The Call for a Constitutional Convention
The Goals of Mutual Responsibility
Mutual Responsibility has simple utopian goals: food and health, education and worship, for everyone. Despite a long history of disagreement on how to achieve success, most people would recognize these four personal goals as primary to a better society: To be healthy, educated, productively employed, and upstanding. An economic system that prioritizes these qualities is well within America’s grasp.
We are only half-wise. By agreeing to be a nation equal under the right of law, rather than subjects to a king who would hoard wealth, our forefathers created an opportunity. Throwing off the yoke of the King in 1776 required not just a systemic change, but also a radical reinterpretation of each man’s place in society. The challenge of today is more difficult. The rules of the society we now live under are of our own making, there is no scapegoat but ourselves. The free enterprise model causes our political friction, not implicitly by the personal intentions of those who hold power or wealth, or of those who want the power and wealth for themselves. Our democracy needs to solve this conflict, or our crumbing remains will serve only as an example. As we have learned from others, so will others learn from us if we fail.
Armed again with courage to change our world, our economic utopian goals can be accomplished with five simple Constitutional changes. By using the best gift of democracy, our power to vote, we can remake ourselves peacefully.
Thomas Paine introduced Common Sense with these words:
Perhaps the sentiments contained in the following pages, are not yet sufficiently fashionable to procure them general favor; a long habit of not thinking a thing wrong, gives it a superficial appearance of being right, and raises at first a formidable outcry in defense of custom. But the tumult soon subsides. Time makes more converts than reason.
We have lived by these words once, we need to live by them again. We have created a society of great wealth, but of little hope; a system of laws, but of little justice; we have advanced knowledge, but have sacrificed wisdom. We can end our slavery. Utopia awaits:
The Contract For Mutual Responsibility
1. A Zero Interest Rate
In an agrarian age, a farmer would keep a ledger of his goods. If a neighbor needed his eggs, he would record the transfer. At some later date, the neighbor might bring a cord of wood in payment, which would also be recorded. The state of the marketplace was no different than today; you always owned someone something and someone always owed you something. This was the situation whether you were the farm-owner or the farm hand.
Interest is an imposition on the natural flow of trade. Cash flow has now become more important than the manufacturing. One cannot stand still, or slowly invest the time to hatch an idea or grow a crop. Interest creates an artificial urgency to the flow of commerce. It raises the price of goods artificially. To cover the cost of interest, one must raise his prices. This explains why prices have risen consistently over the years, despite changes in tax law and interest rates.
The issue regarding interest is very old. Muhammad taught that interest was immoral. In the modern society, where keeping track of wealth and transfers is much easier, the moral issue is still the same, but most people are completely unaware of this idea. Paying and collecting interest seems to be a natural element of free enterprise. No one questions it.
The Last Sermon of Prophet Muhammad
O People, just as you regard this month, this day, this city as Sacred, so regard the life and property of every Muslim as a sacred trust. Return the goods entrusted to you to their rightful owners. Hurt no one so that no one may hurt you. Remember that you will indeed meet your Lord, and that He will indeed reckon your deeds. God has forbidden you to take usury (interest), therefore all interest obligation shall henceforth be waived. Your capital, however, is yours to keep. You will neither inflict nor suffer any inequity. God has judged that there shall be no interest and that all the interest due to Abbas ibn ‘Abd’al Muttalib (Prophet’s uncle) shall henceforth be waived…
The American dream to own property is based on the interest payment of the mortgage. We borrow to attend college, buy a car, and a great many activities. Most home mortgages carry an interest cost that is two or three times the cost of the property. Lately we have seen college students accumulate debt on credit cards, and payment via credit card is now the norm at supermarkets. Even if the user pays off his credit card monthly, the establishment is still paying an interest charge of approximately 2% to 4% for the transaction, which when converted to an annual rate is the astoundingly high annual rate of 24% to 48%. If the cardholder gets behind, he can also pay interest rates as high as 24%. In total, the credit card companies can routinely collect an annual interest fee of almost 72% on transactions for use of their cash. A return like this is onerous on the people that labor to produce the actual goods and services that the nation consumes.
More shocking is that the stock market follows an even more extreme interest reward system. The banks and credit card companies are funded with investor’s cash, and the onerous charges they collect are then passed through to investors. Lucky investors can then realize profits well above and beyond 100%, still without performing any actual labor or service. And venture capitalists, who provided the seed money initially to get the corporation off the ground before it became publicly traded, can realize gains in the 1000% range and above.
Everyone is free to participate in this system, including the corporations themselves, so we call it free enterprise. The stock market of course has winners and losers. Some corporations are now profitable because of the stocks they own in other corporations, instead of for the products they actually manufacture. What we really have is mechanism of slavery that we are all subject to. The fruit of ones labor is their capital, be they an individual or a business, and it is constantly being siphoned off to others by the mechanism of interest and dividends.
Interest is a privately owned tax mechanism, much more outrageous than the colonial tax on tea. It taxes all the transactions that take place in society, and provides no one with refuge. The wealthy are forced to store money in the stock market to protect it from losing value from the constant pressure of rising prices. Of course, this doesn’t always work because sometimes the whole market drops, so even playing within the system is a futile exercise. Separate from the immorality of it, interest enslaves us all, corporations and individuals alike, to a foolish and false mechanism of wealth.
From this perspective, it is easy to see how so many economic theories and tax programs often go wrong. The constant adjusting of tax rates and interest rates is actually causing the cycles in the economy that the government hopes to control. In this area the ideas of Adam Smith may be correct, but we have not practiced them. If we left the market alone, it may in fact take care of itself. During agrarian times the biggest market force was the amount of sunlight and rainfall. As we have attempted to control the market, usually for reasons of avarice, we have made our plight worse.
Today the biggest market force is venture funding. Venture capitalists constantly fund ventures and and then cut the funding off. Their decision is based on their comfort level and the success of the entrepreneur in meeting deadlines, market conditions and other more attractive opportunities. Venture capital is often credited with funding the new products that get to the marketplace, but just as often they stop the development of such products too. New businesses and technologies are started and abandoned based on a frenzy of greed that interest creates, rather than the slow path to success that the entrepreneur needs to develop his invention. Interest is the trigger for the boom and bust cycle of our economy and personal wealth. No one escapes it. Bankers, insurance companies, pension plans, manufacturers and individuals are all caught in a destructive cycle of interest lust.
Interest also creates a huge false economy. A tremendous amount of activity is spent administering the interest mechanism, not just in its application, but also to take advantage of different rates or “opportunities” in the marketplace. The farmers’ hen laid just one egg, all the bookkeeping in the world will not alter that basic fact. Bookkeeping, auditing, transferring accounts, buyouts and all the modern world services that have to do with interest do not create any real wealth. If the farmer and the hen are both healthy, there is no reason to transfer their capital from one person to another. Interest puts everyone’s economic life under a constant state of attack, to stand still is to fall behind. Food, clothing and shelter, our most basic of needs, are compromised by a system that transfers wealth into a fictitious system of efficiency. It serves neither the wealthy nor the poor.
2. Fixed Market Pricing
Once the hen has laid an egg, who determines the price? Since the farmer knows the cost of running his farm, it is only logical that he should fix the price for his eggs. Because he has competition with other farmers, he cannot set any price he wants, but he can set the price for his own eggs, at whatever profit level he needs. A consumer should then be able to buy this farmer’s eggs at the same price wherever those eggs are sold in the local community. This is a difficult burden for the farmer. Some of the resellers may be difficult to work with, want more attention, pay slow or buy less than other resellers. This is a natural fact of business life. The farmer will need to adjust his pricing accordingly, or refuse to sell to those resellers he does not want to do business with. It is important for him to charge the same price or forgo the profit entirely. Whatever he decides, that pricing pressure will be reflected in his competition with other manufacturers, who also sell to the same groups of resellers. The profit margins the reseller’s use is thus set by the farmer. If he sets it too low, the reseller won’t carry his goods; too high, and the consumer won’t buy his goods. This ensures pricing competition in the marketplace, but it is behind the scenes, at the manufacturer level.
Why is this important? It is important because resellers currently compete unequally, and the consumer who shops for the lowest price rewards the worst behavior.
Under the current system, for a reseller to sell the same item for less than another reseller, he must do one of two things: reduce the product cost or reduce his overhead. With a fixed retail price for the same good, the resellers will also need to have a fixed wholesale price too so they can compete equally. In general, this is already the case, but some larger buyers are able to negotiate better terms for themselves. So while a reseller can sometimes buy better under the current system, it is more likely that he will attempt to lower his overhead. Interest, of course, is also driving his need to cut costs, not the profitability of the eggs. Since the assets of the building, land, and displays are pretty much fixed, the only variables left in managing the company are the labor costs and the business expenses. He can either cut advertising or squeeze his employees. Since reducing advertising will probably reduce sales, he really has no choice but to squeeze his employees, either with smaller wages, less benefits or increased workloads. Or, if he is big enough, he can petition the government for special accommodations. We are all familiar with the tax loopholes and favoritism that marks our current system.
Fixed Market Pricing does not result in higher prices for the consumer. For the manufacturer to sell to the reseller for less he too would have to go through the same machinations of either squeezing advertising or squeezing his employees. Fair Market Pricing protects both the manufacturer and the reseller from a destructive pricing competition, and protects both of their employee groups from getting squeezed just to benefit the other. The consumer is better protected too. The price he pays is not subject to vagaries and as an employee he is not pressured to work without reward to satiate the interest mechanism.
The lack of price competition between retailers for the same product also has no ill effect. A business is not successful because of the profit margin on any one product or sale, but based on the critical mass of the sales volume. Without enough sales volume, a business cannot be profitable, regardless of any specific profit margin. With fair-trade priced products, the playing field is leveled between small and large businesses. Both the economy and the consumer win, as well as the employees of the businesses. Consumers are driven to shop for the best product and the best service, rather than price. The small business now can compete equally with the big business, and the consumer can choose accordingly. Monopolies are still equally problematical and must be avoided, and the web merchant has no price advantage over the brick-and mortar store.
For the consumer, different brands of eggs will be different prices, but the same egg will be the same price at different stores. This system treats the manufacturer, the retailer, the employee and the customer most fairly, while retaining free market competition between manufacturers. Free enterprise is the ability of individuals to participate and enter the marketplace. Entrepreneurs can still enter the marketplace and not be disadvantaged by their company size or amount of capital.
There is a cultural assumption that is rampant in our culture that lower prices are better. Underlying this is a belief that profit is unjust and predatory. While that may be true of monopolies, it is not true for most businesses. Everyone is paid from the profits a business generates. Profits are the moral fruits of ones labor. That is why interest is immoral. It takes the profit without doing any of the actual work. A Fixed Market Price mechanism is a logical extension of this philosophy, since by protecting profit it protects the fruit of ones labor. Banks and other financial institutions will need to change their business model. Instead of free checking which is paid by interest paying customers, everyone will have to pay for the services they receive. This is much more logical too. If you buy an egg then you should pay for the egg. The special arrangements for getting things free, or discounted, is a mirror of the immoral interest mechanism. It all comes at someone else’s expense. Discounting promotes slavery, it devalues our morality and cheapens our relationships with each other. It also feeds the division between the business owner and the employees. Where the owner sees a competitive pricing threat, the employee sees unfair treatment. A Fixed Market Price is best for both the employers and the employees.
3. National Sales Tax
Citizens in a free country have two simple responsibilities: To Vote and to Pay Taxes. Beyond that, there is not much they are required to do. In our country, that would seem to be a gargantuan request. Very few people vote who are eligible, despite the sacrifices made on their behalf by previous generations. And taxes? Well, you know. Is there anything that is talked about more, complained about, adjusted, promoted, or frightening than taxes? One would believe that taxes have some sort of magic power. Sometimes I think taxes must be a fire-breathing dragon, blocking out the sun, and spewing a hot breath of fire on the poor innocent townspeople below. And our Congress, it is full of wise wizards of black arts, who argue amongst themselves as to whether they should stab the dragon in its belly, or try to put a harness on it, and put the children of the village on its back, and ride it to some enchanted village on the other side of the mountain. Whatever idea should come into your head, whatever image you see for the future, it will only be accomplished by doing battle with this dragon of death and magic. Hmmm. Maybe the dragon is neither scary nor magical. Maybe it is just a way to get things done, like a bucket to carry the water from the river. You need the water, and you need to carry it. We can do it the easy way, or we can do it the hard way.
There was a time, when our nation was young, when courageous men risked their property, their lives, and their families, for an idea. They were simple men who lived simple lives. They worked hard, they lived a hard life. They rode horses and read by candlelight. They did not always agree.
People have never changed throughout history. We are all born stupid. Some people get wiser as they grow older, some people grow otherwise. We still make great sacrifices for an idea, but somewhere along the line we lost sight of what was the original idea. When the dust had settled from the War of Independence, we set about the business of forming a system of government. We started the document with three simple words: We the People.
The magical dragon is not our foe, he is our guide. It is the expression of our collective spirit. If the dragon is wild and unwieldy and angry and destructive, then that is what our collective spirit has become. We the People have lost our way, and nothing reveals that more than our tax code. We all make mistakes, and our founding fathers made one too. Actually, I should rephrase, they did the best they could under the circumstances. They took a system of monarchy, and gave rights to the common man. For them, that was the paramount problem. We are now well into this experiment, and our rights are reasonably well secured. For us, the paramount problem is our economic model. We live in a new industrial world. The growth of the industrial world created immediate social conflicts. The Communist Manifesto was written in 1848, when America still had slaves. We are infants in what will be the history of industrial society.
The founding fathers gave us a social utopian beginning, and it has been adjusted only slightly over the years. The economic model it was paired with, free enterprise, was recognized as problematical even then, because it elevated greed to a virtue. The system of checks and balances had been intended to keep the greed in check. Instead, we now have a system that is driven by the greed. It was a very delicate balance that they aimed for, because it was not greed to want to keep the fruit of ones labor. A system that allows a man to work hard, and to do the work of his choosing, is a free system. It intended to free him economically, in the same way the Bill of Rights freed him individually. Industrialism and the rise of corporations tipped the balance.
There is nothing in the current system to counterbalance corporate strength. We now have a system of greed that no one can control. The interest mechanism is driving the corporations as much as the corporations drive the tax laws. And of course, all of the employees, in all of the corporations, are getting squeezed as well, as do the stockholders of the corporations. Interest and corporate power has distorted our economic system. The system itself drives the perpetual need for greed. The simple spirit of egalitarianism, which was contained in the words We The People, has been lost.
Throughout history, taxes have always been a hot button issue. Lady Godiva rode naked to protest taxes. We dumped tea into the harbor to protest the King’s new tax. The King’s tax was to pay for the colonies defense. We were unreasonable to think we should not have to pay for our own benefits. Greed is not just a modern phenomenon. The American complaint then, and the American belief now, is still the same: No Taxation Without Representation. That argument was somewhat disingenuous then, and it is equally disingenuous now. People simply prefer to get things for free, especially if they think the other guy has more money than they do. The people wanted to be free of the King, and taxes were a convenient rallying point. So now we have a system of representation, and people still claim to only want to pay a tax that benefits them directly. More often, they want to charge those directly who created the cost. It is really a system of commonwealth managed by a system of common stupidity. It is the same disingenuous claim, but on a smaller scale. At its heart is the problem that concerned Thomas Paine the most, the elevation of greed to a virtue.
The result of this odd combination of idealism and pettiness is the tax dragon. Do we ride him or do we kill him? Will he help us or will he kill us? The answer is he can do both, like most affairs of men, there is no perfect system. Our current system is pretty bad however. The biggest problem with it is that there is no room for courageous thinking, since everyone’s interests is now narrowly defined. Somebody wants funds or somebody wants a break or somebody sees a problem, and the solution is always the same: adjust the tax code, make an exception, charge a fee, tax that activity or not. If it is not specifically budgeted and paid for it cannot be accomplished. The system of checks and balances does not set priorities and work through a list needs, everything is a trade off. That in and of itself is not such a bad thing, the problem comes in the way it is done. Because of the idea of No Taxation Without Representation, we have a dragon of confusion. We tax, we fee, we audit, we change, we update and we do it over and over again. Is the government a bureaucratic nightmare? Absolutely. What we need is Taxation Without Any Specific Representation. The representatives’ job is only to spend the money wisely, and to determine the three tax rates that everyone pays equally. The first of which is a National sales tax.
The National sales tax does not apply to man’s basic needs: food, shelter and clothing. It probably should not apply to transportation either, since that really is an essential component of our humanity in the modern world. People have to travel to work, they have to buy a car and gasoline to get there, and so they should not be taxed just for traveling. Likewise, the cost of transporting a product is in its cost, so it does not need to be taxed on its way either. Also, there would not be a meals tax for prepared food. People have to travel and they have to eat. The sales tax does not apply to things that are resold, the same as the current system, as that would artificially inflate wholesaler to distributor prices and the same product would be taxed twice. Only the end-user pays tax. Somebody who is poor and living on the edge pays no tax, since food, clothing, shelter and transportation are all exempt. The more non-essential products you buy, the more tax you will pay. This allows people flexibility in their economic circumstances. When times are tight, they can tighten their belt more easily, they don’t have to petition the government for tax relief, they can just spend less. The people who are wealthy and buy more pay more, but they get all the same exemptions as the poor people. The main elements of their lifestyle, where they live, what they eat, how they dress are all untouched, including their travel and hotel rooms. Building materials are taxed, however. So if you build a new home, you pay a sales tax, but there is no capital gains tax if you sell a property.
By eliminating the income tax, for both individuals and corporations, and the myriad of tax incentives, fees, offsets and rebates, it drastically simplifies the function of government and makes peoples lives easier and simpler. The annual crunch of tax day is eliminated. The artificial strategizing and buying to avoid taxes is eliminated. All the estate planning that goes on is eliminated. When you die, the family keeps the money. When the heirs buy something with it, the government collects its tax then. Money sits idle in the bank. It draws no interest, it generates no income. People are free to do with it what they will. A national sales tax eliminates mountains and mountains of paperwork, frustration, corporate lobbying, artificial incentives and confusion.
Corporations and citizens are treated as financial equals. Rules, laws and regulations continue to exist, and breaking them will have consequences, but fees are no longer a revenue stream. If cars or trucks need to be inspected annually, then a system of inspection can be set up, but there would be no fee to cover the system of inspecting. Inspections can be based on age or mileage of the car, rather than the artificial trigger of annually. The ability to levy individual fees and taxes creates an incentive for lawmakers to add more fees and taxes. As we now know, there is no end in sight to this bad habit of funding pet projects and special favors. Lawmakers need to redevelop the habits of the original founders, to think broadly and with a degree of egalitarianism. Without the ability to micromanage the economy, and with the elimination of income tax and fees, lobbying will reflect serious social problems rather than corporate favoritism. Lawmakers will be free to serve the broader needs of the people rather than narrow selfish interests.
Since revenue is collected constantly from the natural flow of the economy, the only auditing required is of merchants that are collecting and paying sales tax. Tax loopholes, tax shelters and all related accounting schemes are rendered moot. There is nothing to hide. Even conventional criminal activity is less damaging, since they will be paying taxes on the things they buy.
By following the trail of manufactured goods from the manufacturer to the end-user most abuses can be caught quickly and easily. Laws will no longer act as a shield of confusion that block average people from the same privileges others receive. Government regulations will continue, but without fees attached. If something needs to be done that is in our collective interest, then the government will foot the bill from the general treasury. No longer will we use a fee paid by an industry to regulate and inspect the industry. It is a conflict of interest for the government to collect payments from the person it is regulating and unfair.
The people have two responsibilities, to vote and pay taxes. With a National Sales Tax, understanding the tax laws will be as easy as voting. Corporations and citizens we have equal rights.
4. Universal Health Insurance and Social Security Insurance
Despite the best attempts to treat everyone as equal, the fact remains that people are different. Our physical make-up is different, our interests, our abilities, and our dreams are all different. We need a system that respects our both commonalities and our differences. One commonality is death, and his best friend time. We are all going to age, we are all going to get sick. The differences between us are only when, why and how. There is no if. Everyone needs healthcare, and everyone needs the same healthcare.
In the same way we have created a tax dragon of micro-mismanagement, we have done the same with healthcare. There are as many health plans as there are taxes and fees. You really cannot blame this problem on the government, this is the inevitable result of the idea that greed is good. Everyone is constantly seeking a less expensive plan. The healthy do not want to pay for the sick and the sick want help from the healthy. We need a system that is based on our ancient sense of community. If you are sick, you go to the medicine man, and he tries to cure you. We have healthcare capacity in our society, but it is guarded by a maze of confusion. It serves neither the patients nor the providers. We all have the same body parts, the healthcare system should treat the people attached to those body parts equally.
None of us really knows what healthcare we will need. Needing care is winning the lottery of chaos. It is not something anyone wants to collect on. The question is how to pay for it. The solution is to simplify the transaction and to share the burden. That is the whole idea behind insurance is it not? While we have no income tax, there will be a payment based on income for health insurance. It is a fixed percentage of income. The more you make, the more you pay. There is no upper limit, there is no minimum payment. If you don’t work, you are still covered. Whenever you get a paycheck, that percentage is deducted. It is fixed the same for everyone, just like the sales tax.
When you retire, or stop working, your health care is provided by those who are still working. But when you retire, you still need money to live. Social Security currently helps people with that problem. Social Security continues, but the pay out is based on what you paid in. If you lived poorly all your life, Social Security will help keep you in the style you are accustomed to. If you lived well, then it will pay you well. Social Security is also paid as a fixed percentage of income. With interest and dividend payments eliminated in society, it is the only place that exists where you can grow an income without actually working. This provides a counter-balance to the desire to get free healthcare by hiding income. If you hide your income from a cash business, you are also robbing your future. And of course, you are still paying sales tax on everything you purchase, so there is little incentive to cheat except to get free health care.
These only two income based taxes, one for Health Insurance and another for Social Security, at a fixed rate for everyone, will eliminate all the draconian machinations of the IRS. We have a system where we are all slaves to numbers written on a piece of paper. We create artificial rules, artificial laws, and artificial penalties to serve an artificial system. And we do this to ourselves! This system will free the individual to attend to his own interests, and his own dreams, at the time of his own choosing. Many people fear to change jobs or attempt new endeavors because of the cost of health insurance. This frees our collective spirit from this burden. We no longer have to look to our employer for a solution to our healthcare or our pension, and it frees the employer from competing over items he cannot control. He no longer needs to squeeze the worker’s benefits, since he is no longer responsible for them. Whenever, wherever, we earn money, it will be enough to cover the cost of our healthcare and our retirement. The individual is empowered, the employer is released. We all are better off with universal benefits.
5. Corporate Income Balancing
As discussed, the interest mechanism promotes slavery by transferring wealth from one party to another based on the transactions that take place. The person who does the work is robbed by the person who does none. We are all both the robber and the slave, since we all benefit and pay into this mechanism.
Wealth in a corporation tends to flow up and out. It flows up to the officers, CEO’s, etc, and then it flows out to the shareholders. Employees get their share based on the market forces within the corporation. Some companies pay better than others, and have better benefits, pension and insurance plans. Every company is unique, industries are different, and the leaders themselves also cause cycles based on their interests and attention to the details of managing the enterprise. People tend to think of corporations as a thing, as opposed to a group of people making decisions the best way they can.
Corporations, like the people at large, are under enormous stress to keep up with the interest cycle. It only takes three bad decisions to put a company out of business. Our history is littered with companies whose success suddenly vanished. Small companies and big companies are all subject to the same problems. Timing, product, skills and opportunity all play a critical role. We have even seen the same problem occur in government. If one makes too many bad decisions in a row, or if a couple of unintended consequences occur, bankruptcy is always the result.
It used to be that we put debtors in prison. That practice was abandoned when it was finally realized that imprisoning the poor would cost more than the crime of which they stood accused. Since the government did not want to assume the debt of punishing, it was decided instead that being poor and owing money was not a crime. This is an interesting paradox, because what it really says is that if you take money from someone it is a crime (stealing), but if they lend it to you and do not pay them back it is not a crime (bankruptcy). Ironically, there is a movement underway to make bankruptcy a crime again. The biggest victims of bankruptcies are the credit card companies, who of course are driving forces behind the slavery that interest causes, and the cause of the bankruptcies.
Along with a skyrocketing number of bankruptcies, we have seen the rise of two-income families, and yearly health costs increases. Despite the micro-mismanagement attempts in the tax rates and interest rates, we have seen wild fluctuations in the stock market and the federal deficit. The issues of this election are the same as the last, which are the same as the one before. We have been arguing about the economy and corporations and health care and social security for a very very long time. The American Revolution did not change the structure of the economy. Beyond seizing the King’s property, and declaring the right to private property (which had already existed if the King liked you), we have followed the same basic economic model that the King used.
Simplifying the tax structure makes our lives easier. We don’t have to be bothered with the incessant need to fill out forms or decipher arcane language. It relieves us of the burden of artificial priorities. It makes our duty to pay taxes clean, quick and understandable. Nevertheless, it does not really change anything fundamentally. Three flat taxes is a better tax system than what we copied from the King. People do not like being pecked to death by a duck. It will solve that problem, but not the bigger challenge.
The bigger challenge has always been the difference between the wealthy and the poor. Wealth, of course, with all its glitter and gold, has always stood in stark contrast to the poor. Many people believe that wealth is a crime. Of course, like our attitude regarding the King’s taxes, it is always the other guy’s wealth that is the problem, not mine. We all believe that we came into our own wealth justly, whereas the other person came into his wealth unjustly. Or conversely, he is poor because it is his own damn fault. If he did what I did, he could be rich too.
The mechanism of interest and the rise of corporations have changed all that. People are wealthy on paper much more than they are in reality. And by the same token, we are poorer on paper than we are in reality. The stock market has turned us all into slaves, whipped incessantly by rising prices and interest payments. Overnight we can become rich or poor and back again. The corporations (the people that run them) are as much a victim of this system as are other people. The attack on the World Trade Center could not possibly change our economy, because we no longer control it ourselves anymore. Our thinking that this system works is what controls us. It is the perfect Orwellian circle.
In the time before corporations and mechanization, there were always the rich and the poor. Distinctions in wealth are common. The bigger questions are why, with all the machines and technology and industrialization working hard, does the gap between the richest and poorest remain? And, how is it possible to make or lose a fortune overnight? Separate from market forces, money represents labor. Twelve eggs cost a dollar. Everybody does different work and the value of their work may be different, but a fortune represents thousands and thousands of hours of labor as much as the goods that the labor produced. Making a fortune overnight or losing a fortune overnight means you either robbed or squandered thousands of hours of labor or the goods they produced. But that does not make sense either, because an hour worked is an hour worked. An egg is an egg. It is real. What we are doing is assigning more value to the accounting than we are to the actual process.
For a pharmaceutical company to make money, it needs to manufacture a drug and sell it. It will only be successful if it can attract venture funding, go public, sell stock and sell the drug. This is considered to be the best of all possible systems. But what about the patient? Was it not the purpose of the medicine to help someone or was it always just to make money? It is at this point that greed gets elevated to a virtue. The founders expectation was that because a man wants money, he will bring to the market the goods that the market needs, and in the most efficient manner. So the entrepreneur will get his rewards and the patient the medicine they need. But what goes on now is actually very different. In the same way we have mismanaged tax collecting, competition, health care and social security, we have also mismanaged our labor.
It is possible to make or lose a fortune overnight because the value of the labor flows up and out of the corporation, where it can pool and artificially inflate in the stock market. This accounting method puts the human capital outside of the corporation. Had that value stayed in the corporation, the fortune that the labor created would also stay within the corporation, at its real value, and never be at risk. Rising prices and interest forces everyone to seek protection by using the same stock market and interest mechanisms to their own advantage, but there is a better way.
Corporate Income Balancing can have the same effect as the stock market for providing venture capital to seed and sustain corporate ventures. In a world without interest payments, time becomes an asset. Under the current system, when cash flow is critical, time is a liability. Interest payments can put a project underwater if it is late starting. The participants, the employees, have no flexibility in helping the enterprise directly because they have to meet the demands of their own life and interest payments. Despite doing the actual work, employees have less control over their own situation than the stockholders do. They are slaves to the stockholders, not because they are less wealthy, but because there is no mechanism for them to participate within the company. They are an expense to be squeezed. The only remedy for employees is to own shares of themselves, the same as the stockholders. One does the actual work and one does not, but somehow they are equal. That is the face of modern slavery. Corporate Income Balancing takes the role of the stockholder and assigns it to the employees.
In a world where taxes are related primarily to non-essential spending, and the interest rate is zero, anyone can contribute to a venture with their time. That was the situation in 1776. Time is money. Time is the investment that a business needs more than anything else. The current system pays the employees less so it can reward the stockholders for their “time”. This is because interest forces time to be more valuable than it really is. When people are getting annual returns of 72% to 1000%, time is very valuable indeed! With zero interest, time does not increase debt automatically. This leaves everyone free to support a new venture with their own sweat equity, it can be a small business or a large one, and the effect is the same. Instead of strangers who do no work owning the company, the company is now vested with the employees. They may make less while the business grows, but as the business is successful and comes into its own, they share in its success.
Business funding is simpler. People will continue to start businesses, because it will still be the best way to earn more money. Banks will probably make most loans, and they will assume some risk, but no more than what they took when investing in the stock market.
Personal bankruptcies should cease, and saving will be common. People’s wages and profit sharing will fluctuate with the demands of the business, but the masses of people who work hard will see a steady rise in the quality of life. The wealthy will see a slow drain of their income if they do not work, and salaries that have no relation to the value of the work performed will come down. Corporate Income Balancing will level out the wealth in the whole country.
Corporate Income Balancing delivers the right of private property to the workers who actually created the wealth. By working for the company, you are entitled to some of the wealth that the company creates, not just your wages, but the profits too. This turns the conventional employer-employee relationship on its head. If the employee gets squeezed at one end, he gets the profits at the other when they arrive, they do not get siphoned out to a third party. The employer and the employee’s fortunes are linked together. The virtue of greed is used to get them to work together, rather than fight because of their narrow self-interests. The wealth that would normally flow out of the corporation now stays in the corporation for the benefit of everyone there.
Since greed is natural instinct, there still needs to be a mechanism to protect the owners and the employees from each other. They do different jobs and deserve different pay. The spread however should not be open-ended, otherwise the workers will still be relegated to slave-like relationships, and the gap between the haves and the have-nots will perpetually widen. To solve that, the wages of the lowest and highest paid workers should be a factor of 12:1, and profit sharing should be equal amongst all employees. This will give the managers plenty of flexibility to manage the company. If they need to save to invest in new equipment they can. If they need to cut wages to cope with a slow or seasonal demand they can. If the owner wants a raise, everyone will get a raise along with him. Since price competition will no longer be the rule of the day, competence will be more important. Companies will get better at servicing their customers, and employees will be motivated to do the best they can. The marketplace will be more efficient and better service the consumer. Products that have a longer and more difficult development cycle will be more likely to make it to the marketplace.
Two strong forces in our current system will be rendered almost moot: Labor Unions and Corporate Lobbyists. They will both get what they always wanted, better working conditions and less taxes. We all get more efficient government and less of it. The greed of corporate officers will also be checked. All of the lobbying and mergers and manipulation of stock prices will be rendered moot. They will not be able to feather their own nest quite so easily because of the 12:1 ratio. If the ball player makes $12 million dollars playing baseball, the kid in the stand makes $1 million dollars selling hot dogs. This system has no effect on small businesses in the country. If someone earned $250,000. a year, his lowest paid employee would make $10.00 an hour.
These five changes are revolutionary, but it is a peaceful revolution. There is no redistribution of wealth that takes place. What people own today, they will own tomorrow. Stocks will be converted to cash. The banks will take a lot of deposits and make a lot of loans. They will charge for the handling of the paperwork, but not charge interest. Homeowners will own their property sooner. No one will any longer become richer or poorer overnight. Our lives will become completely different. A whole new body of laws will result, and mountains of old habits will be discarded.
A lot of people will be displaced, but by working together we will find a solution. The boom and bust cycles of the economy have proven that our nation has a huge base of activity. Everyday people eat and travel. Babies are being born and children go to school. People fall in love and get married and find a new place to live. The economy is very very strong. There is plenty of good work that needs to be done. We will adjust our thinking and our funding priorities. Accountants can teach math instead. We can have more community policing. We can train more health care providers. Pushing paper will be less of a way of life. The deficit and our taxes will have only one direction, up or down. It will be a simple adjustment to keep them in balance.
Foreign investors may pull their money out of our economy, but they may just leave it in our banks. The changes we start here may reach other shores. Perhaps we can lobby foreign countries to do the same thing. Foreign companies will need to change their way of business if they stay here. We can lead the world with a bold strike of moral courage.
Those with a lot of money may want to go out and buy things, land and property and collectibles. Let them. When they resell or develop it, it will be taxed. Working people will have a much easier time, and the wealthy can still enjoy the good life. Cash is cash. If you have a lot, you will be okay. A couple of years in, we will all be enjoying a happier pace. It will be exciting, but it will not be easy. Some prices will skyrocket, others will plummet. We will need to resist the impulse to micro-manage it. We will all need to become more active, more involved, and more aware. Our sense of community will make an easier time of it. Money will be seen as a tool that represents a man’s labor and his freedom. It will be respected for the good it can do, and greed recognized for the damage it can cause. Our accounting methods have already created a world where money means nothing, now we can use the false economy of that system to our advantage.
Since the employees, and not stockholders, are vested in the company, fees and penalties for illegal or unsafe actions will effect employees directly. This of course provides even more incentive for a cover-up of a crime, but it is equally likely to have the opposite effect too. A good paying job is now easy to find, and benefits are not tied to the company. Chances are more people will be willing to speak out about things that are done wrong to serve the profit motive. Companies will have a greater sense of community about them. People who are happier at work will be happier at home too. We will probably work less and socialize more. We can finally shed the undercurrent of anger that courses through our politics.
Two hundred and forty years ago, a group of men dared to do far more than what I propose. All we have to do is go into a voting booth and mark a little x on the box. A small effort for a new nation.