Here’s the prescription:
- Progressive corporate tax to punish monopolies and foster small business formation.
- Value-added tax to soften the transition to automation of work.
What follows motivates the prescription.
As a Christian, it is hard for me to focus on money. It’s not that I don’t understand economic and financial theory, it’s just that money isn’t important to the ends that I pursue. I seek, through this blog and other work, to heal the confusion that poisons our relationship with the Most High. That’s a difficult problem, demanding the fullest commitment of my energies.
As I told my sons in their formative years: “Money is a way of storing power. For those that commit all of their power to solving difficult problems, there is nothing left to store.”
Jesus warned us that “You cannot serve two masters…No man can love both God and money.” Therefore, in seeking to transform our relationship with the Most High, we do need to understand money, because it is a principle source of resistance to the rule of love. People that desire money desire it because the are selfish, and as I have explained out at Love Returns, selfishness is the opposite of love.
We have two looming disasters in our economy. The first is the destruction of the middle class by the richest members of our society, people such as Rupert Murdock and Peter Thiel that have no compunction about using their wealth to fund propaganda machines that demonize government. The second is the loss of blue-collar jobs, accessible to those with high-school diplomas, to automation.
The exploitation of resources has always been a foundational principle of American politics. Elected our first president, George Washington complained that he spent all of his time as a promoter of business opportunities in the nation’s undeveloped lands. That practice is enshrined in most of our state constitutions, where the first priority in land use policy is economic. At the federal level, conservation policy has limited the most brutal forms of resource exploitation.
Contract law provides a legal framework for exploitation of the last great resource: human potential. In the “Land of the Free,” the ability to enter into economic contracts is one of our most honored acts, though paradoxically it places us under the heavy hand of law enforcement when we have disputes. It is this that is decried in Revelation 13:18:
so that no one could buy or sell unless he had the mark – the name of the beast or the number of its name.
Murdock, Thiel, and their ilk know that they have attained wealth only through exploitation of investments made by others – investments accrued over millions of man years of public education and government-funded research, and trillions of dollars of infrastructure investment. Their attempts to limit their obligation to “pay it forward” are driven by greed.
Not being limited any longer by prudence or compassion, this class seeks economic dominance in their various industries. Concentration of industrial power is visible in all industries. It was decried as monopoly in the late 1800’s, and defense against it was established through the Sherman Act, the Clayton Act and the Federal Trade Commission. Those tools have become blunted in the last twenty years because trade has become multinational. Facebook and Google, the information service monopolies of our era, are not disciplined because they are American monopolists. The European Commission sees them as adversaries, of course, and Google, for one, is facing some large fines for monopoly conduct. But it’s not limited to high-tech: concentration is growing in telecommunications and financial services.
Fortunately, monopoly has one clear indicator: huge profits. In the personal tax code, we recognize that those making the most money also benefit most from public services, and tax them accordingly. We should do the same in corporate taxation. While large corporations use their market position to reap huge profits, it is small businesses that generate new opportunities and new jobs. We should reward them for their efforts. We need a progressive corporate tax code.
The middle class is not only being squeezed by monopoly pricing, it is being gutted by automation. Jobs are disappearing, and fast. On the immediate horizon is the loss of almost two million blue-collar jobs as shipping moves to self-driving trucks. But we see this throughout America: even as wages rise overseas, making local production competitive again, the factories that we are building use a fraction of the employees needed by their predecessors. All the material manipulation and most of the assembly is done by machines.
The factor that drives this investment is payroll reduction. A robot is a fixed-cost investment, does not ask for higher wages, and is subsidized by capital equipment tax write-offs. They are also far more precise in their work, yielding higher-quality goods that are preferred by consumers.
The replacement of taxed payroll expenses with tax-free capital equipment investment also hobbles government by restricting tax revenues. Clearly, our workforce needs new skills. Our youth are provided those skills for free by pubic education, but those skills no longer guarantee lifetime employment. People need to learn throughout their lives.
Employers, of course, don’t want to pay for that investment, because it creates opportunities for their best people to take positions elsewhere. So – as predicted by Adam Smith in The Wealth of Nations – the tendency of corporations is to exploit workers until they can be replaced by machinery, and then to cast them aside.
Smith defined the theory of capitalism, and his prescription was simple: governments must tax businesses to provide workers opportunities to retrain when they are replaced by equipment. Governments starved of tax revenues by automation can’t provide that service, which means that America’s human capital is now going to waste.
The solution comes to us from policy-makers confronting outsourcing of jobs: in Europe, companies were caught out selling products “Made in England” that were assembled from parts produced overseas in low-wage markets. To limit that incentive, a “value-added tax” was created. VAT charges a tax on companies reflecting the increase in their wealth as materials move through a system to create a finished product.
While this didn’t prevent jobs from going overseas, it did ensure that government revenues were maintained to support retraining and job placement services. If applied to goods shipped into our lucrative consumer market, it is also a reasonable way to limit the social costs of overseas production by countries that choose to exploit both labor and the environment. If a car made in South Korea for $2000 and sold in South Korea for $6000 enters the American market to be sold for $20,000, well the South Korean manufacturer should pay a VAT when that product is unloaded at Los Angeles.