Thursday, October 16, 2008

We need to tax intellectual property income with a higher rate

The dollar bills of the United States, are marked with the abbreviated prayer of "In God We Trust"

A more complete version of it would be "We trust in God to keep politicians from printing more dollars than what the economy can back, or, if not, to give the U.S. taxpayer the willingness and the ability to pay the taxes it takes". A similar prayer applies equally to all other countries.

Now even though the private sector will bear most of the initial losses of the financial crisis, this one will end up being extremely costly to the tax authorities and certainly in many cases, exceed their current fiscal capacity. In this respect some of its costs should be covered by higher taxes, since if not these will be paid through inflation, the tax on the poor.

Society has for many decades not analyzed any new taxing schemes which could better fit the new global realities and therefore interfere as little as possible with the recovery of the economy. It may be appropriate to start thinking about that. Any new tax proposal though must be legitimized on the basis of justice and rationality. In this regard I am circulating some ideas for discussion and the following is one of these.

The tax on the profits obtained from the monopolies created by intellectual property rights.

Most or perhaps all intellectual property rights are awarded to whoever runs the last leg of a relay that has been run with ingenuity, creativity and strenuous efforts, by generations of humans. Previous runners allow the last one to cross the finish line victoriously, to raise a finished idea as his, although he did not necessarily initiate it.

The particularity of this relay is that anyone who expects to be running as the last leg cannot be completely sure of what it entails. Sometimes running it can be easy, and sometimes it may require millions in equipment and others to fund the efforts. Society, in order to encourage ingenuity, creativity and the effort required of all needed to make the world progress, just decided to award the runner crossing the finish line, the trophy of an intellectual property right.

The problematic part of this social arrangement is that all intellectual property rights create a right to a monopoly and as is exercised with little or no regulation, restriction or supervision, meaning it can be subject to exploitation.

Because all intellectual property rights granted by the society imposes an obligation on it to defend that right, in many ways, which costs a lot, the question remains whether it would not have been better to use those resources for other purposes, such as funding others to run the last leg on behalf of the society.

I cannot find any logic or justice charge to tax a company who has been granted a monopoly intellectual property right, for something to which previous generations have contributed and in which defense Society needs to invest resources, with the same tax rate that applies to a company that competes in the market naked without any kind of protection.

And so I proposed to study the gains generated by the exploitation of intellectual property rights to pay a tax on additional profits, say 20 %. These revenues can be used to reimburse the company for the costs of defending the intellectual property and to help fund those other runners in relays of humanity aimed at developing essential goods that we can serve everyone.


Wednesday, October 15, 2008

Leverage!

Civil Society can help turn millions into billions.

Financial regulators turn billions into trillions.

Let us keep our eyes on the gorilla!

Tuesday, October 14, 2008

In God We Trust to see that…

The dollars, for which value the US is responsible, are printed with the abbreviated prayer of “In God We Trust”.

A more complete version would be: “In God We Trust to see that the politicians and the bureaucrats do not print and circulate more dollars that what the economy could back or, otherwise, that the American taxpayer finds it in him the capacity and the willingness to pay taxes so as to make up any shortfalls.”

Saturday, October 11, 2008

Let us rescue Caveat Emptor!

The implied warranty of fitness given to us by the credit rating agencies has not served us well, especially when the issuers of the warranties now inform us that they give us their opinions under the protection of the First Amendment, and that they cannot therefore be held responsible for their opinions.

It is obviously high time to rescue the Caveat Emptor principles in financial regulations, though in fact it seems that the market has been doing so on its own lately.

Let us never forget that the current crisis did not result from the market investing in badly awarded mortgage loans to what is known as the subprime sector but from investing securities collateralized with such mortgages and that received a prime rating.

Thursday, October 09, 2008

To get to common ground we must fight common distance.

The other day when listening to a new appeal for finding “common ground” but that implicitly sounded subtitled “as long as it is on my ground” once again I had to reflect that the only way for us all to be able to reach the common ground we so urgently need is to start by getting rid of our “common distance”

Wednesday, October 08, 2008

The keeping the big lean tax

No matter how optimistic we can be about that all the assets the US government acquires during the current financial crisis will be fairly priced, there is no doubt that the whole crisis is going to be extremely expensive for the public sector. The costs will have to be paid by taxes or, in its absence, by inflation.

In this respect society has a vested interest in finding new equitable ways of how to pay for it, and that these are aligned with the new global realities and interfere as little as possible with the recovery of the economy. The following is a second proposal that follows up on “An income tax on profits from intellectual-property monopolies.”

The keeping the big lean tax: Tax progressiveness based on market share.

There is nothing wrong with a corporation striving to obtain a large market share. Indeed since it is the result of having a better motivated and better organized commitment to exploit comparative advantages in order to satisfy the market with better products or services at better prices, the fight for more market share benefits us all.

That said, while the market share grows, for all the good reasons, growing market powers might tempt the corporation to use competitive tools of dubious nature which could diminish the marginal returns for the society, to such an extent that they could perhaps even turning into costs that erode all previously obtained benefits.

I therefore propose we introduce tax progressiveness based on market shares. For instance if a corporation has below 10 percent of market share a 30% income tax rate applies but, if it has a 100 percent market share then it should be taxed at for instance a 50% rate, with a linear function for the in-betweens. Alternatively, if we want to avoid making the “after-tax” subsidies of inefficiencies higher it could be a progressive sales tax.

Of course the market share tax is not be applied to those corporations who have the financial returns on their activities otherwise regulated, such as the electricity distribution companies.

Of course in banking where the bigger-you-are-the-more- it-hurts-when-you-fall-on-us, a tax on size should be immediately applied, before we run out of the small local banks that do not need the credit rating agencies to know us.

The human heritage dividend:

No matter how optimistic we can be about that all the assets the US government acquires during the current financial crisis will be fairly priced, there is no doubt that the whole crisis is going to be extremely expensive for the public sector. The costs will have to be paid by taxes or, in its absence, by inflation.

In this respect society has a vested interest in finding new equitable ways of how to pay for it, and that these are aligned with the new global realities and interfere as little as possible with the recovery of the economy. The following is one proposal.

The human heritage dividend: An income tax on profits from intellectual-property monopolies.

Most—perhaps all—intellectual-property rights are awarded to the runner of the last leg in a relay race run by generations of human beings and depending on their ingenuity, creativity, and sheer efforts. The earlier runners allow the new laureate to cross the finish line victoriously, and then hold up the trophy for a finished idea, but not for its start.

Most often, even though you might hope you are running the last leg, there can never be any real certainty about that. Sometimes running the last leg (or any leg) can be easy; sometimes it requires much effort by a large team, and it costs billions in money. Society, in order to stimulate the ingenuity, the creativity, and the sheer effort of all the runners in the relay, and thereby help to take the world forward, has decided it needs to certify the intellectual-property rights of the winner.

The downside of this arrangement is that all intellectual-property rights awarded create a monopoly right that—as it can be exercised with little or no regulations, restrictions, and oversight—can unfortunately and quite easily be overexploited.

Also, since all intellectual-property rights awarded impose on society an obligation to defend and enforce those rights in many ways which costs money, the question remains whether it would not have been better to use these resources for other purposes like financing some of the other runners in the relay?

I find no logic or justice in assessing the taxes of a business venture that has to compete naked without any protection in the market at the same rate as a project that has been awarded the monopoly of an intellectual-property right, one to which prior generations of humanity have contributed and in legal defense of which the society invests much money.

I therefore propose that all profits generated from intellectual-property rights should pay an excess-profit income tax, something like 20%, with half of these revenues used to reimburse society for the costs of defending the intellectual-property rights, and the other half employed to help finance the other runners in the human relay, especially those developing vital goods that can serve us all.