Back "in the day" it made sense that corporations paid a lower tax rate, because of the way society was set up, and the way businesses themselves operated. In simple terms, the discount was because the workplaces provided work for citizens and the more citizens that worked, the better. Education systems were established so that rather than the corporations needing to fully train employees, they came in with some foundation, and universities provided more specialised base on top. The lower rate was so the corporations could generate more profit and therefore, hire more people to expand their operations.
However, due to the changes in culture, finance industry and technology, this is no longer the case, because unlike the labour intensive operations of the past, the most profitable businesses are the ones who don't have to hire many people in order to generate a massive amount of revenue. Not only this, technological changes that used to improve efficiency in the more manual labour fields, are now creating the most efficiencies in the knowledge worker operations, which are also the higher paid roles. This means that the most profitable industries can become even more profitable through automation efficiency, whilst getting rid of people.
The corporations are breaking the social contract that justified their tax discount.
This has been happening for decades already and I have been talking about it for about the last twenty years myself, but with the growing economic pressures, perhaps some others are starting to recognise the problem. Generally, people don't do much thinking into problems until they themselves are affected, which is often too late.
Just today I was reading an article where some finance guy in Australia suggested going to a flat 20% income tax for everyone, and relying on consumer tax to balance the tax revenue. This is something that I encourage to simplify the tax system, with the exception that perhaps the poorest who are under that threshold of 20% now pay a little less until they are above that point. Maybe the bottom 20% of earners would pay 10 or 15% or something like that.
But this isn't enough.
Because with technological advancement, it doesn't matter how much tax people are paying, if not enough people are working. So to cover the shortfall, there should also be a flat rate tax on businesses that is above the income tax, so that rather than pushing more wealth into corporations, the incentive becomes to push that wealth into personal income instead. This would have to be combined with closing tax-reduction loopholes, including forcing taxes to be paid in the country where the revenue is earned.
Business is a mechanism of betterment in society, or should be. But the current incentives are aligned to serve the maximisation of business, not humanity. This is because there is more wealth to be made through financial mechanisms than through actually working at improving something. Passive income from non-practical investments that do not impact on human improvement. The incentives need to realign so that wealth is pooled into the pockets of people, not into the books of businesses, and the only way to do that is to make the incentive to distribute to people higher than to hold in business.
The entire investment perspective needs to shift.
Currently, investments are where to make wealth, without those investments needing to be anything that provides distribution or improvement through the business. Many of the wealthiest people and wealthiest companies, do not provide much of value to humanity, nor do they distribute their earnings back into the pockets of people who will use it to create demand for their human needs.
When there is more money in the pockets of individuals and less incentive to invest into non-value-adding business models, then people will be freer to spend on what they need and want. It creates a natural demand mechanism, which is then met by the supply mechanisms to provide for people, not wealth. And while there might still be incentive to lower employee head count, that wouldn't be a driving force to generate wealth, because profits will be taxed at a higher rate regardless. More profit is still better, but that profit isn't encouraged by reducing people, it is encouraged by improving process and product.
This is not a handout system.
The incentive is there to generate wealth, but the best way to generate wealth isn't through financial mechanisms, but through the natural supply and demand mechanisms. Wealth can still be generated, but as the ability to build wealth by doing nothing and paying less tax is essentially taken away, the wealth spreads further, with more people benefiting, and more people employed. Because when people demand products and services, businesses make money. But currently, there are businesses making money without providing anything at all.
In my opinion, this isn't radical.
It is essential.
Unless we quite quickly start balancing the supply and demand books and align wealth generation with products and services that serve the real demand of people, we are going to end up in a system that collapses under its own weight. Taxes on people can't keep going up, because less and less people will be working. And taxes on businesses can't keep going down, because they are employing less and less people. The tax break for business is no longer serving society to encourage employment as it once did, it is just another way to improve corporate profits.
Shifting the incentive to putting money into people's pockets not only improves the lives of humans, it crates a healthier demand system based on reality, where people will consume on their preferences, not out of reduced financial ability that drives them to go without. This means that businesses will have access to more wealthy markets on average, more consumers, and be able to compete on product and service quality, rather than price alone. Not only this, it gives people more power to consume in healthier ways, making choices they feel they can't make now, especially if the businesses compete with products that offer a clear benefit to the consumer.
Economic practices are not set in stone and the ones we currently employ and support are not that old and are obviously not working. They need to change, with the incentive pushed away from passivity and into human activity. And corporations, which should be working for us, should be incentivised not only to distribute, but make their wealth through positive development, beneficial for humanity. The more profits they make, the wealthier the owners and the employees become, but the business profits will subsidise the improvement of humanity, rather than concentrate wealth.
Distribution is the key.
We need to spread wealth, health and innovation.
Taraz
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