Check out this Bloomberg news headline: Obama Tells Panel of Advisers U.S. Recovery Is Challenged by Jobless Rate.
Now check out the title of this blog entry from NoLabels.org from last October: Bipartisan Corporate Tax Extremism is Killing Job Growth.
Next, consider this quote by one of the greatest problem solvers of the 20th Century courtesy of a book on problem solving by Greg Z. Fainberg titled “How to Solve Just About Any Problem: Timeless Practices for Solving Problems Better“.
Problems can not be solved by thinking within the framework in which they were created – Albert Einstein
Finally, consider this related notion offered by well-worn book on problem solving by Richard Fobes, “Creative Problem Solver’s Toolbox: A Complete Course in the Art of Creating Solutions to Problems of Any Kind“: identify an independent dimension that differentiates closely associated concepts.
Let’s see if this notion can be applied to this problem.
A) Business advocates in the U.S. want lower corporate tax rates because it allows them to get a higher rate of return on their financial capital.
B) Labor advocates in the U.S. want corporations to hire more domestically and/or pay more to domestic workers so that they can get a higher rate of return on their human capital.
How could the U.S. government easily accommodate both of these interests simultaneously? How about considering this dimension: The federal corporate tax rate. How so? Make a corporation’s federal tax rate dependent upon how much it supports broad domestic employment relative to its profitability. Here’s how:
1) A corporation’s federal tax rate would be based on its “domestic profitability rate”.
2) A corporation’s “domestic profitability rate” would equal the company’s total taxable income divided by Social Security wages.
3) The higher a firm’s social contribution rate, the lower its federal corporate tax rate.
A key advantage of this kind of corporate tax rate scheme is that the federal government does not have to pick which industries to favor in order to support domestic employment of ordinary workers. Its political appeal to various interests groups in the U.S. could make such a proposal a significant game-changer for domestic policy:
- Progressives and labor advocates want corporations to be motivated to employ domestically.
- Conservatives and business advocates want the federal government to take less from their bottom line in terms of federal income taxes.
- Small business owners, firms that most likely employ mostly U.S. workers, would automatically enjoy preferential federal tax treatment relative to larger multinational corporations.
- Domestic manufacturers would automatically get preferential treatment relative to those that directly or otherwise employ labor outside of the U.S.
Overall, such a proposal would better align the interests of ‘heartland’ conservative voters with progressives over the issue ‘outsourced American jobs’, while aligning both with U.S. business and capital owners who would prefer to hire domestically but face the hard choice of how to do so while also competing in the new global marketplace.
Such a reform of federal corporate tax rates would be easy to implement for the following reason: companies doing business in the U.S. already have to compile and report to the federal government the amount of Social Security wages they pay. Incorporating this figure into their financial planning would require them to break this figure out from other salary and wage information, but it is should already be relatively easy to do so because the information is already being collected to comply with federal tax reporting.
The devil, of course, would be in the details–i.e. how exactly corporate tax rates would be lowered based on a firm’s ‘social contribution rate, and how to allow for smoothing tax rate smoothing over time using carry forward provisions–but such a tax scheme could provide a valid means to bridge the deep partisan divide that has gripped the country over the question of how corporations should contribute to the overall health of our domestic economy.
Note: This post was updated on 9/23/2013.