A Corporate Algorithm

Revolt No More Forever

With its new Democratic majority, the U.S. House of Representatives is fizzing with ideas about how to narrow the wealth gap between the superrich and the rest of us. Unfortunately, the imagination has ranged no further than taxing that wealth.

To name just a few of the tax schemes recently floated: New York Congresswoman Alexandria Ocasio-Cortez proposes increasing the marginal tax rate on income above $10 million to 70%. Presidential candidate Elizabeth Warren proposes a 2% tax on net worth between $50 million and $1 billion, a 3% tax on wealth exceeding 1 billion.[1]

But these approaches can’t work. By the time taxes are applied, the damage has been done. In allowing the top 1% to accumulate that much wealth in the first place and then taxing it, you provide fodder for two powerful fallacies.

The first fallacy is letting the rich think the wealth is in fact theirs. This has ramifications of its own. They won’t want to give any of it up and will revile the government as an invader of privacy, a meddler, a blight on their growth, creativity, and freedom, bitter cries heard from libertarians today. Of course, plans will be hatched to get the wealth back and to hide future income (perhaps someone will come up with the idea of offshore banking). Additional collateral damage, especially among the minor millionaires, is the deep-seated conviction that their money is being taken away to support the undeserving poor, who should go out and get their own money. Obviously, taxation only sharpens class antagonisms.

Two additional observations here: Rumor has it the money would end up right back in the pockets from which it was picked, with no lasting redistribution of wealth achieved. Second, even the undeserving poor would rather earn their bread than have it thrown at them.

The second fallacy taxation crystalizes in the minds of the rich is that the government now owes them. Having amassed such wealth, their tax bills dwarf what the middle-class citizen pays. In return, they expect the government to show some deference: give them a chance to weigh in on the price of pharmaceuticals, sit at the table to discuss Arctic National Wildlife Refuge oil exploration, drive home the dire threat to American industry posed by regulating lightbulbs, use government jets for personal junkets, like trips to Kentucky to watch solar eclipses, jets they practically paid for with their 2016 tax return alone – sort of what goes on now.

This ugly sense of owning the government was made public in an Instagram exchange between the wife of U.S. Secretary of the Treasury Steve Mnuchin and a healthcare product manager. On stepping down onto Kentucky soil whereto she and her Brylcreemed financial-wizard husband had been jetted courtesy of U.S. government aircraft to watch said eclipse, the wife let fly a euphoric Instagram laden with designer hashtags listing the splendid sartorial items she was stepping down with. The luckless middle-class manager Instagrammed back: “Glad we could pay for your little getaway.” In expressing a host’s satisfaction that Louise Linton enjoyed getting ferried around the country in a $25,000-an-hour jet at taxpayers’ expense, the humble product manager got scorched. The privileged woman screeched through Instagram: “Have you given more to the economy than me or my husband? Either as an individual earner in taxes OR in self sacrifice to your country? I’m pretty sure we paid more taxes toward our day ‘trip’ than you did. Pretty sure the amount we sacrifice per year is a lot more than you’d be willing to sacrifice if the choice was yours.”

Let us take a moment to reflect on what kind of money the Mnuchins sacrificed to the government (on demand, not by choice): Money cashed in from value created by the impudent healthcare product manager and millions like her, whose due share in that value got siphoned off by people like the Mnuchins, who torch it on whimsical private jet trips – if they can get their hands on the jet. (That access was, after the manager’s Instagram baptism by fire, rescinded.) But the imprint remains: The rich and their spouses think their taxes (not ours) pay for the government, and that it is only right that they sit on its virtual board of mega-shareholders.

For the government’s part, how much easier to consult with 1,000 members of the like-minded affluent than a rabble of 300 million.

The antidote to the obnoxious millionaire conceit is simple: Don’t let them get silly rich in the first place.

The U.S. economy is a circulatory system governed by rules and regulations, fees and interest rates, checks and balances specified, executed, and arbitrated by human beings. They follow no natural laws, but are changed when deemed necessary to adjust the flow, value, and distribution of wealth. This year, that system is tuned to return 52% of all investment income to the top 1%, with the richest 0.1% expected to gain nearly $1.5 trillion.[2] This year, that is. In one year, that is.

This can be handily changed, not through taxes but through the introduction of a corporate algorithm that distributes the wealth corporations accrue to everyone who participates in creating that wealth – before wealth is accumulated to be taxed. Participants will include the girl flipping hamburgers and dipping fries in hot fat, the teenager parking cars, the doorman, the programmer, the waitress, the healthcare product manager. The distribution of value created would not starve upper echelon managers, the owners, the stakeholders; but neither shall it spoil them with a surfeit of riches that, through sober eyes, makes them and society grotesque.

The details of the algorithm are, of course, shepherded by the Devil among sizzling rocks in jagged, sultry, pitted landscapes not meant for faint hearts, tender feet, or poor computation skills. There and with that creature must the intricacies of the corporate algorithm be ironed out, hence the high temperatures. But how much greater the challenge to face the blockhouse straddling our path in sterile D.C., tormented by its gadflies, the lobbyists. The goal is worth it. Only with equitable distribution of wealth can we say, “We will revolt no more forever,” with class strife laid to rest. Only then can the destitute and drunk camp out in their cardboard boxes on the streets left with no one to blame but themselves.

[1] Let me point out that a 2% tax on $1 billion leaves a robust $980 million to work with. Reported annual growth rate of 2.7% for that kind of wealth will increase that estate by $26.4 million within 12 months, just in time for the next 2% tax. Takeaway: The net worth of the estate would increase despite the tax. See Greg Ips,“The Trouble With Taxing Wealth,” March 6, 2019, Wall Street Journal.

[2] Ibid.

0 thoughts on “A Corporate Algorithm

  1. Hi Connie,
    well said but I guess that most of your fellow Americans will see you as a socialist or even a communist devil.

  2. I read your new essay with great interest. I’m impressed with the knowledge of economics and taxation that you’ve obtained.

  3. That reads as a sound argument to me. Another misconception to add to those you mention is that anyone, rich or poor, thinks that he or she owns anything, rather than that, as Psalm 24.1 says, “The earth is the Lord’s and all that is in it, the world, and those who live in it.”

  4. The problem that your theory doesn’t address is that the hamburger flipper is not providing the same value (or taking the same risks) as the CEO, with all manner of gradations between them. Should the CEO make 100X the cook? Probably not. But what is the right equation, and who is to say? What about a CEO who is needed to take over a struggling corporation that might go under without new and better leadership? What is the motivation for a leader to take that job? I don’t like that a Jeff Bezos is crazy rich, but he’s an anomaly by far. And he revolutionized the retail market. Bill Gates revolutionized the computer industry. The vast majority of workers earn according to their skills and experience. And don’t forget that if you have a 401K or a pension plan, you too are benefiting from what the best and most profitable companies are raking in.

    • I appreciate your insight. Such aspects and many others must be taken into consideration to come up with what would have to be an extremely intricate, dynamic, appropriate equation. I would like to see a model of how it could possibly be applied. And, of course, it would have to be drawn up on a case-by-case basis to reflect the individual differences each corporation represents, for example, Deutsche Bank.

  5. I really liked this article a lot! I hadn’t really looked at what effect taxing the rich can have from this perspective. It was really insightful!

Leave a Reply

Your email address will not be published. Required fields are marked *