Hi, Merci
This is something I wrote a few years ago on the topic of taxation. Its purpose is, primarily, to describe a way of looking at a specific tax.
THE CITIZENSHIP TAX
There are, in my view, three fundamental ways we can improve our system of government; the way we select our representatives, the way we maintain our laws, and the way we tax. The weaknesses in these areas exist because our institutions reflect our natures. If we wish to improve them, we must learn to harness our natural tendencies in ways that make them useful. What I write here will focus on one trait, the pursuit of self-interest. I will describe a simple, direct way of harnessing that trait, and changing it from a destructive force to a productive one.
a) the pursuit of self-interest is a human trait.
b) people pursue self-interest with varying degrees of intensity.
c) people who are thought to pursue self-interest excessively are called selfish.
We can not make additional factual assertions about the pursuit of self-interest because the attribution of selfishness is subjective. It is a perception. It is impossible to control characteristics whose goodness or badness are subjective because the characterizations are opinions.
Our society has no penalty for selfishness, nor do I believe one is possible. If it is an evil, it is not one we can address objectively. If we are to control it, we must do so indirectly. I believe we can harness our tendency to pursue our self-interest and make it work for us.
What is wrong with the pursuit of self-interest?
There is nothing wrong with it ... until it is carried to excess.
A part of self-interest is self-preservation. We are told that "Self-preservation is the first law of nature". I believe that to be true, and I also believe it applies to all organisms, living or corporate. The methods of self-preservation vary, and are generally applauded as "survival of the fittest". However, it can be shown that, carried to extremes, self-preservation is destructive of the preserved entity's environment. Beneficial though Darwinism may be in a purely theoretical sense, if our society is the environment being destroyed, we must do what we can to prevent it.
Societies restrain undesireable characteristics by a variety of forces. They initially deal with excesses by parental guidance, disapproval, peer pressure, appeal to conscience, excommunication and other non-physical methods. If these fail, it condemns the act by mandate and authorizes a force to control it. A central feature of the process is identification of the characteristic to be restrained.
These mechanisms work until a rogue is able to influence the forces society creates to control it. Since I'm discussing our tendency to pursue our own self-interest, I'll focus on the rogues who carry that pursuit to extremes.
By far, a rogues' most effective means of evading control is by influencing those who make the rules intended to control them, to render legislation ineffective or to divert its impact. Evidence of the abuses assault us daily. We constantly get fresh examples of the manipulation of our governing and regulatory bodies. Our subdued reaction to such events may be due to our recognition that they are simply additional evidence of our natural venality. In any case, we accept them without considering whether there is a way to make them less productive for their purveyors and less destructive for us.
While one may recognize the existence of rogues after they have achieved rogue stature, we have no mechanism for penalizing them or inhibiting their greed before it becomes intolerable. However much we are offended by what we perceive as greed, the basis of our complaint is always subjective.
Our traditional way of dealing with rogues in society requires that they be identified, so the lack of an objective measure, the inability to point a finger and say so-and-so is a rogue, seems to present an insoluble problem. That's not true. We may not be able to point a finger at a specific target, but we can certainly recognize the characteristics rogues share and the circumstances under which they thrive.
One quality the most destructive rogues have in common is great size. This, too, seems to present a paradox: The achievement of great size springs from the best of human capabilities. Size is attained by talent and can't be criticised simply because it reaches some specific extent. It is the result of a natural pursuit of self-interest, which, over time, becomes synonymous with self-preservation.
Thus we have a conflict: Size is achieved through ability but the beneficial effect of the enterprise evaporates when growth is unfettered. As entities grow into rogues they believe their best interests are attained at the expense of the community rather than in harmony with it. As they grow, they target the wealth of communities, and suck it out, leaving an empty husk.
Our attempts to control cancerous growth fail because we try to outlaw identifiable evils. Such laws are easily subverted. The larger the enterprise, the greater the pool of talent available to devise the methods of subversion. The result is behemoths which have a vacuum cleaner effect, sucking up resources to the detriment of our communities and our citizens.
To summarize, we know that rogues exist and we know they are injurious to the humans among us. Yet, after carefully looking at the matter, we find that the entities we call rogues started out by being very good at what they do. If we had their pool of talent, we might evolve the same way ourselves.
Hence, the conflict: On the one hand, we seek excellence and applaud success. On the other, these conditions, unrestrained, breed rogues. How can we resolve this? How can we constrain the rogue while encouraging excellence and success? The most direct way is to make excessive size a burden.
When we think about preventing excessive size, we run into the fact that some businesses must be large. Public utilities, for example, require a huge infrastructure and great gobs of capital. Hence, although all rogues have great size, great size may not identify a rogue. So, our solution to the problem must focus on unwarranted size. It must not injure large entities whose size is dictated by necessity.
Growth requires nutrients on which to feed. For corporate growth, the nutrients are the availability of physical and human resources and an environment conducive to growth. In the United States, the resources are a wealth of raw materials and human assets; the environment is provided by our government. The use, or exploitation, of these assets is what allows inordinate corporate growth.
Viewed in this light, we can see that growth flows from citizenship. If an entity is to grow, the society in which it functions must allow growth, so we can say that entities grow as a direct result of their citizenship.
We have seen that growth is, by definition, exploitive. This is not to say that exploitation is an evil. It only becomes an evil when it is excessive. Entities grow by exploiting the nutrients in its environment. That is precisely the goal our society seeks to attain. It can not be condemned simply because it exploits the environment. However, unrestrained exploitation results in excesses. If we are to control the excesses, we must have a means to discriminate between justifiable size and unwarranted growth.
Fortunately, we have a simple, readily available measuring stick. The best measure of size is the total revenue an entity receives in a specified period of time. (I use the term "revenue" to mean the annual gross receipts of an entity, without reserve or allowance, less amounts paid to external vendors in which the entity has no managerial, directorial or financial interest of any amount or kind.) We can say, objectively, that the more revenue an entity generates, the larger it is. This is not a subjective opinion, it is a verifiable fact.
To recap, we assert that
1) Growth is a quality we seek, applaud and reward.
2) Growth entails exploitation of the available resources.
3) At some indefinable point, an entity's growth, if unchecked, becomes a detriment to the society which spawned it.
4) The only guide we have to measure the extent to which an entity exploits our resources is its revenue.
Thus, it is appropriate to levy a progressive charge, based on revenue, for an entity's use of our resources. We can call this progressive charge "A Citizenship Tax".
The Citizenship Tax is a levy assessed on the revenue of an entity, cited in terms of annual receipts. The progressive nature of the tax requires a standard base. We will use the gross receipts (revenue) of the entity, annualized, to provide that base.
The Citizenship Tax does not concern itself with the source of an enterprise's revenue. The tax applies whether the revenue results from the operation of the entity or the sale of its assets. The only criteria is that the enterprise receive the revenue (or its equivalent, as in the case of a swap). If an entity has extensive assets in cash, real estate, equity, or in any other form, the Citizenship Tax does not concern itself with the value of those assets. However, when an asset is disposed of, in whatever manner or form, the value of the asset is part of the entity's revenue for the period.
The Citizenship Tax is not concerned with the profitability of the enterprise. It is a fee we levy for affording our citizens the right to use our resources. The charge is for the extent of the exploitation, not for the degree of success an entity has in doing so. Whether or not the enterprise is profitable does not change the amount of resources it exploits in its operation.
The Citizenship Tax is progressive. As revenue increases, the tax rate increases. As will be seen in the tax table below, the tax is insignificant for small entities. As an enterprise grows, its tax load increases, but the load only becomes burdensome for rogues.
Taxes are an expense of doing business. They increase the cost of doing business, and that cost is added to all other costs to determine the price of the enterprise's goods and services. In other words, taxes are always passed on to the consumer. When a rogue attains an unwarranted size by manipulating the rules in its own favor or dominating its competitors to the detriment of the public, The Citizenship Tax adds a cost to its operation.
The wonderful thing about The Citizenship Tax is that it is utterly and completely objective. It makes no judgment about the goodness or badness of the taxed entity. It simply charges all enterprises for their use of society's resources.
If, by the nature of its business, an enterprise must be large, it is not injured by The Citizenship Tax because all competing businesses must attain a similar size. However, when a rogue grows beyond an economically justifiable size, the tax acts to protect the public interest without additional regulation.
Corporate growth is good, and healthy, and desireable. We want to give our entrepreneurs the freedom to grow. That is the way they enrich our lives. The Citizenship Tax supports this goal because it is absolutely even-handed. It makes no judgment about the excesses of an enterprise. It is absolutely and totally objective in its application, and in its effect.
If an entity grows to a size that exceeds its value to the society, The Citizenship Tax acts as an umbrella, increasing the rogue's cost of operation and giving its competitors a cost advantage which prevents their suffocation. In fact, The Citizenship Tax would enhance the viability of competition, immeasurably.
Even at inception, the effect of The Citizenship Tax is gentle in its effect. Each entity can meet the tax in its own way. Some (like those which have subsumed suppliers or competitors) may elect to spin those entities off, to resize their operations to a smaller tax base. The option is theirs.
Brief Recap To This Point:
1) An entity exists in an environment and may be said to be a
citizen of that environment.
2) The size of an entity is evidence of the extent to which that
entity exploits the environment in which it exists.
3) Entities are dynamic and exist in a dynamic environment. (They
expand and contract in response to internal pressures and the
expansion and contraction of their environment)
4) I have postulated that excessive size is bad, but, because of
the dynamic nature of the entities and their environment, it
is not possible to make a judgment that a given size is good
or bad. Stated another way, size is a method of description.
In itself, it is neither good nor bad.
5) I believe in free enterprise. I believe (to paraphrase Adam
Hamilton of ZEAL) that entities, acting in their own self-
interest, make decisions of how and where they will spend
their resources, and these virtually infinite individual
decisions collectively become a free-market economy.
6) I do not believe that self-interest, exercised without regard
for the welfare of the environment which nurtures it,
constitutes a free market. On the contrary, carried to its
logical extreme, self-interest protects and extends itself by
dominating its environment ... the antithesis of a free
market.
7) The most readily available device we have for measuring the
size of an entity is the total number of dollars it takes in
by reason of its existence (i.e., its gross receipts)
8) Since size denotes the extent to which an entity exploits our
resources, it is appropriate to levy a charge for that
exploitation. Such a charge is the only practical way to
identify and restrain excessive size. The charge must
accommodate the concept that size, per se, is not an evil.
The Citizenship Tax
The Citizenship Tax is levied on the absolute gross receipts of an entity, from all sources and for all amounts received in its name by entities it controls. (i.e., franchises). The tax is progressive. Assuming a base rate of 2%, 2% is added to the rate each time the receipts increase by one decimal position, thus:
Tax Rate Annual Gross Receipts
2% $10
4% $100
6% $1,000
8% $10,000
10% $100,000
12% $1,000,000
14% $10,000,000
16% $100,000,000
18% $1,000,000,000
20% $10,000,000,000
22% $100,000,000,000
24% $1,000,000,000,000
26% $10,000,000,000,000
28% $100,000,000,000,000
30% $1,000,000,000,000,000
32% $10,000,000,000,000,000
34% $100,000,000,000,000,000
36% $1,000,000,000,000,000,000
38% $10,000,000,000,000,000,000
40% $100,000,000,000,000,000,000
The tax rate increases proportionally from one order of magnitude to the next (for example, going from $10 billion to $100 billion receipts).
An intended side effect of The Citizenship Tax is that it makes inflation unacceptable. The more roguish an enterprise is, the more "pricing power" it has. The evils of inflation are reserved for those at the lowest end of the economic ladder. Humans never have "pricing power".
The most striking thing about The Citizenship Tax is that it harnesses human nature in a productive way.
Fred
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