Adam Smith in “Wealth of Nations” — the 4 maxims of taxes

September 29, 2011

“1. The subjects of every state ought to contribute to the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state. The expense of government to the individuals of a great nation, is like the expense of management to the joint tenants of a great estate, who are all obliged to contribute in proportion to their respective interests in the estate.

“2. The tax which each individual is bound to pay ought to be certai and not arbitrary. The time of  payment, the manner of payment, the quantity to be paid ought to be clear and plain to the contributor, and to every other person.

“3. Every tax ought to be levied at the time, or in the matter, in which it is to be most convenient for the contributor to pay it.

“4. Every tax ought to be so contrived as to take out and to keep out of the pockets of the people as little as possible over and above what it brings to the public treasury of the state.”

Well said, concisely said tax policy guidelines.

The 20-1 Solution

January 28, 2010

Peter Drucker, founder of management science and top business consultant from the 1940′s through the 1970′s, was appalled by the growing disparity of compensation in corporations during the 1980′s.

Drucker had long advocated for corporations and was clearly pro-business. Part of being pro-corporation and pro-business to Drucker meant recognizing the important role — and impact — that the corporation has on society by virtue of the time its employees spent each day at the company, the relationships at the company,  the sense of identity and self-worth and societal worth from the company, physical and financial presence in the neighborhood, and organizing influence and curricula preferences from schools.  All of this was jeopardized by the exploding gap of compensation, access, priorities, values, identity, worth, and other impact on the people of the very society reflected by the company onto the society at large.

Even Henry Ford, during the 1920′s, recognized that if he made thousands of cars per day with his invention of the assembly line, then he had to have thousands of car buyers per day. But very few people could afford to buy cars and few had any need for one even if they saved up the money. Most people worked six or seven day per week for twelve to fifteen hours a day, and they lived by the job site so they walked or took a trolley. His mass production needed mass consumers, but the masses were low paid, overworked, and completely local. So Henry Ford, who controlled nearly one-seventh of the entire economy at that time, started the policy of a dollar-per-day and five-days-per-week for all of his employees and those of the companies he controlled through his purchases and investments.

Peter Drucker suggested that the highest compensated person in the company should not get any more than twenty times that of the lowest compensated person in the company: The 20-1 solution.

Drucker reasoned that the 20-1 solution would require corporations to ensure a vibrant middle class and an informed, satisfied voter base. He also believed that anything a person could reasonably want to personally own should be affordable at a compensation 20 times more that the other people, because who else could pay more? So that also helped to keep demand-induced inflation in check so we didn’t have unnecessary inflationary bubbles and helped keep most luxuries within reach of most people so we would have mass markets for new technology products.

It may just be the right thing to do.

The President and Congress should require that any company which has a contract with the Federal government, and all of its subcontractors, and any company which takes any tax incentives must meet the 20-1 solution. The Federal Reserve should require that any banking institution which borrows from its reserves, the open window, overnight market and other interaction benefits from the Fed must meet the 20-1 solution. State governments should do so as well. That should cover most big companies, and that’s a start.

Can’t force it on every company, but we can on every company which does business with We the People.

And, it just might be the right thing to do to keep us one nation, set a good example to the world and our next generation. Money should not be the way driven people keep score.

Steve Reichenstein

Why do we need “A Different Deal” in America?

January 28, 2010

Civilizations only have thrived when they have had a large, vibrant, free, accessible, mobile, educated, and growing middle class — like the bell-shaped curve in statistics it shows that most people are in or around the middle. Whenever the power and money shifted to the few, then most of the people had little, if anything, to lose and little reason to support the status quo. When people lose hope, then leaders lose heads.

The Romans, Russians, Persians, Babylonians, Spaniards, Egyptians, British and so many more world powers over the millenia have thought it couldn’t happen to them … but it did. They crumbled from within before crumbling their outside shells. Side with the people and you side with success.

I am not a “populist” nor a “revolutionary” nor any zealot for anything other than the return to a successful American deal. What we now have just isn’t working, not any more.

In my posts to come, I will lay out suggestions for some good rules of the game. After all, who would continue to watch baseball, football, basketball or any other game that had no rules or referees didn’t enforce the rules or one team had all of the good players all of the time?

We are going through a period of re-examination and renewal. I want to be a part of this. Here are my ideas.

Hello world!

January 27, 2010

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