A novel sort of corporate taxation?

I’ve been thinking about how tax reform could drive positive social change for a while, particularly corporate taxation, as it seems very large corporations have a wee bit of a problem behaving responsibly and playing nicely with the rest of us.

I’m not much of an economist, so the following should be taken with a pinch of salt…

But as far as I can see the central issue is how to put pressure on corporate entities to behave responsibly within the wider socio-economic ecosystem.

In natural ‘climax’ ecosystems (which are surely what we should be aiming for in socio-economic terms) stability is achieved via positive and negative feedback mechanisms – the same things that maintain homeostasis in the human body.

Taxation systems are already filling a regulatory role in our socio-economic ecosystem, so why not tailor them further towards homeostasis – or rather, since we want to allow change, but try to limit negative impacts of change, tailor them towards sustainability.

I would identify the two major enablers of corporate irresponsibility as follows:

(Not saying that there aren’t others mind…)

1) Inequality – the larger the corporation, the greater the divide in pay between top and bottom. Hence fewer, larger corporations means more people in greater poverty than would otherwise be the case. Globalisation makes this problem even worse – if corporate pay strcutures are a pyramid, with many low-paid workers supporting a few plutocrats, then globalising the pyramid makes the difference between the top and the bottom much greater, while obscuring the differential across national borders. If we have to have pyramid shaped pay structures, the pyramids should be as small as possible…

2) Geographical reach – Once a corporation reaches a certain size it can dominate national and international economies, to the point where its failure would have disastrous consequences for others. It then becomes rather less likely to behave responsibly, being able to take bigger risks and having greater legislative power than one might wish for a wholly self-interested, largely unaccountable legal entity.

I would like to see an analysis of what a corporate taxation system based on two metrics would do.

1) Tax proportional to the ratio of annual pay between the highest and lowest paid employee.

2) Tax proportional to the distance between a corporations Head Office and its farthest offices.

The system should be set up so that a company could have global reach but would then be required to have a very low ratio of highest to lowest pay, or have a high ratio of low to high pay, but a lower geographical reach. The consequence of doing neither would be a punitive rate of taxation.

The two rates should cross in the middle, as it were, and be set so that companies which occupy this middle ground continue to pay the same tax rate as they currently do. Smaller companies (by the two metrics outlined above) would pay less tax than they currently do, and larger would pay more.

Growth of new enterprises would therefore be encouraged, up to a point beyond which the increasing tax burden of further growth would inhibit that growth – unless the company operates in a very egalitarian way, or maintains a very small global footprint.

What do you think?