I have an idea: #1
Posted by Euroranger on January 25, 2012
So, it’s yet another political season and yet another occasion for all of us Americans to look around and marvel at how absolutely gullible and tolerant we are. Gullible in that some of us actually believe what a politician says when he/she opens their mouth (Hope and Change anyone?) and tolerant in that we haven’t all collectively grabbed torches and pitchforks and marched on Washington with the intent of stringing the useless bastards up by their toes for their sheer collective ineptitude. Well, maybe instead of “tolerant” we could use “lethargic” because I think that kind of defines most folks these days when it comes to politics in this country. We just don’t believe things can be handled anymore by the system we have in place. It’s a nice system, had worked well for quite some time but it’s now been hobbled by the notion that compromise is evil and wrong and that anyone that doesn’t hold fast to every single belief they claim to hold is wishy-washy and should be expelled in favor of another politician whose character is more ideologically “pure”. It’s utter bullshit and it’s why we have a Congress that got nearly nothing done this past session and why we have a president who’s better at making insipid fucking slogans instead of actually being an effective chief executive. And…it’s all our own faults for electing them and then tolerating their collective idiocy while the country slowly sinks into the cesspool of history.
But hey, good news: I have some ideas!
Yes, I have suggestions to solve several problems that plague our once great country and none of them involve mass executions of anyone in government (yet). No, I’ve been sitting quietly by watching with barely detectable interest the GOP nomination contest for the next presidential election and wondering how it was we came to this place. And yet, rather than wonder why we’re interested in Romney’s tax returns or whether Newt wanted to bang someone other than his repellent second wife (she really does seem to be a real shrew though) when we should be interested in identifying the problems in the country and formulating and applying solutions to them, I’ll just go ahead and toss out a few ideas and hope that someday, someone in a position of power and who gives a care about the country to the extent they may actually, oh I don’t know, decide they want to arrest our current downward slide into obscurity notices them and says “hey, not a bad idea”. So, without further ado, let’s get on with it. Life has taught me that in order to get things done you need to identify what things need to get done. That seems simple but really it’s kind of necessary to cut through all the circus crap around politics. We don’t deal with issues anymore. Our politicians use issues as the reason they can hold a press conference and pontificate about how their political opponents are really just Satan in disguise and want nothing more than to ruin this country. They don’t actually solve issues though.
So, to my mind, issue #1 today is: the economy. That seems kind of obvious, right? But, have you heard anyone put forward an idea other than “we need more jobs”? Anything concrete? Yeah, me neither and that’s because the way to fix the economy is rather radical and won’t make anyone happy…but fixed is what it needs to be rather than watch it get worse and worse. So, let’s define what’s wrong with the economy. I believe what’s wrong with the economy is wealth disparity, the tax rate and lack of jobs. Oh sure, there are others but I believe if you solve these three then the others kind of solve themselves. Luckily, I know exactly how to solve all three with but one simple new law. Seriously. I can solve all those in one fell swoop. That one law would be: mandatory profit sharing.
Now, before most of you go “what the hell…profit sharing?…what an idiot” let me explain why this fixes things. Let’s start with the issue of wealth disparity. The real gulf in wealth accumulation between the rich and the not-rich started, not coincidentally around the early to mid 1980s. There’s always been a difference but it was around then that the wealthy really started to rake in huge piles of money and the rest of us were pretty much cruising along at the same rate we always had. I know why this happened. Remember something called “supply side economics”? No? “Trickle down economics”? How about “Reaganomics”? Well, whether you understand it or not, our economy has operated more or less under the tenets of this economic model since around 1982-83 or so (it took time to implement). The idea itself seems pretty straightforward and obvious. Supply side economics featured 4 major components:
- Reduce government control of the economy and let business do what business does (basically, reduce/remove regulations)
- Reduce taxes, namely the capital gains and income taxes (let the people keep more of their money and they’ll invest it in business)
- Use the federal reserve to control inflation (this is done by controlling the money supply via the setting of lending rates to banks)
- Reduce the increase in government spending (spending increases but not as much as it had been doing)
The idea was to take the leash off business and in return the economy would grow, jobs would be created, profits and the GDP would increase, federal revenues would increase right along with them and workers would benefit via better jobs and higher wages. All those happened…except that last one. And despite the cases of apoplexy it’ll cause on the left when I say this: supply side/trickle down/Reaganomics just plain works. This truly isn’t up for debate. However, it can be made to work better (and as intended by it’s namesake).
A look at any data since the mid 1980s bears out the fantastic success of supply side economics. Controls were loosened, tax rates were lowered, inflation was strangled and, for a time, federal budgets were at least under some control. As a result business boomed, millions of new jobs were created, money poured into the stock market and federal revenues actually went up despite rates being reduced. Everyone was winning…except the average American worker. You see, while the businesses everyone was working for were making enormous record profits, those profits weren’t being passed down to the people who helped make them. For the most part, those profits were being routed back into the stock market via corporate investment and dividend payouts but not into higher overall wages. As a result, those who had money in the stock market (the wealthy) made even more money in the stock market and American wages fairly stagnated. Sure, there were 401(k) retirement investment accounts and real estate boomed…and that’s where most of the wealth of all the non-wealthy folk was being realized. Your house became, not just a place to live but a vehicle to contain your wealth. Nobody recalls it now but that concept was rather new in the 1980s and 90s. Anyway, the whole issue is that while the government opened the floodgates at the top of the pipe, nothing more ended up trickling down at the bottom of the pipe than had been before the plan was put into motion. Well, fabulous wealth was generated (that much is obvious) but it didn’t get shared with those at the middle and bottom of the ladder. Mandatory profit sharing fixes that.
I propose a law wherein if a company (any size) realizes an operating profit (after all expenses including wages/benefits) then a portion of that profit gets distributed to the employees in the form of a profit sharing payment. The portion wouldn’t need to be cripplingly large either. By way of example, let’s look at two companies: ExxonMobil and Walmart. In 2010, ExxonMobil made $19.28B in profits and had 83,600 employees. If you took just 1% of that profit (meaning 99% stayed with the company) and equally distributed it to every one of their employees in the form of profit sharing, it comes out to $2306 per employee. Just one frickin’ percent equates to an additional $2306 per employee. Naturally, 2% is twice that and so on. And for ExxonMobil, 2010 was a down year compared to just two years earlier. Yeah, 2010 saw a 57% decrease in profits from 2008. But how about Walmart? In 2010 they had around 2 million employees and enjoyed a profit of $14.33B. Take the same numbers we did for ExxonMobil and Walmart pays out a 1% profit sharing check of just $72. However, of those 2 million employees, the vast majority are part time and some adjustments need to be made to the formula. However, when the Bush tax refunds went out at $300 per taxpayer, it helped to stabilize the economy and inject cash flow into a sluggish market. Using that as a measuring stick, Walmart would need to pay out just 5% of their profits back to their employees or roughly $360 per person…and they still keep 95%.
This idea has a number of attractive features. For one, we’re not using the federal government via the IRS to tax those corporations so that the government can redistribute it via social services. No, in this case, work (having a job) pays off. It’s a direct transaction between the employer and employee. If, for tax purposes, the employer wishes to put that money into better benefits or wages ahead of time, such would reduce their profits somewhat (because benefits and wages are expenses that reduce profits) then this is also good. Further, what will those employees do with their one time checks do you think? What would you do if you got a one time, extra check from your employer for $350? You’d do what most Americans do with it: you’d spend it. That spending generates commerce which makes more jobs, higher profits for companies, sales tax revenues for local governments, increased income tax for the federal government, some of it gets invested into the stock market, etc. Notice what it does though: it places more money (wealth) into the hands of the non-wealthy classes, it stimulates the economy which means more jobs, and it doesn’t complicate the tax code any. It addresses two parts of the three I identified as needing to be fixed to make the economy move again…and it does it all without increasing taxes one bit. In fact, the federal government could probably drop the tax rates across the board by a half or one percent and still maintain and probably increase revenues. Let’s find out.
Say we have a worker making $60K and who has an effective tax rate (what they end up paying on their 1040 each year) of 18%. The government revenue for that person is $10,800. But suppose that worker gets a $1500 profit sharing check and the government has reduced taxes to sell this notion such that the new effective tax rate is 17.5%. Well, the new taxes come out to $10,763 which is a $37 or 3/10 of 1% drop for that one guy. However, that employee has $1537 more in his pocket than he did…and he’ll spend that money. Spending that money creates local taxes and the goods he buys means the company making those goods needs more employees to keep up with demand…which means more jobs…which means more taxpayers. This all worked for Reaganomics/supply side/trickle down economics and it’ll work here. More taxpayers means the government very quickly makes up that lost $37 plus a whole lot more. And the poor employer who had to pay out that 1% profit sharing? Yeah, the demand for their goods goes up along with everyone elses which means they sell more…which means they make more profit.
Essentially, my idea binds the fortunes of the employer and employee closer together and ensures that the employee enjoys some of the benefits of the ever increasing economy and corporate profits. This all seems like a win-win situation right? Surely though, there must be a downside or two…and there is. One downside is that with that much more money in the economy you get inflation. However, the federal reserve now has a reliable formula for combating inflation and that’s the interest they charge banks to borrow from them. Right now, that rate is exactly 0%. That means the reserve lends money to banks for free. However, the economy was on virtual fire throughout the 1980s and 90s and the rate wasn’t astronomical to control inflation. In short, inflation will happen but it can be controlled. Who else suffers though? Maybe Wall Street some. With corporations not having that extra percent or two to put into investments there will be a dip in the amount of money that flows into the stock market. However, that money didn’t just disappear and those employees who have it will want to invest in their own retirements and the stock market is an ideal place to do just that. So, while there might be an initial dip, it should right itself when some of those employees realize they have that extra check each year they can do something responsible with.
Anyway, that’s idea #1. As an aside, I’m usually a fiscal conservative when it comes to politics and yet this is an idea I’m putting forward. I believe that increasing the cash flowing through the economy is the only viable way to get everything moving again. I don’t involve the government in the form of confiscatory taxes (indeed, I suggest those taxes may even be able to be reduced a little) and I retain all the existing features of our economic model. All I am doing is putting the mechanism in place to ensure that the unfulfilled promise of trickle down economics gets realized: that some of the largess from the scheme actually, you know, trickles down. It was a great idea but missed that one important and crucial element. Fix it and the model will kick the economy into gear like it did 30 years ago when it was first enacted.
This is just one idea I have. I have others as well but hey, let’s start with this one. The right should embrace it because it keeps the government out of things (they don’t act as middlemen), it validates the conceptual promise of supply side or Reaganomics and it does something concrete to spur business growth. The left should embrace it because, while my very simple example was that profits were shared equally for every employee, the plan can be tweaked to be indexed against salary. The lowest earners get a higher percentage cut while the higher earners’ cut is lower. Everyone still gets a piece of the pie but it provides room to ensure that those who have less get more and those who have more get less (but still get some). It also directly helps the American worker which is something the left has claimed to champion for some time. Well, this lets them do that. Business should support it because it will mean that the measure falls across them and their competitors equally (so nobody gets disadvantaged competitively by it) and the resulting better economy means more business for them all. The average American should support it because, duh, more money in their pocket.
Oh hell…that was all just compromise, wasn’t it? Well, maybe if we don’t tell them, they’ll still go for it. One can always hope.
My name is Euroranger and I approved this message.