyone should have an income based on their own efforts at earning one even if it isn't derived from a standard "job".
The next thing you do is cap income and profits. There are people out there making obscene amounts of money just because their companies make obscene amounts of money. Profits should be capped at a percentage plus inflation (Say what a US savings bond would earn in total back when US Savings bonds were worth buying). Since inflation varies, call it inflation plus 15% just as an example. The idea is to target the most egregious profit mongering, not to retard the average business's incentive to earn income. It's important to note that profits are what's left over after all research and development has been done, everything's been paid and all is good and right with the company.
The excess should be funneled into building roads, schools, new infrastructure and other civil projects which require vast amounts of money no one seems willing to spend on these days.
Now, greed would ask once a company has made X amount of money above their expenses and maxed out their profits, why would they bother working any harder? After all, they can't earn any more. What's the point of continuing to push?
That's where the trick comes in. They HAVE to work harder to MAINTAIN those profits, because if they do two years in a row, the next year their profit cap is allowed to increase by enough to make the effort worth it. If they fail to meet that cap, it's maintained at the higher level, but not raised. If they fail two years in a row to reach that cap, their cap is lowered again.
This way, there is more incentive to improve profits than there are penalties for not profiting, but they're always capped.
You do this for people, too, albeit in a slightly different fashion. Income is capped at a high, but not obscenely high level. Whatever pays for government, infrastructure, education, defense and the things that taxes help pay for would be the cut off the top and the rest would be used as the way to figure the cap. An example of this would be to take the average of the actual income (before taxes) of working Americans, multiply that by 10 (or whatever number is appropriate to allow for a lot of worker bees and not so many queens based on the boss-to-worker ratio averaged over the last 10 years or something like that) and call that the income cap. More knowledgeable people than I can work it out.
Income is all actual funds gained in a year from all sources - Profits on property and personal belonging sales, inheritance, expenses that are reimbursed above actual costs, sales of stocks, etc.
Now before I go on, a word on inheritance. Inheritance is a time-honored tradition whereby someone gets someone else's stuff when that someone else dies. You can't take it with you, after all. Unfortunately, there are people out there who leech off their rich parents (or husbands/wives) who are pretty much wastes of sperm in the first place and have never really worked a day in their lives.
So here's how it would work: For those who stand to inherit anything in excess of the annual income cap, there are consequences. All monetary assets would be placed in a trust. All property assets would be allowed to transfer to the beneficiary. If the beneficiary liquidates any of that property at any time during the beneficiary's life, those assets would also go into the same trust. The idea here is to limit income to the personal cap per year using the funds in this trust. If a person continues to keep the property, it isn't considered income. A cherished family home can be passed from generation to generation without tax or penalty.
The trust into which liquid assets and the proceeds of inherited property sales are placed would be passed on to the next of kin upon the death of the beneficiary who inherited the trust in the first place.
After all, property is NOT income. It may have a great deal of value, but unless you sell it - and at a profit - that value is virtual rather than actual and it's only valued at the profit for which it was sold. Yes, it can be used as collateral, but then a business receiving the property in the event of a default wouldn't be allowed to keep the income from it if that income made the lender's profits exceed the cap.
A little on this property as income thing. The government considers property sales as "income". It does not consider the purchase of property a "loss". So you end up paying taxes on property you sell regardless of whether you make a profit on it or not. The income cap says you can only make X amount per year in actual cash. Property purchases are NOT deducted from your income, but if you sell it at a loss, you don't exceed the cap in income provided the sale is in the same year as the purchase. If it is, and you have the receipt from the purchase you're covered. If it isn't, then it's income for that year. If you get more than you paid for it, it's income for that year. A simple-enough concept to follow. People could "save" by purchasing property with their income while they are working and augment their income by selling it when they're not, or are working for less. As long as they don't exceed the cap for that year, they can keep all proceeds from property sales. Income would be based on money actually received between January 1st and December 31st for one calendar year.
The funds in the trust may be donated to non-profit organizations which provide for the public good, to venture capitalists who have not exceeded their profit cap, to non-profit medical research for incurable diseases and to other causes which promote good things for everyone rather than just a few.
Of course, this issue will have their detractors. After all, men of industry who are "worth" billions of dollars might take exception to cutting their kids/spouse down to "only" the maximum income per year, but if they still have homes whose maintenance alone exceeds the personal income cap, finding a supermarket from which to buy food would be problematic for someone whose income is capped.
I say, "Tough." If you have so much that ten million dollars a year isn't enough to cover your expenses, you have too much. Part of that "more than enough" stuff. I say liquidate the excess, keep the heirlooms and sentimental stuff and live off the trust fund if you're not making the max per year.
What this will do is get those outrageously over-the-top mansions for one person and a staff of fifty off the market entirely in a generation. They'll be torn down and turned into housing which someone making ten million a year can afford, instead. It's not exactly spreading the wealth to everyone, but it is putting a halt to egregiously "more than enough" living.
Now, back to incomes...
The personal income cap is problematic for the simple reason that once a person hits it, they tend to slack off. This means you have to keep them at it and motivated or the slackers of the world will unite. The first thing you do is monitor their performance. If they don't perform like they did in getting to the top, you don't pay them as much and they don't earn the cap. This makes salaries tied to performance.
What is "performance"? In essence, performance is doing what is expected of them for the company. It is "average". They are meeting all job requirements and fulfilling all necessary expectations. Someone may bust their ass to get to the top, then just coast. That's their right. But if their performance drops, they get less income for it.
Now, there are people who are highly motivated and want to be rewarded for a better than just an "average" performance. This is not an unreasonable demand. Performing above and beyond the call of duty must be rewarded and there are many ways of doing this that don't necessarily involve raising the cap, primarily through peer recognition and acclaim.
I fall back to the military in this aspect by creating levels of rewards for consistently high performance. You CAN reach the cap by being average in a vital field. But to go beyond that, you must maintain a higher than average level of performance for a long duration. One starts with special recognition for a couple of years. And then one starts increasing the cap, along with the special recognition. Once the cap starts being raised, the performance must INCREASE to get it to go higher again, all the way up to doubling their personal cap in $500,000.00 increments per year. Their annual evaluations will be filed with the IRS and they'll be allowed to earn based on their performance rating and years of service with a particular company.
Now, of course, not everyone is going to make it to that cap. That's fine. The cap is in place to decapitate the wealthiest and spread the wealth.
Oh, I believe I failed to mention that income, corporate and sales taxes would be abolished. In fact, all funding fees (those which are in place strictly to fund projects and programs) would be abolished as well. The government would be financed by the money that would have been paid to people who earn more than ten million a year, plus the excess profits companies make. To highlight how effective this would be, the wealthiest 10% of the country makes something like 60%-70% of the income. That leaves about 30%-40% of total income in the US to be spread among the remaining 90% of the population. There is MORE than enough money coming in to run the government, and all programs currently funded, with plenty left over for a rainy day.
The income and profit cap would also be tied to the amount of money coming into the coffers of the state, so that if more is coming in, the cap would be raised and if less was coming in, the cap would be lowered.
Keep in mind, also, that $10,000,000.00 is a hell of a lot of money for one person for one year. I used it as an example. It could be set at 5 million dollars or 1 million. How much money does one person need, after all? If they're married, the combined income would be maxed at 10 million, and 2 live cheaper than one, so it's not like anyone would be enduring any hardship. The point is there needs to be a cap that reduces the gap between the haves and the have nots. - whatever that gap turns out to be. At least 25% of the total income earned should be used to pay for government, infrastructure, social programs like education, school construction, assistance and such. Whatever is left over should be averaged for the total working population, multiplied by ten and set as the cap. The concept of "per capita" income is a fail since it relies on income reported in tax forms, including things like property values and such. They are often reported after deductions, and are not necessarily all actual income.
I don't think the average income earner would complain about this concept of mine since you get to keep all of what you earn. I also don't think too many people would be affected by the "I'm not getting enough so I'm not doing anything more" syndrome. It also provides for checks and balances for slackers.
In the end, it would be a relatively simple system to understand, if not necessarily implement.
Now, this is a "detailed plan". The concept here is to reduce the amount of earnings or profit one person or company can make on average, but still allow for the greed, "I want more" incentive. Additionally, it creates an environment where government is less intrusive (and better funded), simplifies the tax structure, helps reduce the gap between the haves and the have nots, allows someone to rise to their level of "enough" and still allows for incentive and growth. What I've detailed may have fundamental flaws, but they're merely a suggestion in trying to implement the concept. Someone with more knowledge of human nature and economic theory may have better luck.
The on-going increase in the gap between the haves and have nots is the widest it's been in history, and it's getting substantially wider. In times of relative prosperity for all, the masses aren't terribly motivated to correct this gap. Their levels of greed have been mostly accommodated. However, in times of economic crisis and recession (such as now - thanks to a government run mostly by men and women who are in that top 10% of income earners), the masses are much more critical of the fact they are getting less, while the wealthy aren't getting any less, and are, in fact, getting even more. This has a much greater potential for the outbreak of social unrest. It's happened before - many times - in human history. There's no reason to believe it won't happen again.
The sad part is that social unrest, revolution, whatever you want to call it, may be the only way to initiate this new economic model. I don't see billionaires divesting themselves of their wealth to help reduce the rising social tensions over the wealth gap anytime soon. Nor do I see investors and captains of industry willingly giving up their profits above and beyond "enough". But when the masses rise up, crying "Enough!" and tear it all down, then, maybe, some bright boy or girl will see the flaws in the capitalist economic model and finally do something to prevent such an egregiously huge gap from ever forming again.
And that cry of "Enough!" may come sooner than later.
In essence, a free market economy is where businesses compete openly for customers without much (if any) regulatory control. Supposedly with its own built-in checks and balances it is thought (erroneously, as it happens) that the market is self-stabilizing and that any necessary corrections for imbalances will happen automatically by enlightened captains of industry and finance because it's for the good of the market. Yes, people actually believe this nonsense. But the flaws in this thinking were highlighted all too glaringly when the flaws in the free market model destroyed the world economy two years ago, the effects of which are still being felt today.
On paper, it DOES work. Then again, so do all pie-in-the-sky economic models. Paper isn't human and the human factor is why they all fail. In fact, there's only ONE human factor involved in all economic models which causes them to fail: Greed.
Dress it up howsoever you want, but greed is the nexus that breaks all economic models tried so far. Greed drives people to better themselves economically (keeping up with the neighbors' acquisition of "things", getting a better job to buy the things that mark one's status in society). No economic model so far created has ever adequately taken human greed into account.
Communism fails because people aren't interested in the greatest good for the greatest number. They are looking out for number one - themselves. Socialism fails because if you satisfy the needs of the people without requiring the people to work, the people won't work. After all, why bother? And with capitalism, if you are a have, you only want more, to the expense of the have-nots. And you will do everything you can to keep the have nots from becoming haves.
These economic theories all fail to take into account human greed.
Now, one could say we need to change as human beings, and I couldn't agree more, but realistically, that ain't gonna happen anytime in the next thousand years. Mankind is still too close to his animal roots to know when he has "enough" and that more than that is too much, not a good thing and can lead to disaster. Unfortunately, we live on a planet where the resources are limited and when one person has more than enough, it's inevitable that others don't have "enough".
So the trick here is to acknowledge greed as a driving force, but to place breaks on it so that when one has enough, they strive to be satisfied with that. All the while you have to provide incentive to continue to excel, so a reward system has to be in place for the go-getters and the doers which doesn't necessarily result in tangible rewards, but in rewards which are satisfying enough to seek none the less.
This is probably an impossible task on paper, and let's face it, there are people out there who will defy all attempts to plug them into any economic model.
So instead of inventing a new one, let's look at modifying one that is somewhat more successful in acknowledging greed: Capitalism.
The problem with capitalism is that people don't acknowledge when enough is enough. I'm not saying that everyone should have a yacht in their back yards. After all some people just aren't that motivated. Nor am I talking entitlements. Those who can't work at a conventional job should have some kind of task they can perform for an income. Regardless of one's ability, employment of some kind - even if it's just to do the work of living - by everyone is vital to the revised capitalist economic model. Everyone should have an income based on their own efforts at earning one even if it isn't derived from a standard "job".
The next thing you do is cap income and profits. There are people out there making obscene amounts of money just because their companies make obscene amounts of money. Profits should be capped at a percentage plus inflation (Say what a US savings bond would earn in total back when US Savings bonds were worth buying). Since inflation varies, call it inflation plus 15% just as an example. The idea is to target the most egregious profit mongering, not to retard the average business's incentive to earn income. It's important to note that profits are what's left over after all research and development has been done, everything's been paid and all is good and right with the company.
The excess should be funneled into building roads, schools, new infrastructure and other civil projects which require vast amounts of money no one seems willing to spend on these days.
Now, greed would ask once a company has made X amount of money above their expenses and maxed out their profits, why would they bother working any harder? After all, they can't earn any more. What's the point of continuing to push?
That's where the trick comes in. They HAVE to work harder to MAINTAIN those profits, because if they do two years in a row, the next year their profit cap is allowed to increase by enough to make the effort worth it. If they fail to meet that cap, it's maintained at the higher level, but not raised. If they fail two years in a row to reach that cap, their cap is lowered again.
This way, there is more incentive to improve profits than there are penalties for not profiting, but they're always capped.
You do this for people, too, albeit in a slightly different fashion. Income is capped at a high, but not obscenely high level. Whatever pays for government, infrastructure, education, defense and the things that taxes help pay for would be the cut off the top and the rest would be used as the way to figure the cap. An example of this would be to take the average of the actual income (before taxes) of working Americans, multiply that by 10 (or whatever number is appropriate to allow for a lot of worker bees and not so many queens based on the boss-to-worker ratio averaged over the last 10 years or something like that) and call that the income cap. More knowledgeable people than I can work it out.
Income is all actual funds gained in a year from all sources - Profits on property and personal belonging sales, inheritance, expenses that are reimbursed above actual costs, sales of stocks, etc.
Now before I go on, a word on inheritance. Inheritance is a time-honored tradition whereby someone gets someone else's stuff when that someone else dies. You can't take it with you, after all. Unfortunately, there are people out there who leech off their rich parents (or husbands/wives) who are pretty much wastes of sperm in the first place and have never really worked a day in their lives.
So here's how it would work: For those who stand to inherit anything in excess of the annual income cap, there are consequences. All monetary assets would be placed in a trust. All property assets would be allowed to transfer to the beneficiary. If the beneficiary liquidates any of that property at any time during the beneficiary's life, those assets would also go into the same trust. The idea here is to limit income to the personal cap per year using the funds in this trust. If a person continues to keep the property, it isn't considered income. A cherished family home can be passed from generation to generation without tax or penalty.
The trust into which liquid assets and the proceeds of inherited property sales are placed would be passed on to the next of kin upon the death of the beneficiary who inherited the trust in the first place.
After all, property is NOT income. It may have a great deal of value, but unless you sell it - and at a profit - that value is virtual rather than actual and it's only valued at the profit for which it was sold. Yes, it can be used as collateral, but then a business receiving the property in the event of a default wouldn't be allowed to keep the income from it if that income made the lender's profits exceed the cap.
A little on this property as income thing. The government considers property sales as "income". It does not consider the purchase of property a "loss". So you end up paying taxes on property you sell regardless of whether you make a profit on it or not. The income cap says you can only make X amount per year in actual cash. Property purchases are NOT deducted from your income, but if you sell it at a loss, you don't exceed the cap in income provided the sale is in the same year as the purchase. If it is, and you have the receipt from the purchase you're covered. If it isn't, then it's income for that year. If you get more than you paid for it, it's income for that year. A simple-enough concept to follow. People could "save" by purchasing property with their income while they are working and augment their income by selling it when they're not, or are working for less. As long as they don't exceed the cap for that year, they can keep all proceeds from property sales. Income would be based on money actually received between January 1st and December 31st for one calendar year.
The funds in the trust may be donated to non-profit organizations which provide for the public good, to venture capitalists who have not exceeded their profit cap, to non-profit medical research for incurable diseases and to other causes which promote good things for everyone rather than just a few.
Of course, this issue will have their detractors. After all, men of industry who are "worth" billions of dollars might take exception to cutting their kids/spouse down to "only" the maximum income per year, but if they still have homes whose maintenance alone exceeds the personal income cap, finding a supermarket from which to buy food would be problematic for someone whose income is capped.
I say, "Tough." If you have so much that ten million dollars a year isn't enough to cover your expenses, you have too much. Part of that "more than enough" stuff. I say liquidate the excess, keep the heirlooms and sentimental stuff and live off the trust fund if you're not making the max per year.
What this will do is get those outrageously over-the-top mansions for one person and a staff of fifty off the market entirely in a generation. They'll be torn down and turned into housing which someone making ten million a year can afford, instead. It's not exactly spreading the wealth to everyone, but it is putting a halt to egregiously "more than enough" living.
Now, back to incomes...
The personal income cap is problematic for the simple reason that once a person hits it, they tend to slack off. This means you have to keep them at it and motivated or the slackers of the world will unite. The first thing you do is monitor their performance. If they don't perform like they did in getting to the top, you don't pay them as much and they don't earn the cap. This makes salaries tied to performance.
What is "performance"? In essence, performance is doing what is expected of them for the company. It is "average". They are meeting all job requirements and fulfilling all necessary expectations. Someone may bust their ass to get to the top, then just coast. That's their right. But if their performance drops, they get less income for it.
Now, there are people who are highly motivated and want to be rewarded for a better than just an "average" performance. This is not an unreasonable demand. Performing above and beyond the call of duty must be rewarded and there are many ways of doing this that don't necessarily involve raising the cap, primarily through peer recognition and acclaim.
I fall back to the military in this aspect by creating levels of rewards for consistently high performance. You CAN reach the cap by being average in a vital field. But to go beyond that, you must maintain a higher than average level of performance for a long duration. One starts with special recognition for a couple of years. And then one starts increasing the cap, along with the special recognition. Once the cap starts being raised, the performance must INCREASE to get it to go higher again, all the way up to doubling their personal cap in $500,000.00 increments per year. Their annual evaluations will be filed with the IRS and they'll be allowed to earn based on their performance rating and years of service with a particular company.
Now, of course, not everyone is going to make it to that cap. That's fine. The cap is in place to decapitate the wealthiest and spread the wealth.
Oh, I believe I failed to mention that income, corporate and sales taxes would be abolished. In fact, all funding fees (those which are in place strictly to fund projects and programs) would be abolished as well. The government would be financed by the money that would have been paid to people who earn more than ten million a year, plus the excess profits companies make. To highlight how effective this would be, the wealthiest 10% of the country makes something like 60%-70% of the income. That leaves about 30%-40% of total income in the US to be spread among the remaining 90% of the population. There is MORE than enough money coming in to run the government, and all programs currently funded, with plenty left over for a rainy day.
The income and profit cap would also be tied to the amount of money coming into the coffers of the state, so that if more is coming in, the cap would be raised and if less was coming in, the cap would be lowered.
Keep in mind, also, that $10,000,000.00 is a hell of a lot of money for one person for one year. I used it as an example. It could be set at 5 million dollars or 1 million. How much money does one person need, after all? If they're married, the combined income would be maxed at 10 million, and 2 live cheaper than one, so it's not like anyone would be enduring any hardship. The point is there needs to be a cap that reduces the gap between the haves and the have nots. - whatever that gap turns out to be. At least 25% of the total income earned should be used to pay for government, infrastructure, social programs like education, school construction, assistance and such. Whatever is left over should be averaged for the total working population, multiplied by ten and set as the cap. The concept of "per capita" income is a fail since it relies on income reported in tax forms, including things like property values and such. They are often reported after deductions, and are not necessarily all actual income.
I don't think the average income earner would complain about this concept of mine since you get to keep all of what you earn. I also don't think too many people would be affected by the "I'm not getting enough so I'm not doing anything more" syndrome. It also provides for checks and balances for slackers.
In the end, it would be a relatively simple system to understand, if not necessarily implement.
Now, this is a "detailed plan". The concept here is to reduce the amount of earnings or profit one person or company can make on average, but still allow for the greed, "I want more" incentive. Additionally, it creates an environment where government is less intrusive (and better funded), simplifies the tax structure, helps reduce the gap between the haves and the have nots, allows someone to rise to their level of "enough" and still allows for incentive and growth. What I've detailed may have fundamental flaws, but they're merely a suggestion in trying to implement the concept. Someone with more knowledge of human nature and economic theory may have better luck.
The on-going increase in the gap between the haves and have nots is the widest it's been in history, and it's getting substantially wider. In times of relative prosperity for all, the masses aren't terribly motivated to correct this gap. Their levels of greed have been mostly accommodated. However, in times of economic crisis and recession (such as now - thanks to a government run mostly by men and women who are in that top 10% of income earners), the masses are much more critical of the fact they are getting less, while the wealthy aren't getting any less, and are, in fact, getting even more. This has a much greater potential for the outbreak of social unrest. It's happened before - many times - in human history. There's no reason to believe it won't happen again.
The sad part is that social unrest, revolution, whatever you want to call it, may be the only way to initiate this new economic model. I don't see billionaires divesting themselves of their wealth to help reduce the rising social tensions over the wealth gap anytime soon. Nor do I see investors and captains of industry willingly giving up their profits above and beyond "enough". But when the masses rise up, crying "Enough!" and tear it all down, then, maybe, some bright boy or girl will see the flaws in the capitalist economic model and finally do something to prevent such an egregiously huge gap from ever forming again.
And that cry of "Enough!" may come sooner than later.
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