Wed Feb 28th, 2007 at 06:30:13 AM EST
Labor is labor and capital is capital, and the two shall never meet. Right?
It certainly seems so, with globalization giving rise to ever higher corporate profits while wages in developed countries have been rather stagnant for quite some time (while hundreds of millions of dirt poor people have become just poor and are getting better off as we speak).
Should we fight globalization if we believe it hurts the interest of workers in Western countries? No. On the whole globalization is making the total wealth greater and the standard of living better. But as with all structural changes which we have grappled with before, the question is: how do we adapt and transfer wealth to make sure no one becomes a loser in the brand new world?
And this is where my modest proposal comes in.
From the diaries -- whataboutbob
Corporate profits are becoming larger while wages are stagnating. This is the thing. The balance has been shifting away from labor and towards capital, which means away from the middle class and toward the rich, and in anglo-saxon countries toward the super-rich.
I am not saying my little idea will change this picture, but it is a small step.
So what do we do? Tax corporations higher? No, then they just move away somewhere taxes are lower. Tax wealth higher? No, as the rich and super rich have no problem at all with hiding away their fortunes at the Virgin islands. Shoot Bushco? N... well, on general principle then, but it won't solve this problem.
What we do is lower taxes on capital income.
What is he saying? Is Starvid even more insane than usual? Weren't we supposed to shift the balance back towards labor, not give even more over to capital?
Yes, and no. Higher corporate profits and stagnating wages are actually not the problem. The problem is the distribution of capital, that is, who owns these ever more profitable companies. The trick is changing the ownership of these from the super rich to the middle class, or at least achieving a more equal distribution than the one we have today. After all, what does it matter if corporate profits are higher than ever if those profits go to ordinary people?
But if capital ownership is such a great idea in this era of globalization, why don't more people cut back on consumption to save more and become capitalists? Who knows, but instead of ranting about people wanting useless luxury items like SUV's and plasma TV's I'll argue that most people know nothing about capital ownership having become such a great idea. They aren't being wage earning capitalists because they don't know how good it would be for them.
But if there's a single thing to change people's behaviour, at least in this country, it's lowering taxes. Avoiding taxes is the national sport in Sweden, just look at all the insane saving schemes our banks fool people into just to avoid being taxed, or look at spiking consumption of everything from alcohol to novels when taxes have been lowered.
So, to increase popular capital ownership we lower capital income taxes. No, not across the board. Actually, we raise them a bit (currently standing at 30 % in Sweden), a few percent, to finance a basic capital income discount of, say, 500 euros per year.
These 500 euros would be tax free and they would apply to everyone. If you are Mr. Johan Persson, owner of H&M, and has capital incomes of 300,000,000 million in 2007 you will only pay tax for 299,999,500. While if you are Mr Johan Persson, worker at the Hallstavik paper mill and with a capital income of 1000 you will pay tax on 500 euros, or if you are Mr. Johan Persson, street sweeper with a capital income of 500, you will pay no tax at all.
What is done is actually transforming capital income tax from a flat tax to a progressive tax.
Also, this discount should be accumulated over time and increased at the pace of inflation to avoid unnecessary annual transactions. For example, if there is no capital income for 10 years the tax break will be worth 5000, or actually a bit more as it has been increased at the pace of inflation.
This reform would make capital income a little lower for the super-rich and be a break even at some capital income level depending on the size of the discount and how much the non-discounted capital income tax must be raised to make the reform revenue neutral, but most importantly it would make capital ownership an insanely good idea for ordinary people.
If we choose a 500 euro discount and believe in an annual 4 % return on capital after inflation, all income from the first 12500 of savings would be exempt from tax while income from larger fortunes would be taxed a little higher than before, but due to the fantastic concentration of capital among the rich and super rich, a vast majority of the population, probably including a vast majority of ordinary rich people too, would get better off.
But as this seems such a great idea, Pangloss tells me it would have already been implemented if it hadn't some vital flaw.
So I rely on the skilled readers of the European Tribune to point it out for me.