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Changing the Role of the Elite Capitalist

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The United States is ruled by a plutocracy of the rich and super-rich -- the elite capitalists. Many things, both good and bad, can be attributed to elite capitalists. For instance, they create jobs (a good thing), yet they exploit the economy (a bad thing). We can either fight them or implement economic and political policies that make good use of their resources, talents, and power to set a sound economic foundation that creates general capitalists (wealthy middle class) based on a zero-cost economy. For details go here. We can also help elite capitalists do the right things by guiding them in the right direction. In short, we must turn them into valuable assets.

Fighting the elite capitalists would be as grave a mistake as caving in to them. Conservatives propose giving them tax cuts of all kinds to motivate them to invest. This idea is flawed and baseless. The rich and super-rich do not invest out of love for the people; nor are they in the business of charity to provide jobs. They invest because it gives them the chance to make and maximize profits. Tax cuts would not enhance their willingness to invest if they see an opportunity to make and maximize profits. Conversely, a lack of tax cuts would not make them less willing to invest in those circumstances.

On the other hand, many liberals demand higher taxes for the rich and super-rich in the hope of creating some fairness and to finance what they see as much-needed projects. They also promote tax cuts for the poor and middle class on the grounds that doing this would stimulate the economy and help those groups.

In reality, though, giving tax cuts to the poor and middle class would have little effect. The poor would gain practically nothing, because they pay little or no taxes. The middle class would reap an extra few hundreds or, at most, an extra thousand dollars each year -- not enough to make a dramatic difference, except perhaps to pay the interest on their mortgage payments or reduce their credit card balances for a month or two.

So the question remains: What effective actions can we take that would make sense for all groups -- the poor, middle class, rich and super-rich? Certainly, we should not favor one economic class over another, as this would be a waste of energy and resources. On the contrary, we should give elite capitalists the incentive to accomplish certain goals, then, once they've accomplished these goals, we should reward them. However, it's important that we withhold their rewards until they have met the desired goals. We should guide elite capitalists and other entrepreneurs in the right direction in the interests of the economy and the environment. They would enjoy all the pleasures of profit maximizing as long as they did the things the right way, as described below...

Let's assume our economic condition demands a policy to immediately convert gas-powered vehicles to electric-powered vehicles (with solar energy powering electric vehicle). The government could provide a series of incentives, such as the following three options:

1) A tax exemption from income, capital gain, dividend and/or profit for a certain time period --let's say 10 to 20 years from the date the policy is announced. To promote the success of this policy, the tax exemption or loss of potential dividend write-offs from income tax could be extended to the company's shareholders for the period of R&D work, to stimulate the effort towards realizing the designated project to its full potential. This measure would not cost the government's respective taxpayers a single penny in form of initial capital requirement or loss of tax revenue, because the involved products or technology previously did not exist and thus did not generate any tax revenue to begin with; and the capital was generated by the investors, and not provided by the government. Thus, the government would reach an economic goal within a given time period because the company would strive to achieve the goal as soon as possible and thus benefit longer from the tax exemption (helping to maximize profit). Once the project was in full production, the government would collect income tax not just from the company's employees but also from its supplying companies and their employees (as well as others in a booming economy). At the same time, the worry associated with unemployment and potential recession (not to mention economic woes) would dissolve.

2) A sales tax exemption for the products sold. Exempting sales taxes for products associated with the designated project would promote sales and contribute to the company's profit-maximizing goal. Although sales of those products would not generate tax revenue, they would indirectly increase revenues through tax revenues generated by the sale of other products in a booming economy (an effect of consumers' increased purchasing power). Loss of sales tax revenues for these products should not deter the government from pursuing such a policy, because revenue derived from sales of those products did not exist in the first place. However, this step would create the potential for future tax revenue once the tax exemption expired. In the meantime, the economic goals would be realized.

3) Refunding the cost of R & D or rewarding certain accomplishments. This would be the last option, because it would cost the government money. But it would certainly be more effective and less expensive than such measures as tax cuts with no performance requirement attached. Costs to the government would come only after a company reached the designated goals; the government would not lose money if the project failed. (Note: Giving rewards such as tax cuts in advance, before a company accomplishes a goal, would be an almost total failure. There should be no prize without sweat.)

If these options were not enough to entice elite capitalists to achieve the desired goals, what choices would they have to survive in an environment of declining consumer purchasing power? 

Until now, their options have included "bubbles" in the real estate market, banking and credit industries, and automotive industry. Sooner or later, though, all bubbles burst and the general population grows poorer. When a nation's middle class starts to decline, next in line are the rich, and then the handful of super-rich -- the elite capitalists.

Remember -- wealth is worth having accumulating only if it can be used to get desired products and services. Should these products and services disappear, wealth eventually would be worthless, especially if the wealthy have accounts in banks that are in trouble or are invested heavily in real estate at a time when foreclosures are soaring. Wealth also counts for little when no factories are left to manufacture goods and no facilities are left to provide services. At that point, the super-rich will cease to exist.         

 

http://www.khavariforgovernor.com

Farid A. Khavari, Ph.D., is a noted economist and independent candidate for Florida governor in 2014. He is the author of 10 books including Environomics: the Economics of Environmentally Safe Prosperity (1993) and Toward a Zero Cost Economy (more...)
 

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