Part One:
SHOULD WE TAX CORPORATE RETURNS ON THE STOCK MARKET?
Dean Baker is the senior economist at the Center for Economic and Policy Research, and the author of “Rigged: How globalization and the rules of the modern economy were structured to make the rich richer.” First, Dean explains how it’s possible that the stock market continues rising, even as the US economy is in deep recession with unemployment at historic levels and millions of Americans terrified that they will not have the means to survive much longer.
The explanation: Sometimes the market is irrational. For example, in the late 1990s, stock prices went through the roof (not just the dot.com flyers, but even mature companies like GE). Federal Reserve Chairman Alan Greenspan expressed concern over this “irrational exuberance.” People thought the stock market would just keep going up even though price-earnings ratios were sky high (which means that stocks were over-priced and, presumably, due for a “correction”). Many people thought the p/e ratio doesn’t matter any more.
So what does matter? The stock of a company like Walmart goes up not because of anything about the country’s unemployment rate. The stock price goes up (or down) based on what investors think Walmart’s **profits** will be in 2021 (or 2022-23). Walmart is looking fairly profitable now (because the average American has a smaller budget and therefore is looking for cheaper products), but profits could be even higher in future years. Counter-intuitively, a larger catastrophe in the overall economy could actually be good news for Walmart, if its products would then become even more competitive relative to other sellers, ie, become an even better deal for folks whose incomes are, by that time, even lower. Similarly, Amazon did incredibly well during this pandemic. Everyone is buying everything online, so the coronavirus was a huge bonanza for the mega-company (not that the pandemic is Amazon’s fault).
The simple fix for a corporate income tax: We should tax *stock returns.* That way, there wouldn’t be any loopholes. Corporations would have to pay the taxes mandated by the law. They would not be able to avoid (legal ) or evade (illegal) them as they can now. Transparency couldn’t be avoided . The IRS would be able to see what the company’s stock returns are. They’re a matter of public record (on the stock exchange). If a company’s stock price goes up x%, we’re going to tax them on that increase. If the company paid out y% in dividends to stockholders (also a matter of public record), then we’ll tax them on that. So there would be no facts to argue over!! The tax collectors can focus on something that they can see.
(This would be very different from the current system, where companies control their own financial books, and use their own methods to report their profits. The IRS can’t keep up with the clever ways that corporate accountants use to change their definitions and make actual profits difficult for the IRS to find.)
Any honest company should love Baker’s proposal. They can save a lot of money on their accountants and tax lawyers. Of course, companies that are trying to hide their profits from the IRS would resent having transparency forced upon them.
Part two:
REPLACE COAL AS AN ENERGY SOURCE, BUT DON’T ABANDON THE PEOPLE WHO WORK IN THE INDUSTRY
We discuss renewable energy with Douglas Struck, who teaches journalism at Emerson College. We discuss his article in the Christian Science Monitor entitled: “Power pivot — What happens in states where wind dethrones big coal?” That’s what happened in Wyoming, for decades a leading producer of coal which the state has relied on to “fuel” its economy.
The coal mining industry in Wyoming traditionally paid pretty well to its workers who performed that difficult work. But with climate change and the world looking to lower its dependence on fossil fuels, Wyoming’s coal companies have begun to move into wind energy. When the transformation has been completed, what will become of the coal industry’s work force?
They are facing the curse of most countries or states that have flourished as a result of their rich natural resources. They have not been motivated to develop their human capital, especially their education systems. This makes it harder to survive when the resources run out or capital is switch into a new industry. These workers will not have the education, the skills, or the training to perform new tasks; they are unprepared to meet different expectations in a different world. Because we are not very good at retraining people to shift from a traditional industry into a more modern one, the transition is a going to be a challenge.
So what should we do? According to Struck, the smartest solution – the easiest and most economical – would be just to shut down the coal industry, and to assure the 50,000 coal miners that they will be economically secure for life. They will be paid a retirement pension, receive health care, and be guaranteed a certain amount of money to help with their children’s education. All of this would be a lot cheaper than all the subsidies we are currently paying to the coal industry in exchange for producing energy in a way that is destroying our planet.
Our country should not balk at giving a person a check, when we’re willing to give corporations many checks – subsidies and tax breaks — to continue killing the planet with fossil fuels.
