Wednesday, April 3, 2013

Corporate Taxation, Employment

An acquaintance expressed the opinion that a progressive gross receipts tax on corporations would "kill jobs".  This is a counterargument:

I've lived long enough to see the results of unrestrained corporate growth and believe your assessment inaccurate.  When I was young, we had a small knitting mill in town (Warsaw, New York, population about 1,500).  That mill, in addition to the direct employment of 80 or so of our townspeople, also provided employment for another 20 or so folks in town:  The sandwich shop on the corner, a couple of local pickup and delivery services, the bank, of course, and. to some extent, the shops patronized by the the mill's employees.

That may seem like pretty small stuff - and it was - but it was typical of thousands of small businesses throughout the country.  Over the past 50 years or so, those small companies disappeared, replaced by a few large producers.  The sources of employment that were lost were not just the small companies but the support services, too, the little restaurants, the banks, the pickup and delivery services, the repair shops that maintained the equipment.  They all disappeared, too.

This process pervaded the country.  The automotive industry was marked by the loss of auto supply stores and maintenance shops as the manufacturers sought to control their markets - to the extent that it now costs $100 to replace the ignition key for my car.

Perhaps a better example is the brewing industry.  This table shows the percentage of beer produced in the United States by the top 10 brewers:

    1950 - 38%
    1960 - 52%
    1970 - 69%
    1980 - 93%

If you happen to check the details (link below), you'll note the increasing difference between the largest brewer and the tenth largest.  In 1950, the largest brewer produced about 3.5 million barrels more than the tenth largest.  In 1980, the largest brewer produced 46 million barrels more than the tenth largest, and that disparity grew to more than 90 million barrels by 1997.

The extraordinary difficulty of understanding the relationships between individual producers and society is illustrated by the effects of marketing.  Behavioral scientists taught our commercial leaders how to influence the public and they do so with great precision.

Furthermore, the mushrooming of mass communication during the past 100 years has allowed honing and refining the manipulation of the public so that it is now a standard feature of our lives.  During the 1950-1980 period, the total beer consumption more than doubled from 82,830,137 to 176,311,699 barrels, while population only grew about fifty percent over the same period.  This shows the enormous success of the application of the principles of behavioral science to the marketing of beer.

You can say this was destined to happen as the economy evolved, and there is merit in that argument.  But, evolution is not the problem, the problem is that corporate growth turned cancerous.  It stopped responding to society's needs and mushroomed at the expense of the people rather than in harmony with them.

Our elected representatives, needing corporate money to finance their campaigns, let the most aggressive companies grow without limit, ultimately becoming "Too Big To Fail".  The executives of these companies are very good at what they do and the growth of mass communications has made their manipulating influence inescapable.  Since the goals of these parasites are seldom in concert with the best interest of the humans among us, the ease with which they accomplish their goals scares me.  I'll be leaving this earth before too many more years have passed, but I can't help thinking about the terrible legacy I'm leaving for my children and grandchildren.

Throughout nature there are moderating influences to inhibit excesses, predators of all kinds are kept in check by other predators.  At present, in our society, we have no such moderating influence on predatory corporations.  There is no force to prevent 'excessive' growth - in part because there is no way to define 'excessive' growth.  The idea of a progressive tax on gross receipts is that it, very gradually, applies an inhibiting force the makes excessive growth less productive.

A progressive tax on gross receipts makes the acquisition of competitors less appealing for large companies.  It provides a counterbalance that discourages monopolistic growth after the maximum economies of scale have been realized.  It enhances competition immeasurably by preventing the suffocation of smaller businesses, thus increasing not only the direct employment of the surviving companies but the indirect employment of the support services that supply them and their employees.  It further blesses society by enlisting corporate support in fighting inflation.

Fred Gohlke

The details for the brewing industry are available at:
Shakeout In The Brewing Industry.

The details for U. S. population growth are available at:
US Historical Population, by Year

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