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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It's all a big game that the rich are winning. I wish there was a point where they finally realized they have enough and maybe it should spread out a bit more. Unfortunately, enough never seems to be enough.
Trust me, the really wealthy are the cheapest ass people I know... There will never be enough.
Yep. They tend to be. I think it is a bit like a sport for them. You know when you watch a professional game that is a complete blowout, but they keep looking to score more goals even though it doesn't matter?
I don't think the mechanics allow for a sense of enough, only for a need for more.
From what I see in America right now the trends are opposite to what you are proposing. With the Republican party fully controlling all three branches of our government: Executive, Legislative and Judicial the trend is to cut corporate taxes and to concentrate wealth further in the hands of the very few. The general population is blissfully unaware of what is going on or simply wholeheartedly approving of it. Yes, please tax corporations less and tax us more while providing less government services, it is all cool :)
Yes they are. People should really pay attention to the trends. It is going to rip everything apart for most people, and then eventually, most people are going to get violent. The direction only leads to one outcome, and no one really wants that, but will get it.
It is not an easy game, there are many many variables including all the externalities derived from any corporation producing and serving a market. I agree something has to change as the rich/poor breach keeps growing but the internal goods a company produces or serves are not the only gain. There are the employees, which is a direct consequence, but also the consumption around the corporation such as logistics, and hospitality.
I remember several years ago when some groups where protesting about the governmental help the Barcelona F1 circuit was getting to organize one of the championship races. It is true that you could see that money as a waist since there are other probably more important areas where it could be spend than on a F1 race organization, but there is such a huge impact on local business around that event with restaurants, hotels, car rentals, tourism around the city, flights and so on. The argument was that the economical inflows were way bigger than the money given to the organizers of the F1 event.
Everything is so interconnected that it is hard to isolate one variable thinking that the rest of the system is going to behave the same except for the change of that variable, but I agree that we need a completely new system as the one we are using is based on the past, not the present nor future.
Yes, this interconnectedness is actually the strength of it, but the weakness is only realised when the wealth is in too few hands. Using the F1 example, while it is good for many local providers, the biggest earners are likely the large conglomerates who don't even pay their taxes in Spain. The hotel chains and food providers with parent companies in tax havens etc.
Although I own a small business, I kind of agree with you. The issue 9as so often) seems to be the mega-corporations and multinationals, that can shift profits around and cross-bill internal units until all the profit arrives in low tax jurisdictions. But I hate the idea being mooted by the WEF and others of compelling states to have harmonised tax codes, because it breaks down sovereignty. It's a complex mess !
Perhaps part of an answer would be to make corporation tax percentage have an inverse relationship to the median wage paid, with some kind of multiplier for the number of people within a set band of that median wage. The idea being that it encourages quality employment, but doesn't use an average that can be cheated by just paying the CEO more, and focuses on a range of the median to avoid it being distorted by companies employing loads of minimum wage staff to pull the median down unrealistically.
I own a very small business too. Just me. Though, because it is just me and so small, there is only income, no "profit".
I hate this too. People should force their own governments to change tack, force taxing corporations locally, force taxing businesses higher.
A think I proposed some years ago was to have the CEOs salary tied to the lowest earner/direct service provider. If the cleaner earns 20K a year, the CEO can earn 50x that, and midlevel can earn 25x that or something. Then business profit is taxed higher than income tax, and all the loopholes are shut. If the CEO wants to earn more, they have to pay everyone else more too.
I like the idea of linking CEO pay to the lowest earner. The legislation would have to be very carefully written, and might have to include a transnational element (much as I hate the idea !). Otherwise, a company could have a CEO who is notionally hired as a service provider from a company in the Turks & Caicos Islands whose only other employee is also the CFO.
But as a general principle, I like tax rules that are as simple as humanly possible, because that way there are less ways for the unscrupulous to find loopholes. Unlike the situation here in the UK, where tax law has become Byzantine in the extreme and the increasing suspicion is that it's done in part as a job creation scheme for civil servants at HMRC.
It's a brilliant suggestion, but it will likely not get implemented because the government that should implement it are also benefiting from these economic and finance anomalies in our society. Unless they are affected by the situation, then they can create policies and pass laws that make it possible for investors to put their money in areas that really add value to human lives. Unfortunately those areas that add value to our lives require far more of human and financial resources to operate and they turn out less revenue. That's the primary reason most investors and entrepreneurs avoid them
It would actually help the governments more, because it would create some societal stability and generate wealth in areas so people can better look after themselves.
I think part of the problem is that business and investments are running on hype, investors are ready to put their money into the next big thing,they also hire the media to spread their lies and the consumer is distracted for a while. They make the average consumer believe that they need something that's not necessary. And so with the society going this way, even consumer behaviour can not truly be ascertained.
Market dynamics are supposed to be a natural phenomenon operating operating based on demand and supply, but even the forces of demand and supply can be tilted to face a particular direction because consumer behaviour can be influenced.
So I think it's a systematic wroth that needs to be cleansed. Maybe the tax system you suggest might be able to do the job, I also think consumers should understand what they really need else the system will always be against us.
Imagine a world without marketing of products that cause more harm than good.
We have the most information available to us ever, yet we are stupider than ever.
It's so bad that we're allowing a system we created to eat through us. The government is also party to what is going on. Because it's obvious that some big guys are winning alone in all these, they see their bank statements and the huge numbers pumping in yet just few people are employed through them, yet they let them off the hook.
I like that you're seeing this hidden facts. We need to do better, channel money into what improves our lives as humans, the things that bring in more value for the masses not just a few wealthy individuals who are hiding under the cover of technology to amass so much for themselves.
Technology should better our lives, not put us in bondage.
We could have a pretty awesome world and societal experience, if activity moved away from profit and into wellbeing. Wars could end too.
If we shift the focus from maximizing profits to enhancing human value, we could create a healthier economy where everyone benefits. However, I think this is going to be harder day by day.
It is getting worse and worse. We are heading in the opposite direction, told lies and using excuses that have been invalid for decades.
I can relate with your point about corporations breaking the social contract. Historically, lower corporate taxes were justified because businesses genuinely created broad employment and shared prosperity. Today, that link is severed. The most profitable companies are the ones that need the fewest workers, yet they still enjoy the incentives built for a completely different era. Your idea that tax policy needs to catch up to technological reality feels overdue. If we don’t update the foundations of the system, the imbalance between corporate profit and human wellbeing will just keep widening.
Most of the economic policy that countries use to justify their activity, is from an outdated era that didn't consider global corporations and tax systems.
I think that if taxes are set low, companies can earn more profit and at the same time they can hire more people and pay them. But what is important in this case is to ensure tax collection. So that the state benefits. Although many things have changed now. But tax collection is very important. We see here that most of the companies are evading taxes. As a result, the state is being misled.
The thing is that no matter how low corporate tax is, they don't hire more people.
Business is supposed to be a means for the betterment of people’s live but recently the priority of some businesses is profit maximization because of these, the actual focus which should be value and benefit to humanity are less considered, now instead of business being beneficial to humanity its vice versa. I think more focus and investments should be on businesses that improves the lives of people rather than focus on making profit alone.
If we want to make a change in the direction of human improvement, we also have to consume differently as individuals. Stop doing what everyone else is currently doing.
This i definitely one of the flaws of modern capitalism, wealth is generated faster than it is distribute, the biggest issues today are that corporate success is kinda decoupled from societal success. We’ve developed an economy where businesses prosper even when communities fall apart. Your idea of shifting incentives back toward workers and real economic activity is the first step in reversing that dangerous imbalance.
It should be impossible in a healthy system, but happening in the system we have.
What stands out most is your focus on incentives. We often talk about economics as if it’s some natural force, but really it’s a set of choices that push people and companies to behave in certain ways. Right now the incentive is to hoard profit, automate aggressively, and lean into financial products that produce wealth without value. Changing the rules so that it’s more attractive to pay people than to stockpile corporate gains would nudge the whole system back toward real productivity.