Re: United ESOP highlights a problem

[Mbindnerdc@aol.com]

Norm Kurland wrote:

<<I agree that the economy must meet its retirement promises to all retired 
workers.  And under our
 Capital Homestead Act and our "Saving Social Security" proposals, those 
promises would be met.   However, I don't know how you define a "good" defined 
benefit plan.  To me, that's like a "good"  pay-as-you-go Social Security 
System.  They both work as long as companies are making high profits  and the 
economy is healthy and growing.  They're both inflexibly structured on promises 
that cannot be  kept if people live longer, the economy declines or those 
industries that make pension promises are no  longer cost-competitive in world 
trade.  >>

Actually, stock ownership works the same way, in that it depends on the 
existence of companies with a thriving customer and employee base.  Of course, 
in the short run, Americans of all strata holding shares in global firms 
spreads both the worker and customer bases over a larger area, so that foreign 
workers would pay their own social insurance taxes (if they even have that 
luxury) as well as fund the profits of US share holders.

Of course, you can only do this for so long until the workers of the world 
either unite in revolution or with jobs and savings gain enough economic and 
political power to end their subservient relationship.

Many are hoping that increased productivity and automation will make it 
possible to have distributed incomes with less workers.  That may well be the 
case. 

CESJ's solution finds a way to distribute capital credit to each individual so 
that, from birth, they accumulate self-liquidating assets which eventually 
produce either a gauranteed income for retirement or even a dividend stream for 
a basic income before retirement (although I can't see how one can have both).  
This would certainly solve the distributional problem, at least domestically.  
Since CESJ is an international player - working not only in the US economy but 
also overseas there are hopes that the developing world will adopt Capital 
Homesteading and tell the multi-nationals to do something nasty to themselves - 
althouth I feel that if Capital Homesteading were tried overseas the IMF and 
the multi-nationals can be counted on as an enemy.
I agree with tying social security reform to employee-ownership, though I would 
start accumulation with entering the work force rather than at birth - allowing 
employees and employers to invest in an ESOP rather than a mutual fund account 
(which the President's plan would have in private hands and the Unions and 
Democrats would have in government hands).  Ideally, a large chunk of the 
employer contribution to Old Age and Survivors Insurance would go into the ESOP 
Trust (and yes, the rules for ESOPs would most like need modification to do 
this) - and I would create structures so that the various factions in firms 
would be represented on the ESOP board - labor would have their seats, 
management employees theirs, techies theirs, engineer's theirs, etc.  I would 
also provide for an equal contribution for each employee, regardless of income 
(most ESOPs distribute in relation to salary - I found when working for one 
that this made control more top heavy than it otherwise would be).  The 
employee contribution would
 then be used for diversification.  This contribution would remain linked to 
income, just as it is now, though higher income individuals would initially 
finance some of the transition costs.  During the transition, some percentage 
of higher income FICA taxes would go to FICA, while low income individuals 
would pay entirely into their 401(k) type accounts.  Also, some of the employer 
contribution would go to FICA during the transition, though increasingly large 
percentages would go to ESOP trust funds.  

Of course, some firms would never go to ESOPs because of how they are owned and 
because of their size, these would continue to pay into FICA, though Employee 
contributions would be credited equally, rather than as a match to the employee 
contribtion.  Of course, you will likely find companies turning to ESOP 
ownership, as the best employees will vote with their feet.

Additionally, adoption of this plan is internationally portable.  
Multi-national firms who adopt it will find it hard not to institute it in some 
form overseas, which will change the labor market anywhere a firm with 
significant employee-ownership exists, and without the resistence from 
multi-nationals and the IMF that capital homesteading might attract.

Of course, as I said in the beginning, the ownership structures we set out are 
not the real solution to the problem.  What is needed is some form of 
gauranteed income which increases with FAMILY SIZE.  This would encourage 
people in their 20's to 40's to have more children then they otherwise would 
(high income individuals tend to have less children, which is why it is 
important to reconnect income itself to family size). 

CESJ would use capital credit to provide for dividend income, as well as have a 
higher personal exemption and direct subsidies to lower income families - all 
with a proportional income tax.
I favor a slightly different approach.  I would do away with both subsidies and 
individual income taxes below the high income level (which I define as $100,000 
for an individual earner from all sources - with no marraige penalty so the 
spouse's income is not taxed individually unless it is also above $100,000).   
The vast majority of revenue would be raised through a business income tax 
under which dividend payments not reinvested and wage and salary income would 
be taxable (salaries are now deductable as a business expense).  I would cut 
many of the tax credits and add a few, such as a family size credit - with a 
$5,000 per child or dependent spouse federal credit and state and local credits 
which would be set large enough so that they provide a middle class income to 
each family.  In Nortern Virginia the state credit would have to be $5,000, 
downstate it would be less.  In San Francisco it would most likely be huge.  In 
Iowa it would be smaller.  I would also add credits for financing home mortgage 
and edu
cational loans and health care which would either be paid to the employee or to 
the employer if the employer arranged for the financing.  The tax rate would be 
set so that employers with the average number of employee dependents would pay  
about what is collected now through the current individual income tax and 
business income tax systems.  Firms with higher numbers of employee dependents 
would pay less in the end, while employers with less employee dependents would 
pay more in the end.  In practical terms, transitioning to such a tax would 
lead most firms to rearrange their salary structures.  A higher minimum base 
wage would be necessary, though the market would probably dictate this.  I 
favor a $7.50/hour net base pay (after taxes and before credits) - so the 
likely result would be some lowering of wages at the highest level.  This is 
not necessarily a bad thing.

The end result would be the ability to have kids if they are wanted, and given 
the money, I think most parents would want them - and want them sooner, 
provided that the income is there to support them.  It currently isn't there 
for some, who find they have to wait until they are too old to start a large 
family in today's economy.  There are many one and two child families who's 
parents are my age.  In a healthy society, there should be a lot of 3 and 4 
parent families with parents my age.  A society is sick if it does not grow 
enough to support itself in the future.  By that standard, we are truly a sick 
society.  

Either CESJ's plan or my plan will increase ownership and basic incomes.  The 
question is, which will pass.  Although mine is a bit more redistributive and 
more radical in some ways, I think it is also more readily understandable and 
incremental in others.  I'm not sure that changing the monetary system is that 
easy to swallow, while a pro-family (pro-life) tax credit system which involves 
the elimination of income taxes for most employees and the privatization of 
social security with ESOPs might just speak into the listening of the current 
administration and House leadership.  Retaining progressive income taxation (at 
a lower rate) with the purpose of retiring the debt and partially financing 
social security privatization, as well as an equal payment of employer 
contributions regardless of income will speak into the listening of the Senate 
Democrats.

Of course, as we all know, the real challenge is getting the powers that be to 
listen.  It seems that the rhetoric around this issue is more designed to rally 
voters and raise campaign funds then it is to change policy.  We shall see.

Michael Bindner