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Anthropo-Capitalism: How government policy and tax structure can put American free enterprise to work for us, not against us.

Let us begin with an acknowledgment that the capitalist system is, hands down, responsible for alleviating more suffering than possibly any other human endeavor, barring the discovery of fire. Capitalism is, at its essence, the natural economic system of human beings. Wether we are trading Dollars for Playstations or figs for pigs, there is simply no dispute that a system which allows for such incredible specialization in vocation (you can’t work on particle physics if you are worried about an early frost ruining your corn field) has paved the way for the breakneck advancement in all aspects of human knowledge and innovation. Yet this does not mean that the systems that have grown up around capitalism are not ripe for reform, and calling for reform should not be construed as a repudiation of capitalism.

One could argue that the inexorable march of progress enabled by the capitalist system also set the stage for the dire social and environmental situations we find ourselves grappling with in 2020, and they certainly wouldn’t be wrong. The search for better, faster, and cheaper production of goods and services has certainly lead to the exploitation of natural resources. Unfortunately, human labor is a natural resource and the efficiency machine that is capitalism has resulted in an environment in which outsourcing and technological advancement has led to a perpetual depression of wages. The question is then one of recalibration. How do we, as a society, nudge capitalism into resuscitating our currently flatlining middle-class?

The answer is government.

Now, here is where our current hyper-partisan moment cuts off all reasonable debate. There are those in our society that feel any government intervention (I’m looking at you Ron Paul) is tantamount to tyranny, and their polar opposites that advocate for nothing short than a socialist revolution. These factions own the digital space, nuance has no chance on Twitter, but the vast majority of the American electorate is likely floating around somewhere in the middle of these two extremes. The trick is striking a balance in which government policy is leveraged to gently nudge the market into providing more human-centric outcomes, and we need the market to provide these outcomes organically. If we want rising wages and prosperity to a greater percentage of the population we need to use policy to steer the market, not force the market.

So you may be thinking, “How the hell do we do that, Dick? How do we ‘nudge’ a system predicated entirely on generating maximum profits with maximum efficiency into a greater distribution of wealth, all without forcing said change by government mandate?” Well, first off, thank you for asking such an incredibly specific question tailor made to set up a response. The answer lies in using policy to provide an additional market force, rather than a mandate.

Changes in Corporate Tax Structure

I suggest that a simple change to the application of corporate tax rates would provide a clear incentive to raise wages, while also eliminating the Byzantine system of loopholes that currently exists.

According to the The Tax Foundation, the average corporate tax burden in European OECD countries stood at 21.9% in 2019. The average worldwide rate came in at 24.18%. For comparison, the top statutory rate in the United States is 25.9% and that sounds about right. If you dig a little further, you notice that the U.S. generates only 4.4% of its revenue from corporate taxes, as opposed to the OECD average of 9.5%. This is likely due to the accounting wizardry utilized to lower the effective tax rate well below the statutory rate.

I propose replacing the current system with a loophole-free variable corporate tax rate. One which caps at 25% at the high end and 5% on the low, but with an important caveat. The tax rate paid would be dependent on wage disparity between the top 10% and bottom 50% of earners within a given organization (all of these figures obviously subject to debate by individuals smarter than myself). An organization that is rewarding its executive class in an outsized manner would be subject to a higher tax burden than an organization that maintained a greater balance in compensation between executives and the average employee.

Now in setting up such a system there would undoubtedly be some logistical issues that would need to be hammered out. You would need, for instance, a mechanism to take into account stock options and other creative forms of executive pay. The benefit of such a system would be the financial incentive it would place on an organization to raise the wages of its lowest paid employees, or rein in extravagant executive pay. Any reasonable organization would likely raise wages to retain talent, rather than simply surrender capital to the government with no competitive return on that capital. All without contentious political battles regarding periodic increases in minimum wage, mandates are replaced with market forces.

Universal Healthcare

This one likely requires an entire series of articles to explore in its entirety, but the institution of a universal healthcare system in America could very likely spur massive economic growth. America posses possibly the most dynamic economy in the world, yet the system of employer-based healthcare is potentially acting on a brake on entrepreneurship. From 2007 to 2019, application to form businesses have dropped by 16%. The Great Recession is definitely at work here, but the rate has failed to keep pace with the economy as a whole.

One reason could very well be the exploding cost of healthcare in America. There is a massive risk to entrepreneurship in America caused by this cost. The cost of healthcare without an employer subsidy is simply astronomical. From CNBC.

According to eHealthInsurance, for unsubsidized customers in 2016, “premiums for individual coverage averaged $321 per month while premiums for family plans averaged $833 per month. The average annual deductible for individual plans was $4,358 and the average deductible for family plans was $7,983.”

That means that, last year, the average family paid $9,996 for coverage alone, and, if they met their deductible, a total of just under $18,000. Meanwhile, an average individual spent $3,852 on coverage and, if she spent another $4,358 to meet her deductible, a total of $8,210.

This type of financial exposure is a very real impediment to the continued dynamism of the American economy. I would suspect that this also acts as a depressive factor in wage growth. The average American wage earner is beholden to their employer to subsidize this huge portion of their financial lives. The healthcare is a de facto portion of their compensation. This has major economic ramifications for wage growth, as healthcare itself act as a means of hampering competition in the free market.

Anthropo-Capitalism

The refocusing of market forces os going to be integral to the future economic success of this country. The free market is always the best option to achieve this and smart, pragmatic government policy is necessary to ensure the market remains free. We need to actively pursue policy that removes barriers to entry into full market participation, this includes entrepreneurship and increased wages.