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.
I don't think the mechanics allow for a sense of enough, only for a need for more.
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.
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
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.
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.
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.
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 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.
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.
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.