Why not trade lower corporate taxes for greater profit sharing to stimulate US Economy?

Significantly increasing the minimum wage tends to increase inflation - so I don’t think the people funding the political campaigns are going to allow any real movement there. Same for greater corporate taxation or big increases in capital gains tax.

What would happen if we lowered the corporate tax rate by X% for businesses with more than a certain number of employees in the US, but at the same time required them to distribute ALL of that X% evenly to their employees through a profit sharing plan?

The employees would get an effective raise, and at the same time be motivated to improve profitability for the company. The ones paid the least before the profit share would be less likely to require government assistance. They would also be spending their share, thus stimulating the economy.

Now that I think about it, more people with more money to spend also tends to increase inflation, so we are probably back to square one, unless we can take the influence of the wealthy out of the political process in the US.

I am still interested to hear what others think of this idea, pie in the sky though it may be…

The Trickle Down Theory didn’t work when it was proposed more than 100 years ago. It still doesn’t work.

So, the idea is that instead of the government collecting taxes from companies which the government then distributes as welfare to poor employees, we should cut out the middleman and have the companies distribute that money to the poor employees directly?

I suppose it’s not the worst of ideas, but I don’t think it will bring that much benefit, since the dollar amount is basically the same. Plus, once you’ve distributed those monies to the employees of a 50,000 person company, it may be watered down so much that those employees still qualify for welfare.

It seems the special sauce is the profit sharing encouraging the employees to work harder, thereby causing a positive feedback loop with the company doing better and the employees doing better, but honestly I have had profit sharing plans, and they are so diluted that saying to some janitor “you get to share in 0.0000287% of the company’s profit” is not going to motivate him to clean the floors any better. I think profit sharing really only helps when there are very few employees (and thus each employee causes a larger share of the success) or when it’s done by upper management (where, likewise, they can actually cause success or not of the company as opposed to the effects of minion # 3465 putting in an extra 5 hours a week).

I think other studies have shown the inflationary effects to be minimal, but I will wait for more informed dopers to provide the cites.

MODs feel free to move this to GD if it strays into that territory…

yellowjacketcoder: The profit sharing plans I have seen have been tiered so that the upper level management gets the bulk of the money and the little guy gets essentially nothing. I was proposing that the tax savings be distributed EQUALLY among the employees, (janitor, administrative assistant, etc.)

Duckster: How is this trickle down? If anything it is “Trickle Up” because more money is going to the lower income people & will presumable be spread around the economy. “Trickle Down” as I understand it benefited the “Job Creators” & other wealthy segments of the population who hoarded the benefit and didn’t trickle down anything except a never-ending & completely unironic stream of whining about people who suck at the government teat. Can you clarify what you meant by your response? If I am mistaken in my understanding of the term, please enlighten me… If I am wrong that money in the hands of low paid workers will likely be spent on things they can’t currently afford, or that that increased spending by low wage workers will help the economy, I am open to being educated. That is why I posed the question here.

There are many countries that have a legislated profit sharing with employees. I am not aware of any countries that calculate this amount based upon some sort of reduction corporate tax rates. Typically it’s 10% of profits that is required to be shared with all employees. e.g. Mexico.

The problem with these types of laws is that there are numerous ways to bypass the intent of the law, through corporate structuring, etc.

Omar Little: The cynic in me knows that corporations would just try to find a way around increased equity, but doesn’t it seem that if a business claims lower profitability, wouldn’t the share price suffer?

I’m not naive enough to believe we will ever get any substantial benefits into the hands of low wage workers until the way we fund political campaigns is completely changed. This is just a hypothetical I wanted to explore.

I agree that it is not Trickle Down.

However, I also agree that corporations will figure out a way around the profit sharing fairly quickly if they are large enough. Even if they didn’t, I think there would be ways to compensate the guys at the top without distributing it as profit - say, everything that was profit gets turned into a “bonus” for the C-level execs, oh well, no money left over for the little guy but hey, our taxes went down!

The share price will be fine as long as the company is healthy. The share prices of the movie companies do fine even if by hollywood accounting every movie loses money (that was hyperbole, before anyone jumps down my throat).
I sort of feel that this is just an end-run around opposition to increase the minimum wage, which will get sussed out, and then you’ll have the usual objections to increasing the minimum wage.

I think your initial assumption is wrong, especially since you’re talking about things as they are right now.

But I’d be interested in hearing a description of the mechanism by which the sort of minimum wage hike they’re considering these days (i.e. up to $10/hour) would be inflationary.

So basically, the corporations that go along with this deal pay the Treasury N fewer dollars than before, and distribute it among their employees instead.

I don’t see the point. You’re taking money from the broad array of things the government spends money on, and handing out that money instead to the subset of the population that works for for-profit corporations that are currently paying corporate taxes. Seems like a redistribution without a particular point to it.

No, you’re giving them government assistance, just by a different and more arbitrary route.

No, because you’re taking money away from the government which would be spending it instead. Unless you could get the Republicans to OK an increase in the deficit by the amount of revenue the government would be giving up.

No, too much money chasing too few goods and services creates inflation. In an economy like ours that’s operating WAY below peak efficiency, that’s the last of our worries.

Just for some numbers, this site claims that corporate income taxes account for 11% of the federal budget.

This site claims safety net, not including medicaid, is 12% of the federal outlays.

Those numbers are close enough that I can see the desire of thinking “if all corporations paid their employees a living wage, we could eliminate corporate taxes AND eliminate welfare, win-win”, except that it doesn’t include the safety net spending for the unemployed, whether the unemployed are disabled, children, seniors, or simply out of a job.

Perhaps if the idea was reworked as “Corporate tax break for corporations that provide all employees a certain minimum wage/salary above the legal minimum”, it could be interesting, but I still think that’s just an end run around mandating a higher minimum wage, which I disagree with.


I like your idea better than my own. True, we would still need to have taxes for safety net services etc- not sure how to encourage employers to spread the benefits of increased productivity, etc around.

It just seems that the country is in a crisis in a lot of different ways, and people & organizations that have benefited immensely over the last few decades should be falling over themselves to help create a sustainable economy that will include more of their compatriots, but instead have a mindset of “Well I got mine, sucks to be you.” Guess nobody believes that a rising tide lifts all boats anymore.

As for inflation - I could be wrong, but anyone who has existing wealth will see it eroded to some degree with even a little inflation. They should be able to invest it in growth areas, but the purchasing power of any cash they have laying around will be nibbled at. If we increase minimum wage, basically all the additional money paid out in wages will be spent (unless there are a bunch of minimum wage workers able to put money into investments & savings - if this is the case, please introduce me to them.) This additional spending/consumption will drive up demand and eventually prices. Isn’t that one mechanism of inflation?

BTW everyone, I appreciate your replies, even when they point out things that I hadn’t though through or that I am mistaken about.

Yes, there is an economic theory that increasing the minimum wage will cause inflation, although the usual mechanism is that higher costs to the employer in the form of higher labor costs are passed along to the consumer as higher prices so employers can maintain their profit margins. The first three articles I found discussing this are here, here, and here. I was unable to find a cite showing that minimum wage increases do not actually cause inflation, so I will retract that unless someone comes along with a better cite, although some of the cites above seem to indicate that it’s not as large a factor as other economic drivers.

That last cite, however, claims that an increase in the minimum wage also caused an increase in unemployment. Given the current high unemployment (and even if unemployment were low), I don’t think that’s a trade most marginal workers would be willing to make.

As far as the ‘rising tide’ comment, I don’t think it’s so much “Fuck you, I got mine”, as the fear that being the first company to pay a much higher wage will be at a competitive disadvantage to companies with lower labor costs. Costco is the poster child for this not being a problem (they pay well above minimum wage and are doing just great), but Costco isn’t directly competing with Kroger and Publix and Aldi; they’re more a direct competitor with Sam’s Club. Nevertheless, if Costco is having great success with a higher wage (and good for them, it’s nice to see employers taking care of their employees), you have to ask yourself why other large retailers don’t follow suit.

Depends on how you’re defining “wealth.” Right now a large chunk of our spare cash is going to paying down our mortgage. It may not be the best rate of return we could get, but it beats the basically zero returns on anything safe. Equity is wealth too.

Along with disadvantages already mentioned, OP ignores the strong trend toward part-time, temporary, contracted and out-sourced workers. The rules could be designed to plug some, but not all, of these gaps.

And what problem is being solved that has no more straightforward solution? AFAICT, this “solution” is just a corollary of the theme that “government is the problem.”

So workers become indentured serfs, beholden to the company?
Sounds like a plan.

The corporations would use accounting tricks to make it seem like they aren’t making a profit. Movie studios do it all the time to avoid distributing profits. On paper, no movie makes a profit. If such a law was passed, no company would post a profit.

What about trading corporate taxes for taxing capital gains as income? Eliminating corporate taxes would (I assume) make it a bit easier for businesses to stay in the US and hire more workers. Taxing capital gains as income would bring in a higher share from the super wealthy. A possible side benefit is removing one of the reasons for the corporation-is-a-(sorta’)-human ruling.

I’m sure there are downsides to consider. One that I can think of is that currently corporations do not pay taxes on money that is used for salary/wages (right?). Removing corporate taxes could remove a slight incentive to raise wages to avoid those taxes.