Daily Archives: September 13, 2024

The USA is a Third World Country, Billionaires are NOT Benevolent, and That Needs to Be Fixed. (Bad Billionaires 3/3)

This is the promised follow up to Billionaires are not Benevolent, but they aren’t all Bad Either.

But how? As everyone is quick to point out when I say there are things that can be done, there are no easy answers. And there aren’t. Nothing worthwhile has ever been easy. Nothing worthwhile ever is easy. But if our ancestors refused to do anything until someone painted a rock red and drew a black circle on it and said, in the ancient proto-language of the day, magic rock, we would never have evolved to this point.

The US was in bad shape before, as a result of the robber barron railroad tycoons, the first great war, and the depression that followed, but it picked itself up by its bootstraps, introduced changes at the top, broke up the monopolies, allowed unions to raise worker’s prosperity, and by the ’70s had real prosperity that arguably surpassed any nation in the world at the time and, if those 10 years alone represented its economic history, it would stand side by side with many of the greatest recorded civilizations in the history books.

But then the Republicans, and their prosperous partisan proponents, came up with “trickle on” economics (which they renamed “trickle down” to fool you into accepting it) and, for anyone who is not upper middle class and above, their prosperity has gone downhill since Reagan took office in 1981. But history has shown this can be fixed, although we do have to be more careful this time because, if we do it wrong, the wealthy will just buy their own nation states, leave, and take 6% of the global GDP with them.

So what can we do? In short, we have to

  • recognize the realities,
  • create a multi-pronged solution that encourages the right kind of behaviour that truly floats all boats, and
  • get the greatest (game theoretic) minds (who know that all billionaires are plunderous pirates who don’t care if their brethren get beheaded) to buy in and ensure that all of the proposed changes, in combination, will realize the intended effects (by thinking things through in multi-step cause-and-effect chains to eliminate all the loopholes in a manner that reinforces desired behaviour).

Before we continue, it is important to point out this economic series, designed to get you thinking about what’s truly important for a thriving economy, came as a result of

… and the doctor‘s need to correct and/or inform and/or pull more information out of them. You can find quite a lot of interesting debate in the comments to the four articles above.

The US has high unemployment, high poverty (and record high child poverty for a developed country), over 650,000 homeless [USA Facts], poor levels of education (16th in science and 34th in math out of 81 OECD measured countries — critical for STEM) [Source: The Balance], and crumbling infrastructure because it does not have enough money to fund everything it needs to (especially given it’s high defence and foreign aid costs).

Why? Because it’s taxes keep falling (when you adjust for inflation and compute the average tax collected on a per capita basis). This is because of the large shift in wealth from the middle class (who earn well, but not enough to make the investments or play the monetary games required to take advantage of tax loopholes) to the truly wealthy (multi-millionaires and, most prominently, billionaires that pay themselves $1 a year, while making millions of dollars in stock gains tax free because it’s not taxed until realized and they don’t need to access it as banks happily give them low-interest loans that they live off of until they die, at which point just enough stock will be sold to pay off the loan while the rest of their estate transfers tax free to their children).

And since trickle-on economics don’t work, the US (and Canada and the UK) need the billionaires to pay their fair share. And the key here is fair. If you expect them to pay higher rates than the middle class, they’ll pack up and move on because why should they?

We also need to ensure the workers in the corporations they control are paid a fair wage (because the government can’t afford welfare, and honestly shouldn’t need it in a truly prosperous economy). In the 1970s, a hard working blue collar couple could have a good life with job security, housing security (house or condo), food security, affordable company sponsored healthcare, college security for their children (not Ivy league, but the local college or trade school), a vacation once a year and still save for retirement. As far as I am concerned, that is a basic requirement for a prosperous first world country. Now, in any given month, they have to choose whether they eat or pay the bills because if they don’t pay the rent, they’re on the street. The key here is fair, because of all people, billionaires are the last people who believe in handouts (unless it’s a massive tax write off and publicity op), and if you want more than a basic quality of life, you should work for it! And we need to make sure this is not too much of a drain on the corporations to pay this minimum wage (hint: it’s not for any decent size corporation; only small businesses would be impacted) or on the billionaires ultimate earning potential.

In addition, we need to make sure a Billionaire’s earning potential is not limited in any attempt we put forth to extract fair wages and fair taxes. Some countries think that the more you make, the higher rate you should pay — all that does is cause the wealthy to pick up and leave (why do you think Canada has so few Billionaries, if you live in Quebec you pay 25.75% on top of the 33% federal tax, for a total tax rate of 58.75%; in the countries in Europe with the best quality of life where almost all the basics are free or cheap (education, healthcare, transit [almost] free; rent and food way less), they accomplish that (with incredible infrastructure) with less than 50% tax. In the US, it’s 37% + 13.3% in California. A strict limit needs to be set, << 50%, because if more billionaire gains were taxed even at the average middle class rate, that would be more than enough!

We also need to limit their base compensation of multi-millionaire and Billionaire CEOs — money for nothing is supposed to be for rockstars and Beverly Hillbillies, not for billionaires who sit on their assess all day and do nothing. Especially considering, adjusted for inflation, we noted their compensation over the past 46 years has increased over 1,322% while the average Joe saw a mere 18% increase. There’s no way any job is worth that much (unless you perform spectacularly). It used to be, in Europe especially, a manager would make 2 to 3 times his underlings, and a CEO 2 to 3 times his C-Suite executives. So if there were 5 levels in a company, the CEO would make 10 to 15 times more the average worker. Which was fair. Now, corporations have become more global, jobs more demanding, and leadership more critical, so we should maybe double or triple that. But at the end of the day I don’t see how anyone could argue that a CEO should be paid a base salary that is more than 100 times what the lowest earning employee makes.

They also shouldn’t get bonuses for non-performance, and even if they do perform, bonuses should be limited to actual performance. Again, go back to our goal, use them to grow the economy for everyone, not just their bank accounts. Here we have to be careful how we define limits because they’ll take whatever negative short term behavior is required to maximize their earnings today.

Then there is the stock issue. If we force the majority of their compensation into stocks, then they are going to do whatever it takes to up the stock price, which usually includes making extremely shortsighted decisions.

Sounds like a tall order of requirements, and it is, and there is no one single solution. However, since the US recovered spectacularly the last time they took on the robber barons and busted up their monopolies, there’s no reason it can’t be done again. It just has to be done with care to ensure that that the desired effects are achieved.

Namely:

  • increased workforce prosperity (and more equitable pay)
  • increased tax reclamation for critical services and infrastructure
  • increased incentive for Billionaires to build truly prosperous businesses

As far as I am concerned, if great game theoretic political minds come together, convince the politicians to stop serving their own interests and start serving the interests of their constituents, it can be done starting with the following multi-pronged seven point framework. (And the final version of such framework would have to be all or nothing because partial approaches just create new tax loopholes and more unintended consequences.)

Increase the Federal Minimum Wage
to at least $12.25 an hour (i.e. the minimum wage of 1975 adjusted for inflation)
Decrease the Small Business Tax Rate
by 20% on average (70% minimum wage increase in a small business with minimal profits that dedicates at least 25% of revenue to payroll is a hit, so decrease the small business tax rate to support the big one time increase)
Limit CEO base pay to 100X the annual salary of the lowest paid employee whether directly or indirectly employed by their organization
if they outsource Janitorial services to an organization that pays the Janitor 12.25 an hour or 24.5K a year, then their salary is limited to 2.45M a year; if they want to earn more, they have to pay more, lifting everyone up
Limit CEO bonus pay to the greater of half their base salary or 2% of year over year REVENUE
when you base bonuses on Profit, they will cut headcount or quality to artificially inflate profit; so base it on year over year revenue increase using a rounded average profit percentage; since the average corporate profit is 7.5%, they should be limited to a fractional amount of 10% of revenue gain (i.e round up the 7.5% for easy math); we want them to keep profit in the enterprise to grow it, so their compensation should be limited to 20% of growth (which I think is still excessive, but I would leave it up to the board to decide how much to incentivize the CEO), which gives us a bonus limit of 2% of year over year revenue GAIN; so if they want a 10M bonus, then they need to increase revenue year over year by 500M (and if they do that, they’ve earned that 10M)
Preferential Capital Gains Tax Rate for their Stock in the ONE Business they are CXO for
While the 20% Trump capital gains tax rate, compared to highest middle class tax rate of up to 50% in some states, is contributing significantly to the tax deficit, they should be allowed to keep this rate for the one business they are actively running and/or contributing most of their time to (and if they want to pull a Musk or a Bezos, they get to pick ONE); this encourages them to grow it through the roof (as they will have the lowest tax rate in their stock growth in their long term stock growth in that business) while preventing them from having (multiple) monopolies; plus, they will have no need to tank the stocks in other businesses they have a hand in because they’ll have enough leverage in their current business to ignore them, plus
Biden’s Proposal to Restore the Capital Gains Tax to a meaningful level WITH Mandatory “Estate” Taxes
but no higher than the highest tax rate paid by the middle class; they’ll hate it, but the US needs the revenue, and they can still avoid a lot of the tax until they die, so they really shouldn’t care too much
[more specifically, since I agree with The Master of Cost that all income should only be taxed once, upon death, before the passing on of wealth through inheritance, all capital gains are declared and realized, and all amounts not yet taxed are taxed; so, if during their lifetime, they only realized 10% of their gains, the other 90% are realized and taxed, and then the money gets passed on … ]
Passive Income Taxing (including Mandatory “Estate” Tax)
the ultra rich pay zero (0) tax because they borrow against their paper assets, and then pay the interest from other loans against other paper assets, and just move debt around at rates way below the rates of return on their investments; as soon as any paper assets are used as leverage for capital, they have to be declared and taxed at the current value; no living free; now, if they want to keep taxes down, they’ll have to live frugally and keep the money in their companies, growing them and the prosperity of their employees and the economy in the process; they only have to pay taxes above the means at which they live until they die (as estate taxes will be mandatory on current value when the assets are passed on; this way the US will get a regular stream of critical revenue and their descendants will have to grow their holdings to grow their wealth, as the wealth will decrease by about a third on handover (but their descendants should be able to still quintuple it with smart management and elbow grease by the time it’s passed onto the next generation)

When you put all this together:

1. Workers have a higher quality of life (lifting many of them, and their children, out of [near] poverty) and more job security, especially if the CEO wants a bigger salary.

2. The USA gets more taxation revenue for critical programs and infrastructure.

3. Billionaire CEOs are incentivized to grow the business (as that’s the only way to significantly grow their net worth)

  • no more money for nothing (most CEOs won’t earn more than 3M base unless they pay their people more than minimum wage)
  • no more big bonuses for poor performance (revenue will have to increase or their bonus will be pocket change)
  • no short sighted measures (such as massive layoffs) that will negatively impact the stock price (as it’s now their biggest long term earnings vehicle as it will be taxed at half the rate as their other stocks and they will want to borrow against it as they will be taxed at double the rate to borrow against other stocks )

And, most importantly, we’re not limiting their earning potential. This is key because the minute you impose a limit in any organization (non-profit, profit, government, church, etc.), you lose your top performers. The whole goal is to put a framework in place that aligns their best interests of the billionaires with the best interest of the country and the people to the extent possible. (Remember, just because the billionaires say I Want It All, it doesn’t mean they deserve it all, and they certainly don’t deserve it now. The rest of us have to work for it, so they should have to work for it too!)

Now go forth and debate and turn this into a full-fledged solution!

And just remember, Nobody Said It Was Easy! But something has to be done because it’s Situation Critical and some of us are sick and tired of Crying Over You!