It has probably always been this way. It is just that I never saw things the way I see them today.
There is a massive malignant disease sweeping across America. It is called the “I know its not right but why not try it” disease. Most of our wealthy and aspiring to be wealthy have contracted this disease. The prognosis is not good.
The symptoms present themselves as a passionate defense of lower taxes and sharply reduced government spending. Those with this disease become fiery red when presented with the notion of paying more for their government services. The diseased ones almost explode at the notion that they must in some way bare the burden of reducing the already amassed $14 trillion debt.
They, interestingly, also show a loss of hearing when confronted with the hardships others must bare from lower taxes and less government spending. Often these diseased faces turn red, white, and blue while they babble about how great America is. I am not sure why.
Things might be different if the US economy was bussing. With a better economy, there would be higher tax revenues. In today’s lack luster economy, American corporations are not producing enough good paying jobs. This is often viewed as a chicken and egg problem. Which comes first, good (skilled) workers or good (well paying) jobs?
In any case, not enough workers are employed and those employed are not earning enough money. Net result is lower tax revenues. One example is that 47% of American households paid no Federal income tax because they did not earn enough to qualify! This is a huge red flag. No wonder the load seems to be getting heavier.
How can we stimulate growth in American corporations?
Looking deeper, jobs come from two primary sources. Companies that make, mine or grow things (Apple, Exxon, ConAgra for example), and everyone else who services (like banks, Staples, and Starbucks) these industries and the employees of both sectors.
Companies that make things today have large amounts of cash on their balance sheets and yet seem unwilling to invest in new equipment or hire new staff. While there are many reasons for this, such as prudent respect for low demand, our history is full of examples of industries investing on the idea that “if you build it they will come”. This is about entrepreneurs seeing the unanticipated demand.
Hidden among the today’s many reasons for lack of investment and creating new jobs is the corporate “Jekyll and Hyde” relationship with Wall Street. Wall Street is important to corporations because that is where most get large amounts of their capital.
Too many corporate executives, however, seem to prefer to simply to play the street. Their goal is stock appreciation and the fast money from options and stock holdings. There are other executives who also love stock options, but fear the relentless Wall Street demand for next quarter’s earnings to beat this quarter’s. This fear often drives poor investment decisions and promotes the chasing of short term shallow goals.
The net result is that American industry is serving more those who want to strip it bare. Real growth and resulting job creation comes in second to stock appreciation and capital gains.
So back to our disease discussion. How can we stimulate increased tax revenues by creating more good paying jobs?
An un-obvious treatment might be to motivate long term growth by changing the tax rates on dividends (corporate) and capital gains (securities only). If corporate executives focused on the long term, without an incentive for short term personal quick gains, we might see a return to the American business entrepreneurship we remember and miss.
Here the idea. Make corporation common stock more attractive due to its dividend and less attractive for its potential capital gain. Tax rates on corporate dividends would drop from being treated as ordinary income to a special rate of 10% while capital gains for securities would rise to 30% or the tax payer’s marginal rate (which ever was higher).
I do not know what impact this would have on overall Federal tax revenues. My guess is it would be a wash.
The main thrust would be to stimulate, through the tax code, business conduct aimed at the long term. Blue chip companies were built upon the long term.
As with any disease, medicines work only so long. Further, once a patient has recovered, it is usually better to cease the medication. In this regard, I would favor a reexamination of the dividend and capital gains tax rates once the deficit is erased and the national debt is reduced to under $4 trillion.