A Radical Proposal: Free Enterprise

Lenten, Michael Rappeport and Christine Van

A radical proposal: free enterprise by Michael Rappeport and Christine Van Lenter Apart from Jean-Jacques ServainSchreiber and a few partisans at the head of business conglomerates, the giant...

...A better idea might be to build into the tax system a disincentive to growth-for-its-own-sake...
...It would be wrong to expect the millenium based on this one change, but prospects should certainly improve for the individualistic, high-risk ventures that are the heart of the free enterprise system...
...This would then put more inoney in the hands of private investors, and leave less lodged with the moneymen of Western " Electric or Ford...
...small entrepreneurs disappear with alarming rapidity...
...The traditional weapons for fighting corporate growth have proved exceedingly weak and ineffective...
...By itself, a new tax structure might not change the assembly-line blues, since breaking GM into five or six companies would probably not alter the basic production technique...
...Table I shows a proposed set of rates...
...The first $25,000 of profits is taxed at a rate of 22 per cent, and everything above that is taxed at 48 per cent...
...the present tax incenMichael Rappeport is a contributing editor of The Washington Monthly...
...From her personal observations of what happened when Random House was taken over by RCA, Suzannah Lessard has written : The first principle of corporate structure is to diffuse responsibility so that no one person feels directly implicated by the whole, while the sum of individual energies perpetuates the institution in all its endeavors...
...And the Justice Departmentís cumbersome and time-consuming procedures guarantee that even if an administration pursued trust-busting policies with a will, it would have a hard time making headway...
...Recent trends in the publishing industry have amply demonstrated this phenomenon...
...Making capital more available to the man with a patent idea or the group ready to start a new business would not only give us the benefits of individual energies that are not now fulfilled, but would also lead toward a society with more of the individualized jobs and fewer in the large enterprises...
...The few times that the government has ordered divestiture, the timetables have been so drawn out that their impact is not felt for years...
...Under current tax laws, the corporate tax is only crudely progressive...
...The effects of a new tax system, while hard to predict with certainty or precision, might be extremely beneficial in a few important areas...
...As more and more of us become part of the corporate grease, a progressive corporate tax may seem more and more attractive...
...consumers cite factory-produced food as an example of whatís wrong with life...
...tive in favor of conglomeration...
...If you are a successful editor, the profits you might make publishing excellent, conscientious books can serve to grease another part of the organization in an activity you abhor...
...This might not stop all mergers and acquisitions, for the urge to grandeur is inherent in business as elsewhere and will prevail despite tax obstacles...
...Table I Taxable Income below $25,000 $25,000-1 00,000 $100.000-1 million $1 million-3 million $3 million-10 million $10 million-25 million $25 million-I00 million over $100 million Tax Paid at current rates $0.7 billion $3.0 $4.9 $1.9 $3.1 $3.6 $4.0 $1 4.4 $35.6 billion Suggested Tax Rate 25% 30% 36% 42% 46% 50% 54% 58% Tax Paid at new rates $0.7 billion $1.8 $3.6 $1.5 $2.9 $3.6 $4.3 $17.2 $35.6 bil I ion...
...Workers on the assembly line detest the speed-ups and monotony which corporate efficiency experts dictate...
...For one thing, businesses that had expanded or merged merely to show a larger overall profit would find much of that incentive taken away...
...A corporation netting $1 billion is taxed at the same rate as one making $100,000...
...can no longer feel the sense of responsibility and participation that is necessary for excellence, or even decency, in their work...
...When organizations reach a certain size, the people within them *A change in the capital gains tax rate, which encourages stockholders to prefer reinvestment to dividends, would also be a step in the right direction...
...A radical proposal: free enterprise by Michael Rappeport and Christine Van Lenter Apart from Jean-Jacques ServainSchreiber and a few partisans at the head of business conglomerates, the giant corporation has won few friends...
...An even more significant effect may be the new tax's impact on the depersoiialization and ennui of working life...
...On the other hand, if there were truly compelling economic reasons for an expansion, the company would go ahead with its plans since it would gain more than it would lose in taxes...
...Since corporate growth would carry the drawback of higher tax rates, managers would be more likely to pay out profits to stockholders and less likely to retain and reinvest them...
...As the small, independent houses have been gobbled up one by one by big corporations, the editorial staff's sense of integrity and purpose has been threatened...
...The corporation has neither a conscience nor a self-consciousness...
...And while 48 per cent of $1 billion is much more than 48 per cent of $100,000, the amount that is left over is so much greater for the big company that its effect on the marketplace (not to mention on the world of politics) is of an entirely different magnitude...
...Even economists admit that corporate growth has passed the stage at which it made purely economic sense: there is, for example, no economically sound reason for ITT to be running car rental agencies or baking bread...
...Many of them might find it more profitable to break up into smaller, independent, operating companies...
...But it might change part of the corporate atmosphere that makes things like the Vega assembly line possible...
...But at least it would remove...
...As an alternative, we might consider a system which taxes corporate profit at progressive rates like those in effect for personal income...
...Christine Van Lenten is a candidate for the New Jersey Assembly...
...and the ancient political warnings about the influence of private interests have been bolstered by evidence from Chile and the Nixon Administration...
...Its impact on the capital market, for example, might create opportunities for more innovative, small-scale operations...
...Bigness is not always bad, nor smallness good, but it does seem clear that the sense of participation is more likely to flourish in the small enterprise...
...What would this accomplish...
...A recent book, Public Administvation as Political Process, reports that most Americans work for large bureaucracies: GM, and the Post Office each employs more than 700,000 people...

Vol. 5 • May 1973 • No. 3


 
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