More musings on a Monday, what the ....

So, I’ve watched a weekend news show this weekend, and one of the liberal commentators railed on how the middle class has been shrinking, and that it is the fault of Republicans/conservatives. The funny thing is, that while this lady might be partially right, her answer was WAY wrong. She advocated for the Employee Free Choice Act, which basically allows unions to do card checks. (A card check is where a union has to get 50% plus one person to sign a union card, and then the company is forced to recognize a union. It basically does away with a secret ballot vote to unionize. It also has a couple really one-sided collective bargaining rules.) I think this is a bad idea that ranks up there with hydrogen filled blimps and New Coke. If you look at every American industry that has heavy union influence, you will see a failed industry. Steel Companies: Dead. Airline Companies: Dead, a couple of times. Auto Companies: In their death throws.

So, I would be remiss, and hypocritical, if I all I did was throw stones at this idea, and not offer a better one. So here is my plan: Cut corporate tax rates to 30% with a plus/minus 5% based off of a ratio of the Firm’s Top 20% earners total income to the bottom 80% earners total income.

I think this wouldn’t be that hard to manage, already most of the income needed for this calculation is reported to the IRS; things like Options, restricted stock, etc for the top earners would have to be calculated. The hard thing to come up with would be: what is the desired ratio? 50/50? 20/80? 80/20? There is a proper ratio that helps growth the wealth of the middle class while still giving enough incentive to the exceptional managers to work hard, and deliver good results, to keep the economy growing.

Why is this superior? Because it allows for choice. If a firm is driven by the performance of its top level managers, and the firm would seriously falter if they left, then it might be reasonable for the Top 20% to earn a lion’s share of the wages provided by the firm. The shareholders wouldn’t mind, because they would earn more with the ‘good’ Top 20% earners with the 5% increased income tax than they would with bad leaders and a 25% income tax. On the other hand, if the leaders of a firm can be changed out without much loss to the firm, then the share holders would demand the ratio that would get the -5% corporate income tax adjustment.

The beauty of this program is that it isn’t some cockamamie plan to try to grow the wages and compensation pie, but rather an incentive system to influence how it is cut. If a firm is successful when the Top 20% are responsible for much of the performance, and they are compensated the best, then it makes sense to tax the firm at a higher corporate income tax rate. (Rich people only spend so much; they don’t spend in proportion to how much more they make then the middle class) If the firm pays its Bottom 80% well, then it should have a lower corporate income tax rate for two reasons: 1) at a lower rate, it would return more to its investors, making it more successful and much more likely to be a continuing concern; and, 2) the Upper Middle, Middle, Lower Middle, and Lower Class people who earn more would most likely spend most of their increased earnings – thus growing the economy.

The draw backs would be the measurement and enforcement of this policy. As I originally stipulated, measuring the total income/compensation shouldn’t be too hard; but some instruments used to compensate execs are hard to value, and they are not always realized in the same year they were issued. Enforcement would be a problem, too. There would have to be a group of people at the IRS to determine if each company submitting its compensation ratio was doing it honestly, correctly, and fairly. However, the IRS is full of people that deal with this type of ambiguity regularly, so it shouldn’t be too much of a leap for the IRS to develop this capability.

In conclusion, I do think that it is time the middle class receive some lovin’ from governmental policy. However; the policy shouldn’t be so dogmatic and ideological that it ends up causing economy-a-cide. I think that my plan, fully fleshed out, would allow for middle income growth, economic growth, and is more libertarian in approach and would represent the least amount of government growth of the two plans presented.

Later,

B