A short essay on creativity and compromise in action.
Let’s start at the beginning.
The fundamental problem in modern capitalism is the disconnect between corporations and politicians over how tax dollars ought to be spent. That the two parties are irreconcilably divided on that front is a well-understood truth.
What’s less understood (or even believed) is that there’s actually little disagreement about ideal outcomes. Corporate types really do understand the benefits of healthy and wealthy employees, neighbors, and consumers.
So — how can we close the gap?
Let me suggest to you the virtues of win-win projects of mutual benefit to businesses and local communities, which capitalists can invest into as a means of deferring some of their tax payments. You might think of it like Donors Choose for civic development.
For sake of ease, we’ll call them mutual upside tax investments, or MUTIs.
Whether or not the Laffer Curve is a real thing, we do know that corporations will perpetually engage in tax avoidance as a way of promoting shareholder value — mostly because few boards see paying taxes as a productive investment. Whatever they may think of the end causes that governments purport to care about, they don’t see governments as structurally able to spend most dollars efficiently. As such, they hold firm in their belief that retaining their own earnings is ultimately a better path to those ends.
What makes this so intractable is that there’s really no way to reform how governments go about budgeting. Most spending isn’t discretionary, and entitlement reform is a non-starter on a political level. (Trying to reduce long-established social payouts is historically a sure path to electoral ruin.)
MUTIs would be a creative way of addressing needs on both sides in a pragmatic compromise. Tax rates wouldn’t need to be lowered, nor would existing spending need to be adjusted.
- MUTIs could be made available for all repatriated income (which will never come back in the form of normal tax revenues anyway). Assuming a 20% rate on the roughly $2.5 trillion in overseas cash, that’s the equivalent of a $500 billion direct-impact investment fund.
- In lieu of raising future rates, we could allow some deferrals for spending on investments that tax hikes would have sponsored anyway (this just goes about it more directly and efficiently without causing capital flight).
Progressives are likely right that some services can only be offered by the government at scale (justice, defense, social security, etc). But what about local infrastructure and workforce education projects? Businesses know what would give them the best return (which in turn would produce the most benefits for local economies). I think we’re wise to give them room to choose — just under the condition that they’re choosing from a provided list.
Seeing as we can’t gain spirit-of-the-rules compliance with the stick, why not try carrots for a change?
Note: To be clear, I think penalties for true tax fraud should be biblical. This isn’t about caving to the worst aspects of greed and bad faith. This is about recognizing that governments are rarely that gifted at capital allocation.