US Capitalism Is In Trouble, Part 7 of 7 – Solution 2 – Capped Capitalism

From the above discussion, it is hopefully clear that a large part of the problem with US capitalism is that we allow wealth, scope, and power, for both individuals and business entities, to become unduly concentrated, and that the concentration benefits the few to the detriment of the many.  In order to correct this, we need change.  We have already mentioned that systems other than capitalism have been tried and have not worked very well.  So, a wholesale replacement of our economic system is probably not a good idea.  We have also noted that antitrust efforts in our current system have not been very successful either.  So, dependence on those efforts is ill-advised.  We need something more comprehensive and more effective. 

The bottom line is that we need to prevent individuals and businesses from becoming big enough that they have undue economic and political influence, can smother competition, can continually demand and receive bailouts from taxpayers, and become productive enough that there aren’t enough jobs for everyone who needs one. 

To this end, we propose what we call Capped Capitalism.  As the name implies, this would put caps on the incomes of individuals and business entities – caps that are high enough so as not to stifle incentive or innovation, but low enough to prevent the unhealthy concentrations that we have been talking about.  We give the highlights of how this would work in the following.  We apologize that this is given a bit legalistically.  We’ve bolded the important points. 

A few notes going in:

• All the dollar figures in the following are for discussion purposes only and will need to be determined more rigorously as the approach is adopted. 
• Once set, the dollar figures shall be adjusted yearly for inflation (or deflation). 
• The following refers to federal income taxes only and makes no recommendations regarding state, local, sales, real estate, or any other form of taxation. 
• This would all be phased in over 10 years. 

Individual taxes:

• Every individual shall be taxed at a rate of 100% for all annual income greater than one million dollars ($1M) (henceforth called the Excessive Income Limit (EIL)), except as immediately follows:
  • Acknowledging that some people make much of their money in a short time (athletes and artists, for example), a savings account may be set up that any income greater than the EIL per year can be deposited into up to a total amount in the account at any time of 100 times the EIL ($100M), tax free.  Any and all money withdrawn from that account in a given year will be considered income for that year and will be subject to the annual EIL, along with any and all other income received that year, and will be taxed as such. 
• Every individual shall be taxed at a flat rate for all annual income less than or equal to the EIL.  The flat rate shall be calculated annually and, when applied to all taxpayers, will provide the federal government with sufficient income to run through the year deficit-free.  There shall be absolutely no exceptions to this flat rate.
  • The choice of a flat rate system acknowledges the apparent ease with which the wealthy can manipulate what was intended to be a progressive system into a regressive one and the apparent ease with which other tax incentives intended for the public good can be diverted to benefit the wealthy. It further acknowledges that the government should have no right to incentivize or de-incentivize decisions that we as individuals should be free to make (whether to buy a house and whether to get married and to whom being two relevant examples). 
• Income shall include anything and everything of value that a person receives, including but not limited to salary, benefits, interest, dividends, stocks, bonds, short-term gains, long-term gains, real estate, inheritances, gambling winnings, services of any kind (except as immediately follows), and any and all gifts (except as immediately follows):
  • In-kindness services shall be permitted tax free.  In-kindness services are services in which no money or goods are exchanged, that are provided as a kindness to someone else, and for which no return service is expected.  It might include one neighbor raking another neighbor’s yard, for example.  It would not include, for example, a stock broker making free trades for her accountant in exchange for free tax preparation. 
  • Mostly as a practical matter, anyone shall be able to receive gifts that total no more than $10,000 per year tax free.  Any and all gifts over $1,000 would need to be itemized. 
• Loans must be given and taken with terms not to exceed 50 years and with a reasonably linear payback schedule.  Any loan amount not paid back as per the payback schedule shall be considered income, shall be subject to the annual EIL, and shall be taxed along with any and all other income.
• There shall be no other exceptions to the above, ever. 

Business taxes:

• Every business – public or private, for-profit or nonprofit, sole proprietorship or corporation, or any other form of business – shall be taxed at 100% for all annual income greater than one billion dollars ($1B) or $1M times the number of its full-time equivalent employees, whichever is less (henceforth called the Business Excessive Income Limit (BEIL)), except as immediately follows:
  • Acknowledging that businesses may have some good years and some not so good years, a savings account may be set up that any income greater than the BEIL per year can be deposited into up to a total of 10 times the BEIL, tax free.  Any and all money withdrawn from that account in a given year will be considered income for that year and will be subject to the annual BEIL along with any and all other income received that year, and will be taxed as such. 
• Besides the BEIL, there shall be no other business income taxes. 
• For the purposes of the BEIL, income shall include everything in the business’s top line (all gross revenue). 
• The BEIL shall apply to any business conducted within the United States regardless of whether the business is headquartered domestically or internationally or in any combination. The BEIL shall be applied converted to US dollars regardless of the currency with which the business was conducted, including but not limited to all sovereign currencies, cybercurrency, sweat, and bologna slices.  If a business refuses to comply with the BEIL, then that business shall not be permitted to conduct any business with or within the United States. 
• If an individual plays any leadership role in more than 1 business – full-time or part-time, paid or unpaid, directly or indirectly, formally or informally – any and all of those 2 or more businesses shall be considered 1 for the purposes of the BEIL and corresponding taxation. 
• Loans (including bonds) must be given and taken with terms not to exceed 50 years and with a reasonably linear payback schedule.  Any loan amount not paid back as per the payback schedule shall be considered income, shall be subject to the annual BEIL, and shall be taxed along with any and all other income. 

Other stipulations necessary to meet the goals of Capped Capitalism:

• Corporations shall not have the rights of individuals, may not contribute to political campaigns or influence campaigns in any way, may not fund political lobbyists, and are not directly protected by the United States Constitution and its amendments, except as may be explicitly indicated in that document.  As a business entity, however, a corporation may hold money, other capital, and real estate, all of which can be paid out as required by a successful lawsuit as described directly following.  
• Individuals involved in a corporation shall not be shielded by the corporation from responsibility for illegal, negligent, and/or unethical behavior.  Acting in a legal, responsible, and ethical manner shall be required of all involved with a corporation, and should that requirement be violated, reparations (financial, civil, criminal, punitive, or otherwise) shall be made by and from those individuals directly responsible for the violations first and, if necessary to complete the reparation, from the corporation itself second.  If the responsible individuals cannot be identified, then the reparation shall be made by all involved with the corporation first – prorated with respect to their level of involvement (that is, their level of active ownership of and/or compensation by the corporation) during the time period that the violation occurred – and from the corporation itself second. 
• On the other hand, should the corporation be found to be in the right, and the lawsuit deemed frivolous by the court, those bringing the lawsuit, including their legal representation, shall always pay all court costs to the court plus triple all of the corporation’s expenses incurred in its legal defense to the corporation.  
• Patents shall be issuable for a maximum of 10 years, with no renewals.  Further:
  • The actual duration of a patent shall be a function of the time and resources spent developing the subject of the patent by the entity seeking the patent.  Minimal time/resources spent shall mean short or no duration.  Significant time/resources spent shall mean longer duration, up to the 10-year maximum. 
  • Small adjustments to existing designs (a small adjustment to the design of a drug, for example) shall not be sufficient for the issuance of a new patent. 
  • Concepts shall be provisionally patentable for 3 years, while the concept is reduced to practice. 

Problems that we expect people to bring up, with preliminary responses:

• The EIL and BEIL will drive wealthy people and companies out of the US.  Response: We will implement an immediate wealth tax for any money made while a resident of the US, regardless of where in the world the money is currently parked, equal to the EIL for individuals and the BEIL for businesses.  And, of course, we will wish them well. 
• Limiting the size of US companies, and, thereby, their potential economy of scale, will put the US at a disadvantage in international trade.  Response: First, invite other countries to join us; then, only if absolutely necessary, impose field-leveling tariffs with an explanation as to why. 
• Limiting the size of US companies, and, thereby, their economy of scale, will have a detrimental impact on economic efficiency, labor productivity, and economic growth.  Response: We have already argued that all three of these need to come down.  In fact, that’s part of the intended consequence of Capped Capitalism. 
• Limiting the size of the technology powerhouses will stifle innovation.  Response: This is not true; in fact, the opposite is true.  A broader base of innovators will mean more innovation. 
• This will crush the incentive to excel.  Response: A million dollars a year and a hundred million dollars in the bank is adequate incentive.  In fact, the increased possibility of getting there, resulting from a leveler, more competitive playing field, will increase the incentive to excel. 

As we close, we should make a few final notes:

• The 100% taxation over the Excessive Income Limits would not be intended to be a revenue generator for the government.  Given how much we know everyone hates paying taxes, we would expect everyone to legally avoid exceeding the limits. 
• There is some partial precedent for this, in the form of highest marginal tax rates of over 90% for several years in the 1940s, 1950s, and 1960s (although those were still intended to be part of the revenue-generating tax structure during those years). 
• We would not expect this to be permanent but, rather, interim as we progress toward the more mature, just, and equitable capitalism mentioned above. 
• No matter how you slice it, though, we still need more integrity, fairness, and tangible expressions of caring for the public good in our economic system, starting today.  Come Election Day, let’s get out there and vote for those who will get us there.