Instead of soaking the rich, create some riches
Dr. John Psarouthakis, Executive Editor, The Business Thinker, llc(www.BusinessThinker.com)
CV in Linkedin: http://linkd.in/1AF7El7
This article is abstracted from the book
“The Technology Imperative: What Jobs, Jobs, Jobs, Really Means in the 21st Century”. See reference at end of article.
Imagine a social event in which the cocktail hour races off into a sort of rhetorical overdrive. Each conversational cluster splits 50/50 on nearly every topic. Guests circle the room, beverages in hand and politics in mind. Every chat group becomes an ideological scrum. Half the room chants: “Wealthy people rake in an obscene percentage of this country’s personal income! Call in the IRS! Soak ’em!” The other half chants: “Are you crazy? This is America! If you make it, you shouldn’t have to give it up! Otherwise, why bother achieving success?”
That imaginary back-and-forth can be heard in the real world every day, from co-workers sharing lunch to bellowing broadcasters with listeners coast to coast. Interesting as the debate may be, it is irrelevant because it is the wrong debate. What matters most is not how we should define the word “fair.” The meaningful question is: Which share-the-wealth mechanism and what formula will yield the best outcome for all of us, now and as far into the future as the mind’s-eye can see.
The fairness debate does interest me a great deal but it also frustrates me. When a demagogue gets into a strident harangue about “the One Percent” it angers me. Not because I have quite a different idea about what is fair (I do), but because unchecked demagoguery on this subject will, in my opinion, destroy our economy on its way to destroying our society. If my opinion is correct we are in very deep trouble, because demagoguery about “the One Percent” is an extremely popular commodity these days.
Let me share a plan—or rather an idea, the outline of a plan—I believe would leap beyond the fairness debate, a scrum on which neither side will win many converts anytime soon. I think such a plan if set in motion would reinforce—to everyone’s satisfaction—some basic truths about the source of our nation’s wealth. It would do so quickly. It would not be a mere demonstration program. It would create new wealth It would directly address the perceived “One Percent problem” and would be widely viewed as . . . fair. I believe a strong majority of Americans would support this plan. And just one year following the first April 15 after the plan became law, I think public approval would be even stronger.
But that is only my opinion, and this plan exists—so far as I am aware—only on my own workbench. Call it Beta version in progress. Ponder its fundamentals. By all means fill in some blanks (there are many blanks), look for improvements. In a perfect world any national task force on the Technology Imperative (see Chapter Nine) would, among its other chores, assign a committee not to find the best way to “soak the rich,” but let’s say, more productively, “optimize what the rich do to grow the economy on behalf of the entire citizenry.” That seems to me to be infinitely a better idea than “optimizing the amount of money the rich send to Washington, where much of it will wind up in a monetary landfill.” My task here is to lay out this idea/concept/plan compellingly enough that you understand see why I think it would succeed, and you can tinker with it on your own workbench. But before we take my prototype for the most meager test flight, Wright Brothers style, let me show you how and why it took shape as it did.
You might interrupt immediately with a question something like: “It sounds to me like you are about to describe some kind of tax plan, otherwise you would not be talking about the ‘One Percent problem.’ What does that have to do with confronting the Technology Imperative?” That’s not a digression; it’s a very perceptive question. My answer to the tax-plan question is “yes and no.” My answer to the Technology Imperative question is that this plan goes straight to the heart of the demagoguery that deflects attention from the root cause of our 21st Century challenge. So that’s a good place to begin explaining myself.
Every page of this book derives from our country’s unwillingness to face up to one core fact. That is, technology plays such a massive role in job loss that one need look no further to find the cause of sustained, long-term—structural—unemployment. Even globalization, long cast as the villain in our unemployment drama, is a creature of technological progress. Lately the political rhetoric has focused more on wealthy Americans, with the very highest earners being the most popular target. In some cases, the rhetoric reaches so far past “fairness” issues as to suggest the One Percent somehow got wealthy by stealing millions of jobs and pocketing the vanished paychecks. That is a ridiculous way of skirting the Technology Imperative, but the plan outlined here addresses both that phantom complaint and the real reason so many jobs have gone, and will go, missing. In fact, this plan addresses three problems at once:
Misconceptions about income inequality. If a large percentage of Americans believe the affluence of a few has somehow caused hard times in the bottom half of the income scale, it doesn’t matter politically whether that belief is factually accurate. If enough people in a democracy believe the earth is flat, the next flight to London will soon, by voter demand, disappear above the stratosphere and head outward. The perception of guilt, as all crisis managers know, is as powerful as guilt itself. In hard times, a significant number of Americans are going to demand that the affluent write a check. This plan will make that happen. The money will go to work. And, in my opinion, this plan will serve as an enormous and positive teachable moment in how the American economy best serves the entire country.
Actual income inequality. America became the world’s most prosperous nation by creating wealth via free markets. It was an endless rollover of capital that moved an average citizen from a log cabin to, by world standards, the lap of luxury. Except during the worldwide Great Depression, throughout the American Century free-market capitalism created jobs as it created growth. You could not have one without the other. Capitalism is not a thing or a place or a bricks-and-mortar institution. It is a concept, and an irreplaceable one. There is no substitute. The Technology Imperative, however, means the American concept of capitalism is no longer doing a good job of sharing the wealth in both ways it knows how—by creating entrepreneurial opportunity and by creating jobs. We need to steer, adapt, and lubricate American capitalism to meet 21st Century technology realities. We need to do so quickly so the public can see capitalism back on the job. Otherwise, the demagogues will have a clear path for herding us all over a cliff.
The need for economic growth. Even if a vibrant economy were a static and zero-sum game (it isn’t), it would need to grow merely to match population increase. Then, because of the Technology Imperative, it would have to grow more—a lot more—merely to compensate for jobs that are being replaced by new technology and new efficiencies . . . a dynamic magnified by global competition. So the famous “bigger pie” must be super-sized just to produce the same sized slices it is feeding us today. We know from historical experiments in communism and socialism that government cannot simply decree all pie slices to be equal. Some will, as Orwell noted, be more equal than others. Worse, the equal-sized slices will begin shrinking immediately because the private sector, lacking economic freedom and incentive, will not and cannot create statistically significant new wealth. The plan offered here does not remotely claim to be an over-the-counter solution to our “economic growth problem.” I do, however, believe it would accomplish everything the much-maligned One Percent can accomplish in that regard.
We all know that if you confiscated the entire 2011 earnings of the highest earners and sent it to Washington, you would solve almost nothing in Washington. Most of us, I hope, understand furthermore that pulling the One Percent’s wealth away from the capitalist funnel that feeds our economy would be worse than solving nothing; it would be a serious problem. This plan would, on the other hand, goad the very top layer of American wealth to do everything in its power to grow the economic pie.
I first thought of the plan applying to any person or entity with taxable income of $1 million a year or more. That was partly because a million dollars is certainly a nice income—but also because it’s an easy figure with which to work in sorting out numerical concepts. A $1-million cutoff would apply to an army of CEOs and business owners, but also to several battalions of quarterbacks, pitchers, power forwards, rock guitar players, actors, and media performers or executives. Applying the plan to the entire One Percent would cover any household making roughly $506,000 and up. Maybe the plan could be modified and applied effectively to affluent but somewhat lower pay grades. I don’t know. Economists and tax experts and actuaries and mathematicians who are whizzes with algorithms—lots of people need to have a go at fine-tuning and improving what I will call here “Economic Growth Corporations.”
If anyone thinks a different name might help sell the concept, that’s fine. “Economic Growth,” though, is precisely what these entities would be about. You could call them “Foundations” or “Endowments,” but I prefer a word that conveys grassroots economics at work. These Economic Growth Corporations (EGCs) would not be think tanks, or advisory panels, or bureaucracies whose public benefit can be measured only via the most imaginative statistics. EGCs would be chartered to grow the economy in fact, not in theory and not as mere demonstration projects. Each Economic Growth Corporation—scores of them, or why not hundreds?—would respond independently and forcefully to the Technology Imperative. An EGC would be the proactive, hard-working, realistic, productive, private-sector alternative to shouting “Jobs! Jobs! Jobs!” in a crowded room. EGCs would jumpstart our economic engine in ways numerous schemes, from “enterprise zones” to your town’s tax-abated industrial park, have never done. I regard this paragraph not to be overstated or self-aggrandizing for two reasons. First, The Technology Imperative demands that we don’t waste time studying ideas that aspire to accomplish less. Second, I am merely offering a schematic drawing, not detailed blueprints. Poking, prodding, modification, amplification, and improvement are welcomed and expected. Due diligence on all details will be vital.
In the abve book’s chapter Nine’s imaginary national convention—or a specially tasked academic task force, or a bipartisan and presidential commission of private citizens—would have to pull this plan together in great detail, right down to stating the process for obtaining an Economic Growth Corporation charter, qualifications for board membership, and so on. Perhaps Congress could lend staff support to the convention/commission’s work. Or perhaps business and industry and leading foundations (somebody write a grant!) could fund the sessions. Enabling legislation would need to be drafted, approved by 435 members of the House, 100 members of the Senate, and signed by one guy at the White House. They could then turn the ceremonial first shovel of dirt, get out of the way, and watch the results. The idea as it leaves my desk is a private-sector plan. Intensely so. I can’t see it being successful any other way.
A few weeks before this book was published I shared lunch with a very close friend whose ideas tend to land just left of center. This means, essentially, that he possesses more faith in non-essential government endeavors than I do. We discuss conflicting views with the kind of collegial civility that unfortunately has disappeared from most public discourse. I told him about my idea, in which government is involved only to enable the plan and share its rewards. I fielded questions while he did his own poking and prodding. My friend knows that not only do I believe private equity capitalism serves the American economy very well, but that I was a practicing private equity capitalist. After conversational due diligence he pronounced Economic Growth Corporations to be a most interesting idea, and perhaps—after further study—a worthy one. Why? Because, he said, it isn’t “just more private equity capital theory.” I of course would say a major reason EGCs will work is that they aren’t “just another zero-sum government bureaucracy that can spend wealth but can’t create wealth.”
A collegial lunch conversation does not guarantee consensus for a major national initiative. On the other hand, it has been so long since this country achieved consensus on important issues that any hint of a shared vision is encouraging. In government, the once meaningful word “bipartisan” has been replaced by “dead on arrival.” Media consumers surf toward the comfort of their own special interests. Different generations haven’t sat in the same room together, figuratively and generally speaking, since Ed Sullivan went off the air and took puppet acts, the Metropolitan Opera, and the Beatles with him. Maybe a campaign to create and implement an EGC network can pull a strong majority of us, in direct response to the Technology Imperative at least, onto the same page. Some Americans feel as much need to be protected from capitalists as I feel need to be protected from bureaucrats and politicians run amok. Thinking of the EGC plan in the same breath with what Congress and the President did in the case of the Simpson-Bowles commission on national debt only make me feel that need all the more. On this paramount issue, socioeconomic survival in the 21st Century, I believe free markets have everything to do with success. I believe a rejuvenated American capitalism comprises our only way forward. Surely we can somehow steer the birthing of Economic Growth Corporations away from the political morass? I hope so.
Our best ideas usually emanate from both the random insights of experience and the disciplined input of directed thought. Ideas percolate subconsciously until appearing in one’s mind not quite in focus and with some assembly required. Or I should say that’s the way it works for me. All the bases an idea touches in the birthing process can be important to understanding, evaluating, and improving an idea, especially a big idea. I could claim I had an epiphany about “economic growth corporations”—that after living the entrepreneurial life, devoting countless thousands of hours to thinking about “pragmatic economics,” enjoying rewarding relationships with academics and executives on several continents, blogging, writing management textbooks, teaching related university courses, and pondering the Technology Imperative for most of a lifetime . . . I suddenly had this vision. Not likely.
In truth this idea, new as it is (to my knowledge it’s unique), feels more like a plan someone of my background might have been destined to develop in a lively and vital debate about how to solve a well-defined problem. If one understands that new technology is not only the world’s most powerful force for sweeping change but is totally apolitical, and if one understands that government can print money but can’t create wealth, then it’s almost as if sooner or later one will write this book and in the process think of something very similar to Economic Growth Corporations. So before our little test flight, let’s run down a brief checklist. These are stipulations, compelling facts, and informed (and widely held) opinions that no doubt helped generate, both intuitively and logically, my answer to the question: “If government can’t do what’s needed and never could, and if the private sector suddenly isn’t doing it very well, and if the public dialogue has some wild idea that confiscating wealth from the rich will solve the problem . . . then what should we do?” Several items are shorthand for topics already discussed; others are new to our discussion, and are fleshed out a bit:
– The United States has flourished because of its capitalist economy. Free market entrepreneurialism creates new wealth, which is the only way to grow a nation’s economic pie, which is the only way to sustain and share prosperity.
– Technological progress has achieved a critical mass in which the economy can grow and create new wealth without creating enough new jobs.
– This untenable situation has sparked a misguided populism in which Americans whose fortunes are in decline, and politicians who see a floodtide rushing toward the voting booth, seek—in the name of “fairness”—to confiscate wealth and share it.
– That said, we absolutely do have a social (compared with a merely political) need to distribute newly created wealth more broadly—just as American capitalism did through most of the 20th Century.
– For America to prosper, wealth—capital—must constantly move along a productive channel. Money must be invested in new businesses, new product lines, new technology, new services. This is truer than ever, because an ever larger economy is required to keep up with population growth and the Technology Imperative.
– When risk-takers are successful, it creates new wealth for them and—via wages and salaries—for whatever number of new employees technology decrees to be competitive. Those new employees then go out and move that money again as consumers. The risk-takers are also, of course, consumers—and continue investing, thus creating more new wealth. Wealth distribution on the old model has been a wondrous, sustainable thing that makes this country’s wheels go around. For sure, let’s invest some wealth to get the wheels turning again. We must do so. But we cannot confiscate wealth. We cannot simply find the largest bank accounts and order them shared. But neither can we let anyone remove a huge pile of money from the economy and use it as a place to sit.
– Serious attempts to quantify “government waste” (the 1980s Grace Commission, for example) have estimated that as much as one-third of federal revenue disappears into a monetary landfill. Three decades after the Grace Commission a gaggle of federal bureaucrats still managed to spend $823,000 entertaining themselves during a trip to Las Vegas. Do you think confiscating wealth from those who pay $823,000 a year to the IRS will solve any unemployment problems? Do you think the United States, during what could be called “the government era,” has some miles to travel before anyone with that kind of tax liability will be—as the immigrants used to say—“proud to pay his taxes?” How would you like to write an $823,000 check to the IRS and discover you didn’t even buy one spaghetti lunch for an Appalachian eighth-grader, but you did pay to hire a Las Vegas magician to entertain bureaucrats at poolside? Even as we discuss a 21st Century crisis caused by private-sector efficiency, it is inefficiency and dysfunctional management that best characterize government. An astonishing percentage of federal revenue is spent, for example, merely to service our mounting national debt. The big-three entitlement programs teeter on the edge of bankruptcy by any sane accounting principle. The federal government is not a place to send capital for safekeeping, let alone growth; it has become a place where resources shrink and debt grows.
– Entering “U.S. Tax Code” into the Amazon.com books search engine recently yielded 1,254 hits. “U.S. Tax Code” returned 299,000,000 hits on a Google search—nearly one hit for every American man, woman, and child. General Electric earned $14 billion in 2010, paid no federal income tax, but sent the IRS a 57,000-page return (thankfully, an electronic return) that was more than 10,000 pages shorter than the Tax Code itself. The Tax Code in my opinion has done more damage to American business than anything else on a long list of factors requiring damage control. Our tax law does this even as it generates sound bites and headlines—such as “No Tax Bill for GE”—that are red meat for political demagogues. The Tax Code is a nightmare for business even though countless thousands of pages entered the Tax Code because of lobbying on behalf of one industry or another. The Tax Code is a hopelessly unfathomable, inefficient, counter-productive constraint on the American economy no matter who might be responsible for any particular exemption or billion-dollar footnote, many of which exist only to squelch competition. I said it is impossible these days to find consensus on any major issue. I forgot for a moment that Republicans, Democrats, righties, lefties, country bumpkins, city slickers—everyone agrees the Tax Code needs to be chopped, simplified . . . probably ripped up entirely and rewritten.
– If we want to adapt our capitalist economy so it works amid 21st Century realities, and if we are thinking of something toward the kind of entity I have been describing, then it must be something transparent but non-governmental. It needs to be a forceful presence in the economy. It needs to keep capital moving and creating wealth. It needs to be run by people whose education and experience and talents are from and of that process—private sector managers and engineers and successful entrepreneurs who, for example, will exercise fundamental due diligence and not funnel capital toward a Solyndra debacle.
After reading the above checklist of thought-process influences, some readers will believe my idea springs from an anti-government mindset, someone who lacks understanding and vision when it comes to citizens who find themselves unable, despite their best efforts, to earn a living wage. Quite the opposite.
I would laugh at the suggestion that I am an anti-government type if it did not illustrate how far America’s definition of “government” has swung toward statism. Before emigrating to America I lived in a poor neighborhood that had been emptied and then resettled during a forced population exchange involving millions of Greeks and Turks. I lived in that neighborhood when the Nazi paratroopers invaded and occupied Crete. I lived there during the civil war that followed. My childhood, adolescence, studies, and world travels have given me an excellent idea of what instability, and even anarchy, are all about. Anyone who knows these things has profound respect for government’s role in civilized society. America’s constitutional democratic republic is deservedly a model for the world. This doesn’t mean I can’t be an avid proponent of, as they used to say, “good government.” The world’s best political system gives us government that is only as good as current and recent officeholders, voters, bureaucrats, and the forces of inertia might provide. Too much government doesn’t work any better for the majority of citizens than too little government. Good government, in other words, is a work in eternal progress.
Regarding my understanding and vision about the economic plight of ordinary people, anyone who has thought seriously about the Technology Imperative understands that millions of Americans have been rejected by the traditional workplace. Ultimately even the new workplace will need fewer and fewer employees, even tech-qualified employees. Long-term, we will need to reinvent the word “job.” Finding new ways for people to live creative, productive lives with dignity has been, therefore, very much on my mind. But first we need to re-engage a robustly growing economy under circumstances of this moment. That’s where the idea of Economic Growth Corporations enters into the picture—riding aboard, of all vehicles, the United States Tax Code.
It is instructive that almost anything one might say to illustrate the Tax Code’s negative impact on our economy is (a) well-known, and (b) ignored by Congress. For instance, the Great Recession of 2008 made any American who follows the news—even someone who avoids business news whenever possible—aware of two key concepts that impede creation of new wealth inside the United States, which is where we want to see new wealth created. The first concept refers to “money sitting on the sidelines,” meaning money that is not productively in motion—not being invested as capital, not even put in circulation to buy things. (Don’t forget, if some tycoon buys a multi-million-dollar yacht, that purchase means millions of dollars going into the pockets of shipyard employees.) The second concept refers to American corporations holding many billions of dollars in foreign earnings offshore, where all that idle cash does absolutely nothing to create American jobs. Put just these two sources of idle dollars into motion inside the United States and you will have a huge stimulus package involving neither a penny of your tax bill nor an ounce of involvement by the federal bureaucracy. It is more complex than that. Tax attorneys and congressional staffers and the IRS do find things to do with their time.
Idle money, however, is idle. It is no more productive than a road worker leaning on his shovel. Less productive, actually, because the road worker will soon be out spending his paycheck. Money can “go to the sidelines” for lots of reasons, but often enough the reason is tax law (using money to create wealth can be a very punitive activity depending which clause of the Tax Code applies, and when). As for “repatriating capital,” U.S. corporations can be taxed up to 35 percent on foreign earnings they bring home, so companies leave the cash there or invest it there or do a Tax Code waltz in which they spend years bringing the earnings home. (Does General Electric’s 2010 tax return begin to make more sense?)
These images of idle money are murkier than swamp water because of varying tax rates and exemptions and deductions, special levies, etc. I am not a tax attorney and can’t go into detail, for which you should be grateful. That is the very point made in the futile cries of Tax Code critics. “Simplify it! Toss out nonsensical tax breaks! Level the playing field!” Absolutely. Let’s do it. Then let’s see how much capital is in motion, how much is on the sidelines, and how much is sitting on the dock in some other country. Let’s say the situation is much improved (it will be). No matter—Economic Growth Corporations are an idea that will still optimize movement of capital, stimulate business activity in all 50 states, and create wealth. The actuaries and the Congressional Budget Office and the economics professors can all estimate the dollar impact and the job-creation impact far better than I. In fact. I can’t quantify it at all. But it is guaranteed to happen.
Here’s how and why.
Our hypothetical target here is a man named, of course, Taxpayer Jones. He has had a very good year. His taxable income is $1 million. His tax rate is 15 percent. I am pulling that rate from thin air. I lean toward preference for a sort of flat-tax scheme, but that doesn’t matter. Jones’s tax rate could be higher or lower, and could result from a 300-page return under the current Tax Code or a postcard-sized return under some future legislation. What matters is that for purposes of illustration Taxpayer Jones is in a 15 percent bracket, he made a million bucks, and on April 15th he owes $150,000 to the IRS. Here, on the other hand, is what would happen if Economic Growth Corporations were operating across the United States.
Mr. Jones has a choice. He can invest up to half of his $1-million taxable income in Economic Growth Corporation stock. This could be one investment in one EGC or any number of EGCs—one in his hometown, for example, that invests only in regional startup companies. Or one back East that invests there. Or one in Chicago that invests in energy developers from coast to coast. (All EGCs, by the way, would be required to make 100 percent of their investments in enterprises operating on U.S. soil.) Mr. Jones has no specific control over how his money will be invested. He will, like any other American, be able to click online to see who sits on an EGC’s board, what their current portfolio looks like, and view a prospectus outlining their investment philosophy. Other than that, Mr. Jones is buying into, essentially, a blind trust—one that, incidentally, is operated exactly like a world-class private equity fund. That is, in fact, one reason Taxpayer Jones will choose to send his money in that direction. That is the carrot.
The other reason—the substantial stick—kicks in if Taxpayer Jones decides he’d rather not invest half his after-tax (15 percent tax) income in an Economic Growth Corporation, would rather not use the EGC statute to boost the economy, would rather not create new wealth and new jobs this way, would rather not do all the good things that happen when money goes out and gets to work. In that case, the tax rate on half of his income will double, from 15 percent to 30 percent. He can use what’s left to buy a boat, or invest elsewhere, or stick in a mattress . . . whatever he likes. But instead of writing the IRS a $150,000 check on his $1 million, he will write a check for $225,000 . . . 15 percent on the first $500,000 earned, 30 percent on the second $500,000. If he wishes to invest, say, $200,000 in EGC stock, he will pay 15 percent tax on $700,000 income and 30 percent on $300,000, and so on.
The very first thing I need to remind you of is that these tax rates are hypothetical, though the generality—doubling the rate on the second half of income strikes me as about right. The main idea is to make the penalty for non-investment high enough to encourage it, but not so high as to encourage non-activity on Mr. Jones’s part (as in not earning the money in the first place) or hiding income, legally or illegally, as the Tax Code monstrosity and all those tax lawyers currently enable.
Each Economic Growth Corporation would be required to meet stringent yardsticks for board experience and talent and expertise . . . to avoid conflicts of interest in all obvious respects . . . and to maintain the highest standards of board oversight and managerial due diligence. Each EGC’s board would include men and women with a broad range of both financial and managerial background. As individuals and collectively they will know how to assess the present and future worth of an existing company, or a nascent company, or a product, or a process, or an idea. They will invest accordingly, unimpeded by bureaucratic regulations beyond what you see here and the usual statutes governing equity trading. And, of course, the requirement that all investments go to enterprises on U.S. soil.
Like a private equity firm, the EGC would seek out investment opportunities in the form of either start-ups or enhanced operations for existing firms—or the outright purchase of an existing firm that melds well into the EGC portfolio. That portfolio will grow, winning some and losing some, but winning more than losing and in any case operating with Taxpayer Jones’s money—not yours—and putting 100 percent of that money out into the economy rather than into Washington, Inc. Because of their independence, all EGCs will be in efficient competition to find winning startup ideas and productive innovations for existing companies. Putting their investment capital to work in that direction will achieve what we all want them to achieve, just as it says on their shingles—economic growth. A million dollars invested by an EGC—let’s say Midwest Construction Partnerships, EGC—will create jobs. Guaranteed, as I said. That is more than one can say for an endless string of situations where government tried to be a player and instead wound up being played.
An Economic Growth Corporation would have the same beginnings and endings as a private equity firm. The EGC would be chartered, organized, capital raised for a set period of time (often seven years), and the new entity would be put to work creating wealth. When the EGC’s expiration date arrives, it can sell itself to another EGC, can sell stock back to companies it has invested in, or it can go public and move from EGC status to a stock exchange listing under a new name—or simply with that “EGC” dropped from business cards. All those disbursement options produce a cash return. That cash goes back to Taxpayer Jones and his fellow investors. If it is a profitable investment, Mr. Jones has income to be taxed on that year’s IRS return. Let’s give the imaginary Technology Imperative convention’s special committee on EGCs the task of ironing out details of carry-forwards for losses and such.
I could spend many pages just skimming the possible elements and variations of this schematic plan. What if, to cite just one example, we are talking about someone who is really, really, really rich? Or just really rich? Should there be a sliding scale of penalties—an opportunity, in other words, to get a bigger reward for EGC investing (and a bigger penalty for not investing) depending on how much stratospheric income one has available to invest? Should the middle class—if someone in the middle class has done enough financial planning to be able to send half his income away for seven years—be allowed to participate? If so, how will rewards and penalties be structured? Who pays to buy office furniture and turn on the lights as an EGC is being formed? Should there be a clearinghouse helping prospective EGCs (or communities that wish to charter an EGC) choose directors and get started. Endless possibilities, endless necessities.
It is the framework that matters here. It makes sense to me. It would have made a lot of sense 50 years ago. In the face of the Technology Imperative, I believe it makes many times more sense than it did then.
EGCs will work better if the U.S. Tax Code is scrapped and replaced with a simple set of personal and corporate brackets. EGCs will work better if government regulatory bureaucracies do far less to discourage business activity (but that is a topic for a book nearly as thick as the Tax Code). Economic Growth Corporations would work better if our educational system were better prepared for the 21st Century. EGCs would work better if our public infrastructure were not so decrepit, and if the manufacturing infrastructure were 100 percent world-class. A beauty part of this plan is that it will make things happen before, during, and after all these optimizing factors have been achieved. You will believe that to be true if you envision, as I do, an absolute certainty that EGCs will put capital into the marketplace, stir business activity, move money, create wealth. It’s only the quantification that I cannot even guess at. I do also believe that the EGC concept dovetails nicely with desperately needed Tax Code reform, and would have an impact on tax avoidance (not evasion, avoidance).
As important as the risk-takers are, I am not anointing entrepreneurs as the heroes of this or any similar plan. Free-market risk-takers do not charge into a suicide mission. But neither do they, when invited to create new wealth, demand a sure thing. What they require is a risk that will, if successful, produce an appropriate reward. Doing well by doing good is not merely a clever, if clichéd, phrase; it is the American way. The gentlemen farmers who founded this nation did not intend Mt. Vernon or Monticello to be non-profits. When Economic Growth Corporations begin pulling money off the sidelines and into the wealth-creating fray, the personal and corporate risk-takers who send their dollars for investment will deserve credit for being successful business men and women—no more, no less. EGCs will give risk-takers incentive for trying to do well by putting their wealth to work. The hero of the tale will be a rejuvenated free market itself. Priming that pump will generate—along with smart policymaking—enough of a surge, one hopes, to give us time and resources for education reform, infrastructure upgrades, and for planning the heavy lifting that lies ahead as the Technology Imperative exerts more and more influence on society.
Economic Growth Corporations, as outlined here, will beyond any doubt lure capital from top earners. Top earners includes individuals and corporations and single proprietor businesses—any entity filing with the IRS. But just as the experts might wish to extend EGC eligibility down to lower income levels, perhaps non-profits (foundations, principally) and non-individual entities (insurance portfolios, pension funds, trusts) regardless of balance sheets should be penciled into the plan in some way with differing incentives. The idea, after all, is to find capital, wherever it might be holed up, and channel it into a flood of new investment. For those with tax liabilities, all that’s required is to adapt and reduce thousands and thousands of Tax Code pages to a simple two-sentence concept: “If you help keep money moving directly into this great economic engine of ours, we will reward you. If you decide to use or spend that same money in any other way, we will punish you.”
If this plan were to be refined and passed into law, I think it would a good thing to have all 535 lawmakers plus the president and vice-president be present for the first EGC christening. Just a reminder to everyone about where our prosperity comes from.
Reference Book: “The Technology Imperative: what Jobs, Jobs, Jobs Really Means in the 21st Century”, John Psarouthakis, GavdosPress.com, 2012