A primary reason we are currently in a low or no growth environment is that the Democrats and Republicans have pursued policies to support 20th-century ideals and promote large companies. If we are to move to a higher growth environment we need to pursue policies that will level the playing field for Active Investors and support 21st-century challenges and opportunities.
As a starting point, I identify some broad brush areas that I believe will reduce some of the excesses and imbalances in the current tax and policy environment. There are certainly many more specific policies that can be added but I put these forth as a starting point for discussions on what will create a productive environment for Active Investors without blatant handouts. I would appreciate hearing your ideas and comments on this article.
- SIMPLIFY INDIVIDUAL TAXES: Currently we have Earned Income, Other Income, Long Term Capital Gains, Short Term Capital Gains, multiple types of Interest Income, multiple types of Dividend Income as well as others that all include different tax treatments. When you pay bills, a dollar is a dollar – no one asks you where the dollar comes from. One of the keys to successes of the Reagan tax cuts and the Clinton tax system that led to a balanced budget was a set of rules that reduced the differences between the different types of income. POLICY PRESCRIPTION: Tax all income at the same rates to reduce resources focused on reclassifying income and to simplify our tax system.
- END CORPORATE DOUBLE TAXATION: Currently dividends are only available from Corporate taxable income. One of the rationales for reducing dividend payouts for corporations is the double taxation at the corporate level and the individual level. This rationale has allowed Corporations to hoard cash and reduce the velocity of money in the economy. In order to get money in people’s hands so they can spend it policy should encourage dividends. POLICY PRESCRIPTION: Allow Dividends to be deductible from corporate taxes to discourage hoarding of cash by corporations and improve the velocity of money in the economy.
- CAP DEDUCTIBILITY OF CORPORATE COMPENSATION: Currently there is a cap of deductibility of regular compensation for executives but no cap for “performance-based” compensation which generally is provided through stock options. This skews compensation to enormous stock-based bonuses even for mediocre or poor performance. This policy steals from owners of corporations. POLICY PRESCRIPTION: Have cap of deductibility of compensation apply to both regular and performance-based compensation to protect the interests of investors and make compensation more closely tied to the actual value to the corporation.
- REDUCE ATTRACTIVENESS OF SHARE BUYBACKS BY CORPORATIONS: More than half of corporate profits are being used to buy back corporate stock rather than investing in Research and Development or in distributing it to Shareholders. Share Buybacks used to be illegal stock price manipulation and are now legal stock price manipulation. Reinstituting this classification would make more capital available to be spent in the economy either by the Corporation or the Shareholder. POLICY PRESCRIPTION: Reclassify Share Buybacks as Illegal Stock Manipulation to reduce the ability of Corporate Communists to extract most of the value produced by the Corporation for themselves.
- SOLIDIFY TAX CREDIT FOR RESEARCH AND DEVELOPMENT: Every budget fight in congress includes a debate over the tax credit for Research and Development. In order to provide certainty for an innovation economy, the tax credit for research and development should be a central incentive for companies and should be committed to as an essential component of our economy. POLICY PRESCRIPTION: Make tax credit for Research and Development permanent.
- REDUCE GOVERNMENT SUPPORT TO LARGE CORPORATIONS AND FINANCIAL INSTITUTIONS: Our policies of providing direct and indirect support to large corporation and financial institutions has led us to the current economic stagnation. We may also want to encourage more vigorous enforcement of antitrust laws to reduce the prominence of these Too-Big-To-Fail Organizations. POLICY PRESCRIPTION: Reduce Government Support to Large Corporations and Financial Institutions.
- REINSTATE GLASS-STEAGALL SEPARATION BETWEEN BANKS AND OTHER FINANCIAL SERVICES: This will reduce financial risk taking and provide opportunities for smaller businesses. Most of the problems with the financial environment can be traced to the chipping away and eventual repeal of Glass-Steagall. POLICY PRESCRIPTION: Reinstate Glass-Steagall Separation between banks and other financial service providers.
- EXPAND TAXATION OF NON-PROFITS: Many Non-Profits have sham missions and conduct business in competition with For Profit companies. A disproportionate amount of money flows to the benefit of directors and not to the supposed core mission of the organization. Non-profits have become an industry and a slush fund for many people. POLICY PRESCRIPTIONS: Tax non-profit employee compensation above the social security cap. Taxation to the extent that program costs are less than 50% of funds collected.
- MARKET BASED PRICING FOR USE OF COMMONS: The current pricing for drilling, mining, grazing and logging rights on federal lands were set over 100 years ago. In order to be a better steward of our resources, the Government should institute market-based pricing for use of our federal lands. POLICY PRESCRIPTION: Institute Market Based Pricing for Use of Commons.
- EXPAND ENERGY INDEPENDENCE: The US is currently energy independent. However, there is more we can do to produce energy more cost effectively and more sustainably. A barrier to the improvement of our energy supplies is we have an antiquated electrical grid and technologies to support a more modern approach to energy storage and transmission. POLICY PRESCRIPTION: Shift Government budget used to support existing energy sources to upgrade and improve our electrical grid.
- EXPAND IMMIGRATION: In order to address the exploding demand for government benefits for retirees, we need more people working productively in the economy. Immigration policy should encourage talented and educated people to move to the US. Instituting asset based migration will also support our real estate market and our business investment climate. Immigrants are our best entrepreneurs. Smart Immigration will serve as a catalyst for growth in our economy. POLICY PRESCRIPTION: Expand our Immigration policy to allow for Smart Immigration including education and asset based immigration.
- IMPROVE CYBER SECURITY: As we become almost entirely dependent on the Internet for daily functioning, cyber security is our most pressing innovation area which needs massive government support. Foreign governments have developed aggressive cyber threats. We need to improve our defensive cyber abilities as well as our offensive cyber defense abilities. POLICY PRESCRIPTION: Make Cyber Security the Central Innovation Area for Government Funding
I realize there are many related policies we could look at but I think these are important first steps for us to create an innovative growing environment that supports Active Investors.
What do you think?