The next big fix on our post-pandemic list is wealth and income distribution. Of course it involves raising taxes. But not for everyone. We need to raise income taxes at highest levels of compensation and get back to an effective graduated income tax. The purpose is not to punish the rich. It is not even to raise revenue for the government.
The two major reasons for doing so are 1.) to allow tax cuts at the lower levels and 2.) to remind corporate managers what their jobs really are.
Yes, of course, people who work hard and have big ideas should profit from their industry and their innovations. I accept that they are deserving of rewards exceeding minimum wage. By golly, I don’t even have a problem with smart, hardworking people getting rich. But really, some limits are needed.
Why? Because, contrary to what we all learned in business economics in junior high school, the purpose of a business is not to make money. The real purposes of any business are a little more complicated. They include:
- to provide some product or service needed by the market,
- to provide a livelihood for the owner and ALL others involved in production,
- to provide enough profit to expand and perfect production and distribution and to reward investors through the payment of dividends,
- and to do all this while taking proper care of the environment in which they operate.
When CEO compensation rises to levels that exceed their needs by obscene levels, they tend to lose sight of those purposes and focus all their efforts on shooting for the numbers to which their compensation is tied – often the short term capital gains of the corporate stock.
Workers become expendable, the environment is theirs to exploit without compensating anyone, and production is focused on what sells and not so much on what serves. It is a recipe for environmental, social, and economic disaster. Thus, controlling CEO compensation is more than simply middle-class envy, it is an essential step in re-focusing them on their real purposes and making their businesses socially responsible and productive beyond typical balance sheet measures.
There is ample evidence of rapid growth in income and wealth inequality, especially, since the beginning of the Reagan years in 1981. We once effectively moderated the maldistribution of resources in the economy with a graduated income tax. We have slowly eroded it with a variety of tax reductions and dodges available only to high earners (a term I use advisedly) and the imposition at the same time of regressive sales taxes at the state level. As a result, a small proportion of the people have benefitted inequitably from the growth in the economy post-WWII while the people who drive the economy, producers and consumers, have seen incomes stagnate. I am not sure what we should call this but it isn’t capitalism.
The instant high level of unemployment that occurred with the closing down of much of the economy to control the spread of the virus gave us a quick lesson in the true engines of our economy. It turns out that all those highly touted innovators and job-makers were only part of the key to economic growth. They needed consumers at the household level, or it all went for naught. It is workers and families who drive economies, not rich white guys who manipulate markets and turn obscene short-term profits to justify obscene salaries and bonuses.
So post-pandemic fix number three is to repair the distribution of wealth and income so that all Americans stand a chance of prospering some humane level. And, of course, that requires much more than a simple tax increase on the wealthy. But it gives us a clear starting poing.