Corporate Tax Rates

Just watched a rerun of an interview with Paul Krugman on Up with Chris Hayes. One of the questions discussed was why corporate compensation has gone up while labor share has shrunk. Krugman says he doesn’t know why. It reminded me of the most powerful arguments of Noam Chomsky and what we do know about corporate bonus programs. The latter first.
It is well known that the incentive programs set in place for the last say fifty years have never quite given rise to the positive outcomes desired. They cost more and get less. Thus they are constantly changing in search of their holy grail. We know that employees game the system. This week teachers and administrators were arrested in a testing scandal–it isn’t just corporations. Is everyone conspiring? Certainly we live in a culture of cheating.
This brings us to Chomsky. His view of elite power is based not on overt conspiracy, despite the relatively small group involved. It is driven by the conspiracy of interests held by this group. Add to this the Bush tax cuts and we have a perfect storm of greed and opportunity.
With taxes low on income for these highly compensated employees, it became profitable to take that as actual income. Previously high taxes (actually only higher taxes) discouraged them from using this mode: the government got too much of “their” money! Other forms like stock options had been used to sidestep tax liability. The main problem has been that this replacement did not shrink with the now increased personal pay.
Thus overall compensation exploded. With the explosion of corporate profits–I believe largely from lowered labor pay coupled with increased labor productivity–it was hard to see why this shouldn’t happen. Indeed now we have further cries for more corporate tax cuts. This is both insane and further evidence of how malformed our current view of capitalism has become.
Record corporate profits in the midst of economic problems should indicate a problem, just as Bernie Madoff’s returns on investment should have warned everyone. There always was a notion of making too much money, tied to the notion that you cannot beat the market. But few actually believe in these types of markets any more. Keep taxes high on high incomes. The progressive nature of taxes is an ethical public policy. It will soon be time to raise taxes on the middle class–if it still exists.