Why Corporate Profits Should Be Subject To An Excess Profits Tax

Corporations are artificial entities without any moral code or ethical values, created by governments to benefit humans, not impoverish them.

Image by Arlene Oliver from Pixabay

By David Grace (www.DavidGraceAuthor.com)

You can’t accurately predict the effects of a political or economic system — socialism, libertarianism, communism, conservatism, or any other “ism” — without first understanding how human beings work.

What Motivates People?

The actions of the members of a human population fall on a continuum of behavior. Some people wouldn’t step on an ant. For the right incentive, others will eat their own children. We call these latter humans sociopaths.

When deciding to do (or not do) something, people evaluate the short-run rewards versus the short-run costs and measure that conduct against their personal moral code.

Reduce the penalty or increase the reward and more people will do the act, the only restraint being any limitations imposed by each individual’s moral code and his/her aversion to risk.

Humans Have A Moral Code. Organizations Do Not

Most humans have some level of a moral code, ethics, empathy, emotional commitment, or a conscience which will restrain certain behaviors in spite of the possibility of gain.

But if you strip away a person’s empathy, love, and morality you get a sociopath who will act solely on a risk/reward calculation with no moral or ethical restraints whatsoever. Sociopaths are meat machines, pursuing their goals undeterred by any concern for whatever harm their actions will cause others.

Large organizations behave like sociopaths. They have no conscience, no emotions, no ethics, no empathy and no moral code restricting their pursuit of their prime goals of more money and more power.

The Leader’s Duty to Advance Organizational Goals Overrides the Leader’s Personal Morality

By law, custom, and group pressure, individuals acting on behalf of an organization will almost always disregard any of their personal ethics that conflict with pursuing the goals of the organization.

“Gee, if it was up to me, I’d send that pedophile priest to jail, but it’s my job to protect the interests of the Church, and it would be really bad for the Church if the public found out that Father Jones had been having anal sex with the altar boys, so, sorry, I have to bury the complaint, keep my mouth shut, and send Father Jones to a new parish in Alaska.”

“I know it’s not fair, but I’m just doing my job.”

“Don’t blame me. I was just following orders.”

Why Personal Moral Codes Fail To Deter Bad Conduct By Members Of A Group

Acting as an individual, a person may feel constrained by their personal moral code, but when acting as a member of a group, e.g. a board of directors, individuals will almost always ignore their personal ethics in favor of advancing the wealth and power of the organization with the excuses:

  • No matter what I said or did the other eight board members would still have done it anyway, so any objection I might have made would have been futile.
  • If I had opposed the action, the board still would have done it and I would have been punished in some way for opposing them.
  • If I had opposed the action, I would have lost the respect and trust of the other members of the board.
  • If I had opposed the action I might have lost my seat on the board which would mean that at some future date I would not be able to try to restrain the company from even more harmful actions.
  • My personal financial success and power derive from my membership on the board which makes that continued membership more important than my futilely objecting based on my personal morality.
  • Everyone else on the board said it had to be done so who was I to say I was right and they were all wrong?
  • All the other board members wanted to do it and I had an obligation to support them.
  • It would be improper for me to follow my personal ethical values to the detriment of the best interests of company.
  • As a member of the board, my obligation is to do what is best for the shareholders rather than what my personal morals tell me to do.
  • The larger the mob, the less each individual member feels responsible for the lynching.

Organizations Are More Dangerous Than Individuals

Because the power of organizations is vastly greater than the power of most individuals, organizations have a far greater ability than individuals to cause harm and, without a moral code, also a far greater willingness to cause harm.

If an organization without any ethical or empathic restraint is allowed to pursue unlimited profits then it has an unlimited, unrestrained, incentive to engage in conduct that is unreasonably detrimental to its employees, suppliers, customers or community (“bad behavior”).

How To Deter Corporate Bad Behavior

Without moral constraints, bad behavior is only reduced by either increasing the costs or reducing the rewards for that conduct.

  • Raising the costs for bad behavior means imposing penalties for specific types of disliked activities.

That is an endless game of whack-a-mole which has a long lag time, and is slow, complicated, and expensive.

  • Reducing the reward derived from bad behavior can be achieved by taking away all of the organization’s profits above the level needed to motivate entrepreneurship and investment.

This profit cap, an excess profits tax, eliminates the need to define specific types of bad behavior and then prove that the conduct occurred and then assess and collect a fine.

If the organization cannot keep any profits above the level required to maintain innovation and investment, much of the incentive to engage in bad behavior will be materially reduced.

Who Benefits From Unlimited Profits?

Who benefits from a corporation being able to reap unlimited profits above the level needed to motivate entrepreneurship, innovation and investment?

  • A few dozen executives who profit via bonuses and stock option grants
  • A few thousand large shareholders who materially benefit via large dividends and stock buy-backs

Who Benefits From Limited Profits?

Who benefits from a corporation not being able to keep a profit above the level needed to motivate entrepreneurship, innovation and investment?

  • Thousands of employees via higher wages paid in order to get profits under the cap
  • Millions of customers via lower prices, higher quality, fewer fees and less onerous terms instituted in order to get profits under the cap

Corporations Are NOT Humans Endowed By God With Unalienable Rights

Corporations, unions, and other institutions are independent entities that own their own assets separate and apart from their shareholder or members.

The law is absolutely clear that corporate assets do not belong to the shareholders. They belong to the corporation as an independent entity separate from the shareholders.

The control of public corporations is so greatly diffused that they are essentially self-controlled by insiders. In the practical sense, their management is independent from the control of almost all of their shareholders.

Public corporations are artificial beings. They are NOT endowed by God with certain unalienable Rights. Their Creator is not God. Their creator is the government of the state in which they were established.

Corporations are artificial creatures of the State.

The taxes they pay are at the will of the State.

To say that a public corporation has a God-given right not to be taxed is beyond ridiculous. God had absolutely nothing to do with creating corporations. Governments did.

Why Shouldn’t We Cap Corporate Profits?

There is no general benefit to humans from Pfizer, Walmart, Allstate, Wells Fargo, etc. earning unlimited profits. In fact, the opposite is true. Their desire to earn ever more, unlimited, profits often incites them to increase prices, reduce features and reduce wages.

Most humans act for their own self interest. People are not generally altruists or philanthropists.

Acting in our own self interest, we humans are entitled to ask, “What’s in it for us as human employees, human customers, and human citizens to allow artificial public corporations to earn unlimited profits?”

The answer is “Nothing.” [Don’t even think about raising the discredited “trickle down” argument that making corporations richer is good for the public at large.]

So long as corporations can earn sufficient profits to motivate entrepreneurship, innovation and investment, acting from pure self-interest we humans have no reason to allow a few large stockholders, a bunch of high-level executives, and an artificial entity created not by Got but the state to benefit to the detriment of millions of human employees and human customers.

The Libertarian View

A libertarian will tell you that it is unfair to cap an organization’s profits for the purpose of benefiting its customers and employees.

Why? Because they think it’s morally wrong, unfair, to take money from a non-human, artificial, government-created entity, even when doing so will provide a net, long-term benefit to millions of actual human beings.

That’s just one of their rules in their political religion.

Religions have all kinds of “just because I think it’s moral” rules.

  • A Mormon will tell you that drinking alcohol and caffeine is morally wrong.
  • A Muslim will tell you that eating bacon is morally wrong.
  • A libertarian will tell you that taxing a massive, public corporation in order to make it treat its customers and employees better is morally wrong.

There’s no logic to it. It’s just a “that’s what I think is fair” “because I said so” rule.

As human consumers and human employees we have no good reason to follow the libertarians’ theories about fairness.

We have a right to establish a tax system that operates in our own self interest instead of operating for the benefit of massive, artificial, non-human, government-created entities and their insider executives and major shareholders.

— David Grace (www.DavidGraceAuthor.com)

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David Grace

David Grace

Graduate of Stanford University & U.C. Berkeley Law School. Author of 16 novels and over 400 Medium columns on Economics, Politics, Law, Humor & Satire.