Wednesday, March 17, 2010

Citizenship Tax (2)

To recap, we assert that

1) Growth is a quality we seek, applaud and reward.

2) Growth entails exploitation of the available resources.

3) At some indefinable point, an entity's growth, if unchecked, becomes a detriment to the society which spawned it.

4) The only guide we have to measure the extent to which an entity exploits our resources is its revenue.

Thus, it is appropriate to levy a progressive charge, based on revenue, for an entity's use of our resources. We can call this progressive charge "A Citizenship Tax".

The Citizenship Tax is a levy assessed on the revenue of an entity, cited in terms of annual receipts. The progressive nature of the tax requires a standard base. We will use the gross receipts (revenue) of the entity, annualized, to provide that base.

The Citizenship Tax does not concern itself with the source of an enterprise's revenue. The tax applies whether the revenue results from the operation of the entity or the sale of its assets. The only criteria is that the enterprise receive the revenue (or its equivalent, as in the case of a swap). If an entity has extensive assets in cash, real estate, equity, or in any other form, the Citizenship Tax does not concern itself with the value of those assets. However, when an asset is disposed of, in whatever manner or form, the value of the asset is part of the entity's revenue for the period.

The Citizenship Tax is not concerned with the profitability of the enterprise. It is a fee we levy for affording our citizens the right to use our resources. The charge is for the extent of the exploitation, not for the degree of success an entity has in doing so. Whether or not the enterprise is profitable does not change the amount of resources it exploits in its operation.

The Citizenship Tax is progressive. As revenue increases, the tax rate increases. As will be seen in the tax table below, the tax is insignificant for small entities. As an enterprise grows, its tax load increases, but the load only becomes burdensome for rogues.

Taxes are an expense of doing business. They increase the cost of doing business, and that cost is added to all other costs to determine the price of the enterprise's goods and services. In other words, taxes are always passed on to the consumer. When a rogue attains an unwarranted size by manipulating the rules in its own favor or dominating its competitors to the detriment of the public, The Citizenship Tax adds a cost to its operation.

The wonderful thing about The Citizenship Tax is that it is utterly and completely objective. It makes no judgment about the goodness or badness of the taxed entity. It simply charges all enterprises for their use of society's resources.

If, by the nature of its business, an enterprise must be large, it is not injured by The Citizenship Tax because all competing businesses must attain a similar size. However, when a rogue grows beyond an economically justifiable size, the tax acts to protect the public interest without additional regulation.

Corporate growth is good, and healthy, and desireable. We want to give our entrepreneurs the freedom to grow. That is the way they enrich our lives. The Citizenship Tax supports this goal because it is absolutely even-handed. It makes no judgment about the excesses of an enterprise. It is absolutely and totally objective in its application, and in its effect.

If an entity grows to a size that exceeds its value to the society, The Citizenship Tax acts as an umbrella, increasing the rogue's cost of operation and giving its competitors a cost advantage which prevents their suffocation. In fact, The Citizenship Tax would enhance the viability of competition, immeasurably.

Even at inception, The Citizenship Tax is gentle in its effect. Each entity can meet the tax in its own way. Some (like those which have subsumed suppliers or competitors) may elect to spin those entities off, to resize their operations to a smaller tax base. The option is theirs.

Brief Recap To This Point:
1) An entity exists in an environment and may be said to be a citizen of that environment.

2) The size of an entity is evidence of the extent to which that entity exploits the environment in which it exists.

3) Entities are dynamic and exist in a dynamic environment. (They expand and contract in response to internal pressures and the expansion and contraction of their environment)

4) I have postulated that excessive size is bad, but, because of the dynamic nature of the entities and their environment, it is not possible to make a judgment that a given size is good or bad. Stated another way, size is a method of description. In itself, it is neither good nor bad.

5) While I believe in free markets, I do not believe that self-interest, exercised without regard for the welfare of the environment which nurtures it, constitutes a free market. On the contrary, carried to its logical extreme, self-interest protects and extends itself by dominating its environment ... the antithesis of a free market.

7) The most readily available device we have for measuring the size of an entity is the total number of dollars it takes in by reason of its existence (i.e., its gross receipts)

8) Since size denotes the extent to which an entity exploits our resources, it is appropriate to levy a charge for that exploitation. Such a charge is the only practical way to to identify and restrain excessive size. The charge must accommodate the concept that size, per se, is not an evil.

The Citizenship Tax is levied on the absolute gross receipts of an entity, from all sources and for all amounts received in its name by entities it controls. (i.e., franchises). The tax is progressive. Assuming a base rate of 2%, 2% is added to the rate each time the receipts increase by one decimal position, thus:

Annual Gross Receipts
Tax Rate

The tax rate increases proportionally from one order of magnitude to the next (for example, going from $10 billion to $100 billion receipts).

An intended side effect of The Citizenship Tax is that it makes inflation unacceptable. The more roguish an enterprise is, the more "pricing power" it has. The evils of inflation are reserved for those at the lowest end of the economic ladder. Humans never have "pricing power".

The most striking thing about The Citizenship Tax is that it harnesses a human trait ... the pursuit of self-interest ... in a productive way.


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