The Pay-Gap Tax

The Accelerated Graduated Income Ratio Tax Act of 2013 (A.G.I.R.T.A.)

The Accelerated Graduated Income Ratio Tax (A.G.I.R.T.; a/k/a "the Pay-Gap Tax") taxes individuals’ personal income in proportion to the salary of the highest-paid employee of a company divided by the annual income of the average employee of the same company. The tax also takes into account government spending divided by gross domestic product, as well as the average C.E.O.-to-average-worker pay gap in the country.

      Implemented properly, the Pay-Gap Tax replaces the entire tax code of any given government of which it becomes law. The Pay-Gap Tax does not permit deficit spending (if and when administered in conjunction with a Balanced Budget Amendment and / or a Cut, Cap, and Balance law).

      The Pay-Gap Tax has no bracket system, nor exemptions; it is a simple mathematical formula that applies to everyone, and it can be explained through a simple step-by-step process which can be performed on an internet search engine calculator.

How One’s Taxes Are Calculated

How One’s Taxes Are Calculated

      The taxpayer takes the following steps to determine how much he pays in taxes. First, he divides the salary of the highest-paid employee of the company which employs him by the average annual income of the employees of that company. Second, he applies that figure as the degree of the root of the annual government spending as a fraction of the gross domestic product (this figure is provided by the government). Third, he takes the inverse of this result (meaning that he divides 1 by the result). Fourth, he multiplies the result of this calculation to the power of the average C.E.O.-to-average-worker pay-gap ratio (another figure which would be provided by the government).

      While the Pay-Gap Tax - in conjunction with any type of properly-enforced balanced-budget rule - would never permit deficit spending, it ignores the debt that governments already have. So that the Pay-Gap Tax properly serves governments which have accumulated debt, I would recommend that the result of the formula described above be simply multiplied by some fixed or variable amount. This number would take into account how quickly the government would find it appropriate to pay off its debt, as well as the rate of economic growth and the rate of the increase in government spending.

An Example of How the Tax Would Be Applied

      As an example, under this plan, the C.E.O. of Viacom (who - as the highest-paid C.E.O. in the United States - earns over $85 million a year, which is about 1200 times as much as his average employee) would pay about 70% of his taxes to the federal, state, and local governments (combined) which have jurisdiction over his residency or workplace. After taxes, he would take home more than $25 million a year, which he would be able to spend, save, and re-invest.

      Meanwhile, employees of Viacom earning less than the average worker in that company, all other U.S. workers earning less than the pay of their average co-worker, and all workers in egalitarian-pay workplaces (including managers) would pay nothing in taxes. Non-taxpaying workers would continue to comprise a solid basis for the creation of wealth (without which high-paid C.E.O.s would not exist), while reaping their fair share of the benefits of adequately-funded government.

Purposes and Effects

      The Pay-Gap Tax strikes at the root of the disproportionate exploitation of labor by management (such disproportionate exploitation being that which gives capitalism and the free market negative connotations). It solves the utilitarian dilemma of the increase of marginal returns by imposing a tax that diminishes marginal return (simply, by creating a disincentive) for each decision by a business manager to increase profitability for himself and his other relatively well-paid cohorts at the expense of workers.

      The Pay-Gap Tax catalyzes socioeconomic mobility because its graduation rate accelerates (rather than decelerating or stagnating), meaning that there are no barriers preventing the middle-class or the lower upper-class from earning more wealth (as long as that wealth is not earned through the disproportionate exploitation of labor.

      The Pay-Gap Tax – while not being overtly redistributive – effectively redistributes the wealth for management by governments (and by citizens participating in their government processes), that wealth being distributed to citizens in the form of the provision of government services.

      The Pay-Gap Tax is based on levels of governments’ projected spending rather than on their actual budgets, making huge deficits and the indebting of citizens en masse things of the past.

Refutation of Anticipated Criticism

      The proposition of the Pay-Gap Tax will likely draw criticism from Green Party supporters, socialists, and populist and progressive Democrats who would like to see an increase in the outright tax on income, such as the 90% federal tax rate on personal incomes which were levied from the late 1930s until the early 1960s.

      Against such criticism, I would argue that the general earning of wealth through the reasonable exploitation of labor does not negatively impact socioeconomic mobility in any manner similar to the manner in which does the disparity of wealth and pay within whatever given business; that is, to the earning of wealth at the expense of vulnerable individuals who need employment and have no ability to significantly affect the decisions made in their employing companies' payroll departments.

      The proposition of Pay-Gap Tax will likely draw criticism from libertarians and Tea-Party conservatives who oppose the 16th Amendment and its legalization of unapportioned federal taxes.

      Against such criticism, I would argue that unless one advocates abolition of each of the five types of taxes currently collected from the public by the I.R.S. (the personal income tax, employment taxes, the corporate income tax, excise taxes, and transfer taxes such as the gift tax and the estate tax [also referred to as the inheritance tax or the death tax] ) – none of which are apportioned according to population - then one has no basis from which to judge any tax as relying upon the constitutionality of the 16th Amendment.

      In addition to these five types, I would describe as unapportioned - and therefore, in violation of a strict construction of the Constitution - all four of the following proposed methods of collecting federal government revenue: the FairTax on incomes, the Flat Tax on incomes, the National Sales Tax (also known as the Value-Added Tax, or V.A.T.), and the idea of user fees for government services (which is not a tax policy, but a taxless source of government revenue). I also believe that taxes on real and personal property should not be regarded as direct or apportioned.

      There are only two possible tax policies which I believe would satisfy the conditions necessary to be described as truly direct. The first policy is capitation, which I feel would only be acceptable as a direct tax if each person were charged exactly the same amount.  But being that some people have no money, that other people are in debt, and that many people would like to see their government behave as a charity organization which provides services for those who cannot afford them but promise loyalty to government in exchange for some benefit, it would be impossible to impose an equal capitation on everybody. That is, unless that capitation were zero and all government services were provided through volunteer means.

      This brings me to the second possible direct tax policy, which is no taxation at all. I feel that the prospect of administering all government services through volunteer means is a far-off notion, and that it would only be possible if and when the sphere of the provision of services by government were significantly reduced, decentralized, and personalized, and if and when governments become required to compete fairly with private enterprises providing similar services in a free market.

      Therefore, I believe that until that day comes, libertarians who care about balanced budgets and the fiscal solvency of government even one bit more than they value a strict constructionist interpretation of the Constitution should seriously reconsider the validity of the purpose of the 16th Amendment.

      As it can be argued that the 16th Amendment was never properly ratified, I contend that - as one of many necessary means to ensure that Pay-Gap Tax would be constitutional - the 16th Amendment should be deemed unconstitutional by the U.S. Supreme Court, and that the Congress should propose and properly ratify the exact text of the amendment. This would provide that the collection of federal tax revenue according to income in a manner that is not apportioned according to Census results be indisputably constitutional, and it would (while – unfortunately – also legitimizing the eleven indirect methods of collecting federal revenue which I previously outlined) help to legitimize and defend the proposed Pay-Gap Tax.

      So that the Pay-Gap Tax may be best defended, it will help to revisit and rethink our philosophy of government; with regard to its role in economics in particular. We will leave aside the most important principles of a government that embraces liberty, given the complexity of the details of when and how the institution of government is legitimate in the first place (suffice it to say that it involves voluntary participation, the ability to revoke consent, and consistency with the traditions of common contract law).

      Second to these principles, the next most important principle of a government which embraces liberty is the localistic principle. That being said, I regard municipal public planning departments – when and if they are instituted legitimately – as the basic units of government. A public planning department decides who and what exist inside the territory which is deemed to be subject to its jurisdiction, and it decides when, whether, and under what conditions people and businesses existing in that territory but not wishing to contribute to their neighbors continue to live in the community and to reap the benefits of its protection.

      What I am asserting is that public planning departments are private mutual insurance-and-protection corporations which have the right to discriminate against individuals and businesses which would like to use their services.

      As such - being that it would be ridiculous for a business to set up shop in the middle of a desolate, abandoned field which is miles away from public services such as roads, due to the fact that businesses prosper best when they are conveniently located within reasonable distances of areas occupied by concentrated populations of people – if a business would like to begin operation within the boundaries of a territory over which jurisdiction is claimed by some public planning department, not only does the public planning department have the right to negotiate with the business about the conditions under which it may operate within the territory, but – additionally – the public planning department has the final say on the matter, even if that say is that the business may not operate within the territory.

      The result of affecting these principles in conjunction with the proposed Pay-Gap Tax would be that businesses intent on maximizing profit, marketing effectively, and staffing their operations fully would be willing to accept the conditions imposed by the public planning departments exercising jurisdiction over the territories in which such businesses would seek to operate. I believe that to adopt this philosophy of government would be sufficient to defend the A.G.I.R.T. Act, both in general and – especially – as conducive to the free market.

      In the event that C.E.O.s, highly-paid members of corporate boards, and individuals earning more than the pay of their average co-workers begin to relocate their residences and their places of business to desolate, abandoned fields – and to pay exorbitant amounts to have private, non-subsidized, extra-governmental services such as water, liquid and solid waste disposal, fire protection, and protection and security provision – installed in their homes and / or delivered to themselves and their businesses – A.G.I.R.T.A. may have to be amended to require that the taxes be levied according to where income is earned rather than where the individual earning the income resides.

      Another flaw of the Pay-Gap Tax is that it would give governments a simple tool to raise taxes to unjustifiable levels and / or to pay off the debt too rapidly; it could be derided as a so-called "tax pipeline". I would argue that I believe this impulse would be controlled by the political process, but only to the extent to which the public would be aware of the necessity of reviving the economy in a manner that allows a deliberate consideration of the needs of both the stability in economic growth and the timeliness of debt service.

Ensuring Effectiveness

      In order to ensure the maximum effectiveness of A.G.I.R.T.A., citizens should elect representatives who promise to vote to support the S.E.C. Transparency Act of 2010 (H.R. 5970) – which would repeal the amendments made by section 929I of the Dodd-Frank Wall Street Reform and Consumer Protection Act relating to the confidentiality of materials submitted to the Securities and Exchange Commission.

      For the same reason, citizens should also elect representatives who promise to vote to ensure that section 953(b) of Dodd-Frank – which requires the Securities and Exchange Commission to adopt rules mandating the disclosure of the median of the annual total compensation of all employees and the ratio of C.E.O. compensation to median employee compensation – remains law.

For more entries on taxation, please visit:

http://www.aquarianagrarian.blogspot.com/2010/12/taxes-and-unemployment.html

http://www.aquarianagrarian.blogspot.com/2011/07/top-marginal-tax-rate-1913-2011.html

http://www.aquarianagrarian.blogspot.com/2013/08/annual-net-contribution-to-us-federal.html

http://www.aquarianagrarian.blogspot.com/2014/01/proposed-us-federal-government-budget.html

http://www.aquarianagrarian.blogspot.com/2014/04/the-philosophy-of-taxation-and.html

http://www.aquarianagrarian.blogspot.com/2014/04/viewing-legislation-through-economic.html

http://www.aquarianagrarian.blogspot.com/2014/04/taxes-and-unemployment.html

http://www.aquarianagrarian.blogspot.com/2014/04/2011-new-york-times-budget-puzzle.html

http://www.aquarianagrarian.blogspot.com/2014/04/conversation-with-liberal-on-taxing.html

http://www.aquarianagrarian.blogspot.com/2014/04/conservatives-for-georgism-and-social.html

http://www.aquarianagrarian.blogspot.com/2014/04/using-profit-incentive-to-promote.html

http://www.aquarianagrarian.blogspot.com/2014/04/john-locke-roderick-long-and-voluntary.html

http://www.aquarianagrarian.blogspot.com/2014/04/economic-policy-for-2012-us-house.html

http://www.aquarianagrarian.blogspot.com/2014/05/sources-of-federal-revenue.html

http://www.aquarianagrarian.blogspot.com/2014/05/taxpayer-funded-benefits-for.html

http://www.aquarianagrarian.blogspot.com/2014/05/tax-increases.html

http://www.aquarianagrarian.blogspot.com/2014/05/tax-cuts.html