Saturday, November 5, 2011

Occupy Wall Street

The ongoing protests against the insidious culture of greed, and the lack of accountability that comes from the separation, in recent decades, of risk from reward, have a laudable objective. And it is refreshing to see a sizable number of people taking part in political action that is not orchestrated from behind the scenes by nefarious angry activists, like the Tea Party is. (I say that, even though the objectives of the Tea Party are, to some extent, also laudable.)

But the Occupy movement — if that's not too grand a term for it — lacks focus. Its participants don't to agree on what they wish to accomplish. 

Of the many greed-related ills our society suffers from, I doubt that any is as ultimately damning as the growing disparity of wealth in this country. Money is power, and the concentration of money in relatively few hands is threatening to undermine some of the beliefs needed for a large democracy to continue. It has already shown its power in the very strength of the Tea Party, and in the reactionary anti-union legislation in the Midwest and California, and in the intransigence of some Republican members of Congress, who forget that "politics is the art of the possible," and in the dangerous recent holdings of the Supreme Court in political cases.

But the disparity of wealth is unlike other serious problems, in that it has a relatively easy fix.

Under present law, compensation paid to all but a few executives of a business is deductible from taxable income as a cost of doing business. Thus, Mega Corp. can pay its Vice President in charge of Sucking Up a million bucks in salary, and deduct that million bucks from the profit the corporation has to pay tax on. It can also deduct the $35,000 it pays its janitors, but the tax savings from that are paltry.

All the government has to do is limit the amount of compensation deductible as a business expense. I would recommend using a multiple of median income to determine how much can be deductible, say two and a half times the national median. Under that formula, Mega Corp is still free to pay its VP-Suckup that million bucks; but the rest of us don't have to forego the taxes on that exorbitant salary. (And yes, VP-Suckup still has to pay taxes on the income. Unfair? Nope. Just a cost of doing business.)

Limiting the deductibility of high salaries would, over time, lessen the disparity between the high and low ends. If a business finds it worthwhile to pay people more than the deductible amount, they can do so, but they'll just have to factor in the tax considerations in a slightly different way.

Similarly, the favourable tax treatment of interest and dividend income should be capped. There are still a number of older people who depend on these sorts of income for their survival, but beyond a certain point, their survival does not require further subsidies from the general population in the form of lower tax rates. I see no reason why interest and dividend income beyond, say, that same two-and-a-half times median income, should not be taxed at regular rates. 

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