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| Use of Proportional tax for Corporations to prevent dangers of 'Too Big' |
Most corporations are held by private owners or groups of
private share holders. At times a state owns a corporation but these latter
have not proved to be very efficient over the long run in meeting human needs, except in areas that are inherently noble-services oriented such as health and education, where the profit motive dilutes the very purpose of that service.
While corporations meet human needs, some become so large
and so profitable that they can even have an adverse and controlling impact on
humans. Private corporations usually function with an aim of maximizing profits
and not human welfare. Therefore, it is not surprising if a corporation that
has become a giant begins to exploit humans rather than serving them. If shades of George Orwell's 1984 have arrived on the planet, it is more because of corporate action rather than government action. In the very
least corporate behavior can lead to a concentration of wealth of the world in very few
hands while a vast majority struggles for their daily bread. Recent studies
indicate that less than hundred humans on the planet possess wealth equal to
the wealth of half the humans on the planet ( see here).
Mega corporations may develop so much clout that they can
even control governments. Therefore, in the past, courts have had to intervene
at times to control their adverse activities through a long and tedious legal
process or as in the case of banks, governments have been forced to bail out some with public money that were too big to fail and because they suffered for risky gambling with our money in the hope of huge bonuses. However,
there is a simple way to prevent a corporation from becoming too large and too
profitable for the larger good. Surprisingly it can be done by making corporate
taxation simpler.
Corporations in different sectors of the economy can be prevented from becoming too big and too profitable if the simplest available method of corporate taxation is used.
The usual way of taxing corporations is through a system of
graduated tax on net profits where different rates of taxation are defined for
different slabs. The idea is to encourage smaller companies with a lower rate
of tax. However the simplest available method of corporate taxation is
something called proportional tax. In this latter system, the rate of taxation
is proportional to net profits in a continuous and simple manner. The aim of
graduated tax is therefore met much more simply without the necessity of
defining slabs, but most important of all, proportional taxation automatically prevents
a corporation from becoming too big and too profitable. A description of this
simpler taxation system, also known informally as the rule of ninety, is given
in an online document here:
The way this works is that when corporate tax is
proportional to net profits, it does not impact small corporations in any
significant way as compared to existing methods. However if a corporation
becomes very large, its tax rate becomes so high that residual profits start to
diminish. It is compelled to reduce net profits. Further, beyond an even higher
level, the tax rate becomes so large that residual profit becomes negative and
the corporation is cut down to size automatically.
Proportional tax for corporations is different from
proportional tax for individuals. While proportional tax for individual implies
that they pay the same proportion of income as their tax, whatever is the level
of income, for corporations it implies that they pay a tax at a rate that is
proportional to their net profits.
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