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We need to expand our definition of taxes

July 24, 2011

Given that 40% of global revenues are controlled by just 500 corporations and all major industries are oligopolies, why is it that we hear so little from the mainstream “left” about the obscene spread between prices and wages?  This spread, often referred to as “profit”, is at record highs and the mega-corporations maintain it without fear of such quaint formalities as competition.

The excess of price over wage is a tax on consumers in exactly the same way as is government taxation.  Something’s very wrong when our discourse focuses solely on government taxation and ignores the far higher and 100% regressive nature of taxation levied by these “private” concentrations of power.

Higher corporate income taxes aren’t necessarily the best answer either since the higher taxes can quite easily be passed on to the consumer through higher prices.  The non-radical solution is to regulate the allowable profit margins of oligarchic firms in the exact same manner as public utilities.  In my mind a far better case can be made for direct public management, but simple regulation would be a tremendous advance over today’s mafia-like system of power.

The benefits to the global economy would be at least two-fold.  First, the average worker / consumer would see an immediate positive increment in living standards as “taxes” declined.  And, second, the system as a whole would become more stable since a regime of high profits requires massive investment bubbles to sustain itself.  Without such bubbles, profits cannot be realized.  A regime with higher wages and lower profits requires far less investment spending – a key insight of Keynes that’s been almost totally forgotten.

Why is it we hear so little from “left of center” political parties or mainstream “left” economists about this “private” taxation?  The answer’s pretty self evident, isn’t it?  It’s one big party!

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From → Economics, Global

3 Comments
  1. Dave permalink

    I agree with you quite a bit but I get the sense you are off the rails here. Your quest for egalitarianism is admirable but in my opinion let’s get a baseline of no poverty, no unemployment 1st and then maybe, maybe start talking about further redistribution.

    that Mark Zuckerberg makes so much money is a tax on me? I don’t get it. I don’t feel that anymore than I feel like I’m paying for Vietnam right now.

    You’ll probably disagree with this but the profit motive can be a driver of innovation & should be allowed to be so.

    Why is a regime with less investment spending a desirable one? And why does a “regime” with high profit margins require an investment bubble? There’s no evidence presented.

  2. Dave,

    I don’t see regulation of oligopoly power as redistribution, it would be much like regulation of any monopoly power such as a utility.

    We certainly don’t feel the effects of just Zuckerberg, but surely we do feel the effects of income inequality. We can see it all around us as purchasing power is accumulated at the top and not productively redistributed back to society. It makes us all poorer. That’s not too radical a statement either – it’s right out of Keynes.

    A regime with a high profit percentage in national income means a regime with lower wages and less normal demand. For the system to be stable, the accumulated profits must be re-circulated. If they’re not, then the profits can’t be realized. It’s necessarily unstable since the investments must eventually meet the test of demand, and the demand will be found wanting, unless there’s even more investment. Eventually it must collapse. This is also Keynes and some Minsky. A regime with higher wages but lower profits will be more stable since demand is more stable and not nearly as reliant on endlessly rising investment.

    I don’t have a problem with a profit motive within reason. But I doubt very much whether Zuckerberg is too motivated by money. At some stage, far lower than his wealth, money ceases to be much of a motivator.

    Greatly appreciate the feedback.

    Jim

  3. Dave permalink

    Interesting. I get it now. Just for the sake of argument, don’t prices necessarily reflect the ability of the most consumers to pay the necessary price?

    Since there are lower wages and lower demand, that serves as a damper on prices. If wages were higher and profits lower, prices would move accordingly, removing excess purchasing power from the wealthy but not necessarily making labor better off?

    Is it possible that there is simply an extraordinary amount of excess purchasing ability among the wealthy, but that the “tax,” as you call it, on labor and general consumers is limited by their own muted purchasing power?

    I could be wrong. Just playing devil’s advocate.

    Anyway, I expect the higher profit margins right now are a function of increased productivity. Since the productivity gains aren’t being passed on to workers, either 1. that’s going to change and we’re going to see higher wages soon, or 2. margins will contract because of the lack of demand.

    Good stuff. Thanks. I always find your blog insightful and interesting to think about.

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