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Basic Tenets of this New IdeaEdit

I propose that companies which provide employees with higher wages in their field should have lower corporate tax. I propose that companies which provide employees with worst wages in their field should have ordinary corporate tax. I believe that any form of charity increase by a company should result in a reduction in corporate tax that goes beyond the costs of that increase in charity. Such a system would be based on a ranking of charity that compares individual employees of the same occupation among companies within a given field. In the proposed system, some companies would like to pay their employees pay unusually well to lower their corporate taxes by an unusual amount. Normally, America would have to increase taxes to help the working poor. However, in this system, this problem is averted by benefiting corporations in a way that rewards them for paying their employees more, rather than punishing them. The plan proposes tax credits which increase as a function of the superiority of a company’s wages and salaries when compared to worst wages and salaries in the same industry and area.

Formula for this new form of “Tax Justice”Edit

Given:

corporate\ tax=35\%

s=sales

a=expenses

b=extra\ wages\ and\ salaries\ under\ new\ system\ (according\ to\ it's\ superiority\ over\ the\ worst\ dollars/hr\ available\ for\ that\ type\ of\ job\ in\ the\ area)

T=corporate\ taxes\ normally\ (estimate)\ >\ 0

t=corporate\ taxes\ with\ new\ system\ (estimate)\ >\ 0

f=factor\ by\ which\ the\ company\ gets\ their\ money\ back

m=money\ before

M=money\ after\ (estimate)


T=.35(s-a)

t=.35(s-a-b)-b*f

M=m+(s-a-b)-.35(s-a-b)+b*f


In the situation that M remains the same after taxes when the company increases its payroll in the new system when compared to M before taxes in the old system - i.e. M=m+(s-a).

b+.35(s-a-b)=b*f

1+(.35/b)(s-a-b)=f

p=s-a-b=profit\ the\ company\ would\ have\ before\ taxes\ if\ they\ paid\ their\ employees\ extra\ given\ the\ new\ system

1+.35(p/b)=f

A higher value of f will support a higher profit-to-extra-payroll ratio. Thus a higher f will give more power to the company to spend money in things other than the payroll. A lower f means that more of the money goes into extra wages and salaries. The key then is finding suitable values for f. Companies with tough international competition and low, but existing, profits will probably prefer higher values of f (e.g. car companies). Companies which initially have low wages and salaries but lack foreign competition may prefer lower values of f (e.g. grocery stores).

To prevent inflation, f must equal 2 minus the corporate tax rate.

In the case of a coporate tax rate of 35%, this gives us:

M=m+(s-a-b)-.35(s-a-b)+1.65b=m+(s-a)-.35(s-a)+b

This is to ensure that the net finanicial benefit a company recieves for extra wages and salaries is equal to the extra wages and salaries themselves. It would be as though the company was able to invest the same amount of money from the bank in which their employees saved their money. It resembles the effects of increasing the personal savings rate of these employees up to several percent.

Are you trying to commercialize welfare using tax credits?Edit

Yes, and this is done by providing tax credits for companies that provide liberal-type funding for people who would otherwise would be lower paid (no matter how large their starting pay was). In this system, more generous pay of employees means subtraction from what they owe the government in the form of corporate taxes. Liberal and conservatives will like the idea of higher pay for wage earners and lower corporate taxes respectively. In this system, more corporate welfare is provided on the basis that the company provides individual welfare.

Where does the money for this tax credit come from?Edit

It comes from the customers at the store. Sales which are greater than expenses leads to profit. Under circumstances in which there exists a corporate tax, a tax credit would apply for companies who pay their workers generous sums of money. The maximum tax credit that Company A would benefit in the proposed system is equal to Company A’s corporate tax. Companies that don’t pay corporate tax would not benefit in this system.

Lowering the demand to raise pricesEdit

If f>1, then Company A would in fact gain money which they could use to attain more capital, hire new workers, or even use it to justify lowering their prices for a period of time.

Lowering the demand to reduce pricesEdit

The increase in wages and salaries in Company A, would make it less necessary for company B to reduce their prices, provided that the employees of Company A use the products and services of Company B. Company B may keep these customers without reducing prices, because these customers would have better pay and thus be able to afford the same prices.

Will this increase the standard of living?Edit

If it is given that the proposed system would increase employee pay while keeping prices stable, this would increase the ratio of average income to CPI, and would in effect, increase the standard of living in America. However, the cost of this is decreased funding for the government in the form of corporate tax which exceeds the increase in funding due to individual income tax. On the other hand, the increase in the standard of living would help people pay for insurance for example. Government welfare problems would be reduced in this system, since this proposal is a sort of commercialized welfare which is jumpstarted by unusually large tax credits intended only for companies providing better than the worst pay for their industry and area.

What about Small Businesses?Edit

Small businesses should have a higher value of f to remain competitive with larger businesses. The advantage of a higher f for small business is that a relatively small superiority in salaries and wages will help them retain the wealth they have created. If f=x, then these extra wages and salaries must be at least one-xth of the corporate tax for the proposed tax credit to equal the corporate tax. Democracy is needed to establish values of f that are acceptable by the majority. The wages and salaries of each small business working in given area should only be compared to the worst wages and salaries among them (this prohibits comparison with bigger businesses when evaluating how well a small business pays their employees).

What about the Government?Edit

Given a company taking full advantage of the proposed system, with an f that equals x, the government would receive extra funding from individual income taxes equivalent to a monetary value ranging from one-xth of 10% to one-xth 35% of the otherwise available funding from corporate taxes (corresponding to the top and bottom brackets for individual income tax). The government, in effect, would have less funding as a result of this implementation.

What about the Economy?Edit

The loss for the government may be made temporary by the positive effects this implementation would have on demand-side economy, and which it may have on supply-side economy, provided that f>1 for some companies, and that some of these companies use the extra kept money to increase supply. The implementation would also improve the effectiveness of proposed national sales taxes, those which do not involve eliminating corporate tax, as more money would be taxed through sales if more money was spent per person. Alternatively, instead of spending more, people who have their wage or salary increased may have more to fill their savings or checking account, or to invest in stocks and other market opportunities. In this system, the increase in their own pay may be due to their participation in a profiting company which pays their employees better than that the worst. One possibility may be that employers lure employees to invest in their own company, so as to be able to protect their own higher wages and salaries. Whether this practice should be allowed would be something experts would have to decide on.

What would discourage increasing wages and salaries?Edit

A company would be discouraged from increasing the wages and salaries if they don’t make profit. If they were experiencing a loss, they would be encouraged to reduce their expenses and/or increase their sales. They would have to improve their attractiveness and efficiency the old-fashioned way. This would become higher priority in the proposed “Tax Justice” since profiting companies with higher wages and salaries would have a significant edge over these losing companies. This may be compensated in part by allowing in the first year of profit after a significant loss in the previous year(s) a higher value of f than normal, and that in the years which follow, have a normal f so that companies which are then just making a profit after a loss will have a higher than normal f. In this way, the shift from loss to profit is adequately rewarded.

What are my goals?Edit

To increase pay for just about anyone in a nice profiting company, whether they are paid on wage or salary; whether they are grocery clerks, physicists, accountants, or any other kind of employee. To ensure that others including myself have better means of providing for ourselves. To allow for the possibility for grocery sackers and other low paid individuals to be paid $10/hr in a way that is fair to the companies they work for – without inflation. To allow for the possibility of increasing the pay of salary-supported individuals such as accountants or pharmacists in any type of profession whose corporation pays corporate tax.

ExamplesEdit

Assumptions:

Full utilization of the system

f=1

t=corporate\ tax\ rate

P_{normal}=Profit\ before\ taxes

P_{proposed}=Profit\ in\ the\ new\ system where corporate\ tax=corporate\ tax\ credit=money\ redistributed\ to\ employees

P_{normal}=P_{proposed}*(1+t)

T_{normal}=Corporate\ taxes\ in\ the\ old\ system\ (2006)

T_{proposed}=Corporate\ taxes\ in\ the\ proposed\ system

T_{normal}=T_{proposed}*(1+t)

n=number\ of\ employees

Company Microsoft Apple Best Buy Kroger
Stock Symbol MSFT AAPL BBY KR
P_{normal} $16,628,000,000 $1,815,000,000 $1,721,000,000 $1,525,000,000
t ~26.3% ~26.4% ~33.8% ~37.2%
P_{proposed} $13,165,479,000 $1,435,918,000 $1,286,248,000 $1,111,516,000
n 61,000 14,800 138,000 290,000
T_{proposed}/n $57,000 $25,600 $3,150 $1,426

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