Hiring workers for relatively low pay is not imposing costs on society it is benefiting society.
If these mail room workers could get better paying jobs they would. So the fact that they have these jobs means they are in the best jobs available to them at their work experience and education level. If these jobs were not available they would be unemployed and thus be dependent on others.
The results of such a plan as was proposed would mean that there would be fewer entry level jobs and more unemployment.
Also I beleive that Ben and Jerry’s ice cream once had a rule along the lines that the highest payed employee could not make more that 7 times what the lowest employee did, but it was abandoned after they found that they were unable to hire qualified executives to run the company.
Rhythmdvl said,
[quote]
So again, at what point does the owner of the company cross the ethical line you have drawn in the sand? Day one, where it is just the owner? Day two? Three? Is it unethical to make a profit off of a single employee? Ten employees? If your profit margin stays the same and you have a thousand employees, have you then crossed the line?
[quote]
There is no ethical line. There is a practical line, namely, a 101:1 ratio, wherein all profits will be remitted to the government. Note: if the company is losing money, then the ratio is immaterial.
The system outlined above merely provides an incentive to create a more level scheme. In all likelihood, the shareholders will not make any money if they pay the CEO the same salary as the janitor because no CEO (or in your example, dedicated businessman) would stand for that. Therefore, the shareholders (or businessman, in the case of a sole proprietorship) must decide how the most profit could be retained.
Since you like hypotheticals: lets say there was $5M in profits from a company that had 30 employees making $20k, 10 making 30k, 3 making 50k, 1 making 100k, and 1 making 500k. The ratio is 25:1. Therefore, the shareholders could only retain 76% of the $5M of profits, or $3.8M. Notice that this is probably about the same retention as what current income tax laws allow. Now, it would be in the company’s best interest to have an accountant figure out how to retain more money. I’m not an accountant, but by playing with the numbers a bit, if the company gives a year-end bonus of $5k to all 45 employee (sure, they could just give it to the lowest paid employees, but the other employees would probably through a fit), then the ratio would drop to 20.2:1, which means that by distributing $225k to the workers, the total profit would be 80.8% x ($5M - $225k) = $3.86M. The company would make an extra 60K by giving bonuses of $225k to their workers!
Once again, there is no “injustice being done” by having an income disparity between employees. There is no ethical line that has been crossed by having the CEO make 25 times what the lowest paid employees make. My proposal merely modifies the current tax laws to give corporations an incentive to take income disparity into account when figuring out their taxes. Frankly, I don’t see why this is meeting so much resistance from the teeming masses.
There are only two things certain in life: death and taxes.
I have not expressly stated this assumption, but maybe I should. Since a government MUST tax its citizens to survive, the question becomes what taxes should it impose. The constitution only allows the federal government to tax income.
In the past, there was something called the “marriage penalty” (I believe current legislation did away with it). The “penalty” occured because a family was considered a single income-producing unit. Two people making $50k each would be taxed the same as someone paying $100k. Since someone who pays $100k pays MORE than double the taxes as someone who makes $50k, a working couple would suddenly pay a “penalty” once they got married. In the past this didn’t bother anyone because single income families were encouraged so someone would be home with the children. In todays social climate, children are no longer assumed and two incomes have become more necessary.
I mention this tangent to point out that ALL taxes have social consequences to them. My proposal encourages certain behavior. The “penalty” that will be imposed on companies does not prohibit them from instituting whatever income discrepancies they feel is appropriate. I believe the behavior that is being encouraged is beneficial to society.
Occasionally guilty of being purposefully obtuse so posters will indentify their fundamental arguments and beliefs.
Smartass,
I’m not even going to touch your comment. If you want to figure out an investment structure that forces the top guys to have more accountability and solves the current problems with short-term vision and institutional investors, then be my guest. After this warm reception for my tax scheme, I’m probably going to stay out of the legislation-suggestions biz.
Picmr said,
“When you speak of the government’s goal, I take it you are speaking of the goal the government should have”
It makes me too depressed when I think of the government’s real goals. The government has no real goals, and the government’s decisionmakers care about nothing but thier own self-interest. <sigh>.
As to your other points–I agree that those are certainly issues that need to be addressed, but I don’t understand how they relate to my proposed incentive. I’m not being coy here, I’m not an economist and don’t see the connection between top executives cashing in on short term windfalls and an incentive to flatten pay disparities.
lemartel said,
“If these mail room workers could get better paying jobs they would.”
Does that mean it is ethical to exploit them? Just because the market has determined that someone will take a job at minimum wage doesn’t make it right. Yes, somewhere in the world there is a 12 year old child that will assemble Reebok sneakers for pennies a day in inhuman conditions. Reebok says that if they paid these children a living wage, then Nike would take over their market share. Maybe, just maybe, that assertion should be challenged, and we should look at profits to determine whether they can afford more than just pennies. [Note: I am merely making a point here, I am reserving judgement as to whether the plan should apply to foreign workers]
lemartel also said,
“The results of such a plan as was proposed would mean that there would be fewer entry level jobs and more unemployment.”
I don’t see it. Why? No jobs are being destroyed. The country still needs janitors. In this system, some janitors would just make more than other janitors.
While I’m talking about the effect on the economy, (remember, I’m not an economist) I would assume this would do only good things. In the example a couple of posts above, 45 people get an extra $5k/year. For the lowest paid workers, that represents an increase of 25% of their salaries. Furthermore, there will be less of an incentive for the lowest paid workers to unionize, since they know they will get a bonus whenever the company can “afford” it.
That sounds exagerated to me.
Seeing as how society already has these costs, why do you blame corporations? That’s like saying that auto companies externalize the cost of building roads.
So in other words, the highest paid employee has a marginal tax rate of x/100y, where x is the amount of profit the company makes, and y is the amount of money of the lowest salary? How about we just order anyone with a net worth of larger than $1 million to give all their mone to the government?
Something else to think about: if I’m a musician that makes $1,000,000 a year, I pay normal income tax. If I use $25,000 of that $1,000,000 to hire someone to help me record music, I now have to pay a 40% tax on top of what I already pay. Does this makes sense?
Depends on what you mean by “work”. If you mean “reduce this ratio”, yes it will. If you mean “actually do anything about any of society’s problems”, then no.
No.
People seem to have trouble thinking of money as something that does not have a static overall value. If I make more money, it doesn’t mean that the rest of the world is deprived of that money.
To determine the costs to society of paying some people vastly more than others as compared to the costs to society of redistributing that income you have to take into account what the money will accomplish in each situation. The rich CEO does not stash all his money in small unmarked bills under his mattress. Generally, he invests it. As this person is an experienced businessman, he will likely be able to invest his money in a profitable enterprise that will provide jobs and money for more people.
I remain unconvinced of any benefits that may be had by placing restrictions on the ability of people to get together and trade by means of mutually agreeing to the values that are being traded.
Morgan, this is a bad idea all around and any way you look at it. It is just not viable. Tax laws do try to redistribute wealth by taxing higher incomes at higher rates but that is done already taking the entire country as a whole.
People who manage companies and make money are not entirely stupid (as many in this board might think). Many tax laws already distort the economy too much, to the point where the economic activity is not profitable per se but rather, the real benefit, is taking advantage of the tax shelter. In general this is not a good thing.
Imagine a high tech company that has a few engineers and no low paying jobs. Now they think they need a janitor. Will they hire one? no way because it would increase their own taxes. So they will find a way around it. Maybe subcontract the job… maybe just do without… whatever.
The point is that you want the people to be doing things that are competitive and productive and useful in themselves rather than to be figuring out ways to get around all the hurdles that have been thrown in their way.
Trying to legislate things often has the opposite effect than was intended. I think it was 10 or 12 years back that American legislators had the brilliant idea of screwing the rich (so what else is new?) by enacting a big luxury tax on certain luxury items. One of them was boats. The argument is simple: a boat is a luxury nobody really needs and be ready to pay through the nose. In effect what happened was that people stopped buying boats altogether and it was a disaster for the boat building industry. Many builders went out of business and many more people lost their jobs. Who can be so naive to think if you tax an item heavily it will continue to sell at the same rate? Well, it seems many people in Washington thought so. Of course, the “rich” who were supposed to be the screwees here, did not cooperate. They found they had a certain thing against just giving money to the government so they found ways around this. After all you can live without a new boat. You can charter abroad and avoid paying the tax etc… there are many ways around it and it is just too simple minded to think you can resolve a complex problem with a simple tax.
The luxury tax was soon repealed but the damage was done and the industry has still not quite recovered. Of course, those brilliant minds in Washington never cease to plot their brilliant schemes so they thought “maybe people can avoid buying boats but if they have one they cannot avoid buying fuel for it” so they enacted a tax on fuel for recreational boats. Simple thing huh? Write a couple pages and it’s done!
Well, it became a nightmare because now the marinas had to install two pumps and tanks where they only had one: One for the tinted fuel, one for the clear fuel. Since many couldn’t afford the cost, they had to decide what fuel to sell, taxed or untaxed? So now you have people having to go way out of their way to buy the fuel they need. Fishermen who have to buy taxed fuel because that is all that is available and pleasure boaters who have to go miles out of their way (by boat or by car) to get the taxed fuel they need. There was talk of repealing this tax, and it may have been repealed already.
In any case, I am quite sure the taxes that were collected from these schemes were far less than the cost of implementing the whole thing and collecting them… not to mention the social costs. But I am sure those guys In Washington continue to produce brilliant ideas…
A tax like you propose would probably have negligible effects on low wages and, instead, put some more money into the pockets of the tax consultants and managers who devised ways to get around it.
Apparently, nobody has persuaded anyone of anything. I proposed a tax plan that, in my opinion, would correct some market failures and benefit society in several ways. An incentive for successful businesses to distribute a tiny portion of the wealth. A means of rewarding workers who were a part of the success, even if the free market concluded that such rewards were unnecessary.
The majority of posters think a small tax on profit will destroy capitalism. Its like saying a progressive tax will destroy the incentive to earn more. As long as income tax does not go over 100%, there is always an incentive to earn more. Likewise, in the proposed scheme, a corporate structure with a 100:1 ratio can still make a profit. I admit, the 101:1 cutoff is rather arbitrary, but we never even got to that point. Most people apparently have a problem with the basic concept. The rest of the posters understand this distinction, but have a problem with the underlying theory. Unfortunately, I have (apparently) been unable to identify thier objections.
Well, to be polite, I’ll respond to the posters. Maybe someone with greater abilities than I can save this thread.
The Ryan said,
“That’s like saying that auto companies externalize the cost of building roads.”
Exactly correct. A city dweller who relies exclusively on subways still has to contribute the same as a salesman whose car is his office. Of course, both receive benefits from the roads (e.g., the food that was shipped to the local grocery store via the highways), but car owners receive additional benefts over non-car owners.
The Ryan also said,
“So in other words, the highest paid employee has a marginal tax rate of x/100y, where x is the amount of profit the company makes, and y is the amount of money of the lowest salary?”
No. The described system has to do with corporate profits. The highest paid employee would be taxed under a different structure.
waterj2’s post was basically a re-hash of the trickle down theory. According to this article, supply-side economics is a universally rejected idea.
Sailor’s post basically said that enforcement problems with past laws should prevent all future legislation. I disagree. Specifically, Sailor said:
“Imagine a high tech company that has a few engineers and no low paying jobs. Now they think they need a janitor. Will they hire one? no way because it would increase their own taxes.”
So the engineers make, say from $100k - 50k. Lets say the president has a salary of $150k. 3% of corporate profits would be taxed w/o janitors. So, the company will go without janitors because it will increase their tax burden by 1-2%? I don’t think so. And if their profits are so high that 1-2% represents millions of dollars, then they should run a spread-sheet and figure out how much extra the will have to pay their workers to save the money. BTW, you mentioned hiring the janitors as subcontractors, which was mentioned in the OP.
I was just lurking here because of my limited knowledge of economics. I think that your proposal has merit. To me it seems that your proposal would work as you intend it to. I notice that your opponents have not explained why your idea would be bad for society.
I hope that you keep plugging away. It makes interesting reading.
The simple and effective answer to equality would be to simple consfiscate ALL the wealth, and redistribute it evenly. If, at the end of the year some have more than others, reconfiscate and redistribute. Of course, in the real world, progress would stop altogether and the economy would fail utterly. Tax law should not be enacted for the purpose of social engineering-although it is. Tax law should be solely for the purpose of raising revenues for public services-that will not happen in our lifetime.
What we need is tax simplification, not increasing complexity.
That’s a straw man.
Not much.
So it would make sense to charge car owner a tax to support roads. It would not make sense to charge car companies. Actually, though, my anology isn’t very good, because without cars, there be less demand for roads. But without companies paying minimum wage, there’d be more demand for governmental programs, not less, and that was my central point. If a company hires someone for mimimum wage, the company is helping, not hurting, society. Why should it then be penalized?
Okay, I worded it badly. A tax of x/100y will be charged on the highest payed employee’s marginal income. However, the company, not the employee, will pay it.
According to that link, waterj’s post was not based upon supply-side economics.
The Ryan, your sig line has a Kurt Vonnegut quote, so you can’t be all bad.
I must, however, disagree with the substance of your post.
You said that my characterization of the posters was a straw man. I have just one word for you.
AAAAAAAHHHHHHHHH.
Okay, I feel better now. For those who don’t know, a straw man is attacking an argument that is different from, and usually weaker than, the opposition’s best argument. Okay, I’ll accept that, ESPECIALLY SINCE I SAID:
“The rest of the posters understand this distinction, but have a problem with the underlying theory. Unfortunately, I have (apparently) been unable to identify their objections.”
Thank you for agreeing with me. You could have been helpful and actually identify your objection, but instead you merely said “straw man” and moved on. I actually shouldn’t complain. It was the only marginally correct point in the entire post.
On to your other points:
(1) “Not much.” Interesting reply. Do you have any proof to back up your assertion? Can you identify someone who turned down a higher paying job solely because they had to pay a higher tax rate? “Gee, Mr. Jones, thanks for offering me that $10k, raise, but I have to decline. Currently I take home $43k of my $50k/year job, and I don’t want to be in a position where I’m taking home $50k of a $60k/year job, because then I’d be paying the government a higher tax rate.”
(2) “So it would make sense to charge car owner a tax to support roads. It would not make sense to charge car companies.” There is no difference. Both systems increase the cost of car ownership.
(3) “But without companies paying minimum wage, there’d be more demand for governmental programs, not less, and that was my central point.” I get it. You believe that by paying unskilled workers more than minimum wage, there will be less need for unskilled workers. Interesting assertion, but totally unsupported. You were against raising minimum wage, weren’t you?
(4) “A tax of x/100y will be charged on the highest paid employee’s marginal income.” Nope. You still don’t get it.
(5) “According to that link, waterj’s post was not based upon supply-side economics.”
The very first paragraph from the link said
The article then goes on to say that the concept is complete quackery. How is the above quote different than the underlying theory of waterj’s post?
The reason that this proposal would cause unemployment is simple, if you raise the price of something, in this case unskilled labor, there will be leass demand for it. Companies will not hire as much resulting in uneployment.
Janitors will be better paid but there will be fewer of them, resulting in higher unemployment and dirtier offices.
As to the fact that there are 12 years old in Thailand willing to put sneakers together for 12 cents an hour, that is true, but why do they do that. But think of the alternative, if they had western wages then the companies would not locate there and those people would have no jobs at all.
Under the proposed plan, what would happen is entry level jobs would be fewer, causing unemployment, or talented management would be harder to find, causing some companies to fail and people to lose their jobs. The most likely scenario however is that companies would find other ways to compensate their executives other than salaries.
On the side note of taxes for roads, I would think that the best way to assign the tax to the user would be to tax fuel. In Morgan’s example, the salesman whose car is his office would pay the same as someone who owned a vehicle but rarely drove it.
Sneevil:
You stated:
I have heard this before but do not understand the reasoning. Care to enlighten me?
Sure. A Google search for “tax credits” or “tax subsidies” or “tax penalties”, for example, will bring up a plethora of mechanations devised by Congress and compounded in complexity by the IRS through ‘enabling regulations’ that have nothing to do with raising revenue for the Federal government-the alleged original purpose of the 16th Amendment. Adjustments are made from time to time by the party in power to either punish or reward their enemies/constituents.
The power to control the minutae of peoples lives is enormous; the main reason a ‘flat tax’ or ‘national sales tax’ will never happen, althought either of these would be much more efficient revenue raisers.
I’m not even going to comment on all the silly statements made before I got here except to say to many people get their economic educations from rush limbaugh.
Morgan,
Your ideas are sound, but I think you’re trying to reinvent the wheel. We (the USA) already have a minimum wage law, if the minimum wage is to low then all we need to to is raise it. CEO salaries could be limited by law to x times the lowest paid employee. It works in Japan so it would work here.
Whatever you’re brewing in that beaker it’s obviously screwed up your brain. This is not Japan. This is (or was) the United States of America, the most prosperous long lived republic in the history of the world. We have a very unique culture here, and we’re not about to model ourselves after some asian wannabees.
I think you may be happier somewhere else. How about Over here
Glad you like it.
You said that people were saying that a small tax increase would destroy capitalism. I haven’t seen any such claim. I would think that this would be clear from the term “straw man”.
What do mean, “prove my assertion”? I think that it is self-evident that anyone who is able to take home only 1% of his income isn’t going to be very motivated to go to work. What’s next? Are you going to ask me for proof that the sky is blue?
First of all, I never said that anyone would turn down a raise, only that with a tax rate of 99% there wouldn’t be much incentive to try to get one. Secondly, there is quite a difference between a 30% and a 99% tax rate.
quite “So it would make sense to charge car owner a tax to support roads. It would not make sense to charge car companies.” There is no difference. Both systems increase the cost of car ownership.
[/quote]
But a car company tax would be much less flexible.
Not less need. Less demand. But what does this have to do with the quote you provided?
Mind actually giving a meaningful response to my post? Let’s suppose a company has a profit of x, pays its lowest paid worker y, and pays its highest paid worker z. How much tax is owed? Well, the ratio is z/y. So the tax rate would be [(z/y)-1]%, or (z-y)/100y. This tax rate will be applied to the corporate profit, so the tax owed will be [(z-y)/100y]x, or x(z-y)/100y. The term “marginal tax rate” basically means “total tax paid in highest bracket divided by income in highest bracket”. Since the amount in this bracket is z-y (there is no extra tax until z exceeds y), the marginal tax rate is x/100y. If you have an objection to this argument, then say so. Just saying I’m wrong isn’t convincing.
(Emphasis mine) Did you see the word “tax” ever mentioned in waterj’s post?
I am not looking to hijack the thread to debate this issue, I really do not understand the objection to applying social science to the tax system. I was hoping for a concise objection to this practice.
Also, since no culture is exactly the same as any other all are unique. Are you saying that ours is MORE unique than any other? If so, how are you measuring this?
About your characterization of Nippon as an “asian wannabe”; I assume that this is an opinion. I wonder how informed it is. Have you studied this society?
I notice that you are not happy here in the USA ( yes, we have not changed the name ). Are you planning on leaving anytime soon?
You may assume that my questions are rhetorical if you wish.
The point is that this is Great Debates. Broad assertions are likely to be challenged.
Despite the disagreement in my post I would like to say, “Welcome aBoard!” And thanks for the Google Search tip. I was unaware of this resourse.
The objection to tinkering with the tax code for the purpose of causing people to do or not do certain things goes to the ‘individual/states rights vs. strong central bureaucracy’ argument. If a representative legislative body, be it Federal, state, or local, wishes to pass a law to control behavior, it should do so directly, rather than usurp and expand an existing power for a different purpose.
The practice is simply dishonest, IMO. A more egregious and aggressive form of this kind of ‘government overreaching’ can be found in the recent trend of ‘legislation by lawsuit’-against tobacco companies and firearms manufacturers. If, for example, tobacco is so terribly evil, why not just outlaw it? It is hypocritical for the Federal government to subsidize tobacco growers through one department, and try to put them out of business through another.
I’d better quit before I get into a rant. Apologies to Morgan for the hijack. My objection is to the premise and purpose of his plan.