Towards a Declaration of Economic IndependenceOriginally published February 1, 2009; revised October 6, 2009
After a decade of narcissistic greed, reckless deregulation, and supply-side economics run amok, America's chickens are finally coming home to roost. Our bubble-driven economy is imploding before our eyes. The financial sector is in ruins. More Americans are being laid off every day, despite the fact that these layoffs only compound the problem inasmuch as a worker without a job is that much less likely to be able to continue paying off their mortgage or credit card bills, much less purchase anything beyond the bare necessities of life.
If there's a silver bullet out there today capable of slaying every one of our current economic woes, that silver bullet can only be job creation and retention. A worker with a job can continue paying their mortgage, perhaps with a slight modification in terms thus helping to support the rapidly collapsing value of a wide variety of distressed Wall Street mortgage-based assets. A worker with a job that pays a living wage can continue to pay their credit card debts thus boosting the long-term viability of the Financial Services industry. A worker with a job retains discretionary income, and with it the ability to support consumer demand and continued economic growth. A worker with a job pays state and local taxes and does not become a burden on either.
We stand at a moment in our national life where the interests of investors, management, and workers have become inescapably linked. We stand at a moment where we must come together as Americans or see our way of life undermined, if not completely destroyed. There is at least one path available to us that can, in time, reverse the current downward trajectory of the economy, become the engine of sustained American economic growth in the first half of the 21st century, and knit us together as a people. From my perspective, that path begins with a simple, if shocking proposition (especially when proposed by a liberal Democrat) the reduction or elimination of Federal corporate taxes on authentically True Blue corporations and small businesses.
The germ of the idea: True Blue Corporate Citizens
Our current economic equation is daunting. American labor simply cannot compete with low-cost foreign labor if wages are the only consideration as they appear to be to management in most multi-national corporations. In time, over the next half-century, wages will begin to equalize across the planet. But with our economy imploding and Wall Street needing yet another rescue and likely another in the not-so-distant future, were this financial tsunami to resume time is something that America does not have on its side.
Given the extraordinary financial pressures that workers are currently confronted with, coupled to our current economic implosion, cuts in wages offer no way out of this woeful equation especially given the likely impact of wage reductions on consumer demand. Hence, the best remaining remedy available to government might be an attempt to make what I describe as True Blue Corporate Citizens much more competitive, both domestically and internationally, by helping them dramatically slash the cost of doing business. I see two primary ways to accomplish this: one, slashing Federal corporate taxes on any company doing business in America that achieves a critical mass with regard to the hiring of American workers and the purchasing of US-sourced services; two, the adoption of a national health care system funded through an increase in the payroll tax.
Conservatives have insisted for years that corporations do not pay corporate taxes at all, but instead pass the cost of these on to consumers. These taxes are then reflected in higher prices. I am proposing that we put their theory to the test. I propose that Congress implement a program where these taxes would be slashed for a trial period, BUT ONLY for companies that achieve a still-to-be determined critical mass with regard to the hiring and retaining of American workers, expressed as a percentage as well as the purchase of American-based services. That is, to qualify for this optional tax benefit, a company's workforce must be, say, 90% American; or if it outsourced functions, like programming, back office, technical support, etc., those services would also have to be provided by another True Blue firm. Domestic subsidiaries of multi-national corporations that produce goods specifically for the US market could also participate. Companies operating in America that preferred offshoring jobs and services beyond this stipulated level, as is their right, would continue to operate under existing tax provisions.
This approach is intended to accomplish several things. First and foremost, if conservatives haven't been pulling our leg all along, it would lead to significantly lower prices for American-made goods and services, thus making every True Blue Citizen company that much more competitive domestically and globally which should, in turn, lead to increased revenues. Secondly, it would lead to enhanced wages and employment for Americans who work for these companies, a natural by-product of which would be a bolstering of domestic consumer demand, and by extension, Wall Street and the Financial Services industry. Remember, every new American job created means potentially one less person likely to default on their mortgage, either today or in the future. But perhaps most importantly it would reestablish for many Americans a sense of shared national destiny, thus reinforcing a realistic case for the social contract.
While neo-conservatives in particular have made much of the ultimately romantic, Lockean foundations for the social contract, I contend that Hobbes represents a more realistic model for our time. I contend that should this economic implosion continue, and government not be able to afford the enhanced social net that Barack Obama and the Democrats in Congress have proposed, we would almost assuredly have some version of Hobbes' State of Nature emerge, involving potentially violent class struggle especially in parts of the nation where gun ownership is widespread or, at the very least, tremendous social upheaval and suffering coupled to the rise of radical political movements (as in the 1930s and 1960s).
Sorry, no voodoo practiced here
What I am proposing is neither a give-away to corporations or any form of voodoo economics. We have to pay these tax cuts. The obvious way to pay for any elimination of Federal corporate taxes on this select group of True Blue Citizen companies is to raise individual tax rates and for the purposes of this argument I am suggesting a return to those of the extraordinarily prosperous Clinton-era. Obviously, the economists would have to crunch the numbers and come up with rates that would allow this approach to be revenue neutral. That specifically implies a significant increase of taxation on Dividends PAID OUT by all Corporations and Capital Gains and on the profits that are too often disproportionally PAID OUT through salary and benefits to upper management.
For working Americans this will also mean higher taxes. I am willing to wager that the vast majority of American workers would rather pay Clinton era taxes on decent wages than low taxes on unemployment benefits, welfare, or no income at all. American labor has always been willing to do, and pay, their fair share especially when one considers labor's indispensable role in creating the consumer demand that leads to the riches that too many investor and management types mistakenly see as either their God-given right or just reward for imagined Herculean efforts. These rates of taxation could eventually be reduced once revenue neutrality had been legitimately achieved through the intended increase in domestic production.
This approach would almost certainly require adjustment be made in the way that business is done. It might, in fact, lead to many business running tighter ships, especially in terms of executive compensation, given that any financial largess would now be coming directly out of the company's profits as opposed to taxes owed to government. It also would eliminate the huge, unfair tax advantage that individuals who incorporate currently enjoy vis-ΰ-vis Americans who are paid via a W-2.
Lest the idea be somehow misunderstood, let me reiterate that this plan is intended to be revenue neutral and is envisioned as providing a technical adjustment that will allow True Blue Companies to better compete domestically against companies who largely exploit low wage foreign labor, both here in America as well as internationally. It is not intended in any way, shape or form as a supply side tax cut. And were it not to lead to lower prices and increased employment, these provisions would automatically expire after a reasonable period time (perhaps two years).
In a larger sense what I am proposing is ultimately a re-orientation of the American economy from one that rewards passive investment, and exploitation of both American and foreign labor, to one that rationally rewards effort. I realize that many conservatives have been brainwashed over the past few decades and now believe that most forms of taxation amount to little more than highway robbery. For these individuals I can only suggest a study of the history of violent peasant and worker revolutions. There was a time in human history when what historians call the Great Chain of Being offered a degree of security for an aristocracy be that aristocracy of the inherited variety, ecclesiastical, or economic. Let me strongly suggest that this era is long behind us. While Conservatives to this day remain obsessed with debunking FDR's New Deal, I argue that, far from betraying Capitalism, by preventing America from falling into a Hobbesian State of Nature at the very movement that Soviet-style Communism was seen as a credible alternative, Roosevelt literally saved it. If we descend this time into more or less Hobbesian chaos, in the aftermath of an economic downturn that could well shatter what remains of our sense of shared national destiny, these alleged conservatives will long for the day when progressive taxation was rightly seen as the price for stable contemporary civilizations.
I'll not touch on the national health care component of this proposal, inasmuch as it has been convincingly argued elsewhere except to point out that healthcare costs comprise a significant component in the wholesale price of every American product or service. By gradually transferring these costs to individuals, while simultaneously expanding access, enhancing efficiency, and establishing portability, we establish a rational, sustainable foundation for the maintenance of the healthcare system. There is no free lunch, and at this time of potentially extreme crisis we must not hope for one.
United we stand, divided we fall
While every loyal American sincerely hopes for the success of the economic stimulus plan currently moving through Congress (unlike repugnant ideologues like Rush Limbaugh), I see no rational basis for believing that this plan will accomplish much of anything with regard to reversing America's longer-term economic trajectory. It cannot so long as there are CEO's who think like 3M's George Buckley, who recently defended his company's closing of 16 plants, and drawing down of inventory and capital spending (as reported in Ellen Simon's December 28 AP story, December consumer confidence drops to all-time low) in this fashion:
"Is this healthy? All of us acknowledge we're collectively making the situation worse, but I think the first responsibility we have as leaders of companies is to make sure that we ensure the health and survival of our own companies first, not necessarily other people's companies, or, for that matter, the whole U.S. economy."Given this kind of thinking and make no mistake, Buckley's perspective is entirely rational, given the flawed set of assumptions that we have been collectively conditioned to accept workers should expect neither change in managerial attitudes nor some resurrected notion of civic virtue any time soon. Given the prevalence of this type of thinking, I argue that we have literally created a crisis whose resolution is either the economic devastation or transformation of our nation.
In his famous study of mid-nineteenth century American Democracy, Alexis de Tocqueville cites an ethos prevalent throughout much of the country that is best described as self-interest well understood. That is, he observed an America where most people (except in the South, with regard to the issue of slavery) understood that blind selfishness led nowhere, and how a notion of shared economic prosperity was both virtuous and sensible. Let me suggest in the strongest possible terms that this insight may be key to our ultimate recovery in the years to come.
We have entered an era in which even United States Senators speak casually of revolution. Talk of revolution of one sort or another is everywhere heard and seen, on blogs, on television and radio, in barbershops and on street corners. And make no mistake: this sentiment did not originate in the media. It is a spontaneous reaction by human beings to the events of our time.
In my mind the two great challenges that we confront as Americans are these: one, to fundamentally redefine what it means to be an authentic patriot in contemporary America; two, to implement realistic, rational, sustainable free-market strategies that stand a credible chance of meeting the challenges presented by global economic competition. If we are indeed one people, then we necessarily share an economic destiny regardless of whether one is an investor, a manager, or a worker. If we do not share a destiny, if we are indeed nothing more than self-interested actors out only for personal gain, wed to a profoundly narcissistic conception of liberty, then all talk of connections based on mystic chords of memory and national destiny amount to little more than quaint romantic illusions and are best dispensed with here and now.
Let me be clear: I am not advocating the adoption of old-style Protectionist trade policies, such as those that were implemented in the 1930s. For instance, there would be no tariffs imposed on foreign-products. I am instead arguing that we overhaul the American economic engine so it can better compete within a global economy, while lifting all boats here at home. I am advocating that we embrace, in the phrase first immortalized by the Scottish Enlightenment, and then Thomas Paine, Common Sense.
It is in the interest of the American people that we implement economic policies that reward those who create jobs for Americans who sincerely want to work in exchange for a living wage. Workers pay taxes, pay mortgages, support families, and pull their own weight. Given our free market system, every True Blue Corporate Citizen can be thought of as providing an invaluable service and hence is deserving of our gratitude, as best expressed in the form of transformational tax legislation. In contrast, companies that place the interests of management and investors ahead of its American workforce must be seen as acting rationally, perhaps even sensibly, given our current flawed collective assumptions but decidedly not in the best interests of the United States of America, and especially so at a moment when this entire economy is imploding before our eyes. They must be seen as the amoral actors they are, actors who can hardly be trusted with the awesome task of defending America's economic future.
Finally, the ethical remedy to this emerging crisis strikes me as not one merely of enhanced personal virtue, as suggested by many conservatives although rejection of get-rich-quick schemes, mindless prosperity consciousness, pie-in-the-sky aspirations, myths promoting the ideal of self regulating markets, not to mention media lionization of the most ruthless and reckless among us, would certainly be a good thing. The appropriate ethical remedy in my mind requires the introduction of bold, game-changing economic policies that encourage collective virtue namely, the creation and sustenance of secure, highly skilled, highly paid jobs right here in America. Americans have proved themselves willing to work as hard as any people on earth. We would never be content to become the lackeys of a would-be corporate or investor elite in the international oligarchic system that the supply-siders ultimately envisioned. We would almost certainly launch a second American Revolution before that came to pass especially amidst the emerging tone of these times. So instead of standing by and watching the nation we love descend into financial ruin, foreign dependence, social upheaval, and potentially a second American Revolution, why not instead simply declare independence but this time, economic independence?
Matthew Carnicelli, © 2009. All rights reserved. Originally published February 1, 2009; revised October 6, 2009.