How do we fill state coffers in modern economies ?

A recurrent problem of modern societies is the tendency of democratic voters to exonerate themselves from almost any kind of tax. In modern societies with democratic governments, advanced infrastructure and efficient financial industries a large amount of tax is channeled away from government coffers into the pockets of the share holders by perfectly legal means. On average, in Europe, companies pay 1 $ of tax per 1000 $ of revenue. That is not what's on the books of course. If you look at the tax rate, it is much higher. Simple trick is not to have profits, you transfer the money around until it lands somewhere safe from tax. On the company's side it's good business practice, protecting the interest of the share holders, on the state's side, it's a way to participate in the "unofficial" international contest to lower taxes. That contest became much more violent with the advent of the internet, now, many multi billion dollar businesses are capable to operate from anywhere, liberated from the vicissitudes of the supply chain. The entire financial industry, almost any type of service, the entire internet industry, pretty soon the legal industry is going to go the same way.

On the personal side, we vote to have access to more medical care, housing help, disaster relief, armies, police, infrastructure, public schools and libraries and pools and sports centers and it goes on and on and on. The demands me make of "free society" are growing constantly. We all love it, why not after all ? If it can be done.

Another demand assailing the coffers of modern societies ? Imports. We as "advanced societies" use up more food, energy, space per person, staff per person, revenue per person, health care professionals per person, metal, oil, gas, electricity, uranium, gold, platinum, wood, coal, marble, tar, you name it, we have more. All that stuff we mostly buy from the 80% of the planet that is poor. That's probably going to get me a lot of insults but that is a simplification of an undeniable reality in 2011.

So how do we fill up the coffers ? The population cannot pay anymore taxes, the current level is choking consumption as it is now. A not too surprising result of the massive run to ownership of profitable companies by a few wealthy individuals, usually less than 1% of the population owns nearly 90% of profitable shares. If FOREX is the game of the young speculators, corporate share holders are the owners of the world.

That's where I had an idea, why not create a rule that would allow for a win - win situation ? Why not allow the shareholders to amass MORE money, their ultimate goal. And the government to gain ownership of minority stakes in all companies ?

The companies, instead of paying tax in currency, would pay tax in shares. The government, thus entrusted with a minority share would benefit from profits as any share holder does. More revenue would be channeled to the share holders, while simply making government one of them. Every individual share would become more profitable than it was before, in precise terms, EPS would rise by the value exonerated from tax. Of course certain conditions must apply for this scheme to be efficient. I imagine it would ultimately be very complex because of the need to protect governments from negative returns and the need for voluntary adherence to the scheme which combined could eventually become mutually destructive.

However I find the idea of increasing individual share value and filling state coffers at the same time very attractive, the idea of government having a stake in the success of businesses is comforting especially if it is prevented from making any choices internal to the structure of the business and allowed to ponder and legislate around it with its own interest in mind.  I realize my idea is basically a tax on the ultra rich, whether we want to face it or not, however smart me make a measure, however fair we try to be, it is confronted to the fact that wealth is a zero sum game at a moment in time. The question then becomes simply what form of organisation benefits the fastest and safest creation of wealth.

The advantage of this tax is that it is paid in money already owed, limiting at the moment of payment the pain of partition from cash to zero. It is a pleasant and simple way to pay your dues I believe that to give someone a stake in your continued success.

I'd like to know what other people think of this idea.  Please comment.

Hello this is my new blog

Hello readers,

This is my first time blogging. I've created this blog because I wanted to share with the internet some of my thoughts on the economic structure of modern society and discuss possible ways to improve your current social organisation. My hope is not to implement anything, I'm not starting a new political party, I just want to find people interested in imagining better ways to harness human ingenuity to the benefit of all.

I have many interests such as advanced physics, politics, economics, psychology and all of these topics are fair game for this blog. Anything you want to talk about is good too. I've created this blog following a specific idea that I will share in another post.

Welcome !

Andrea David Edelman