Thursday, February 12, 2009

Companies of the Future are Free

What if business could function like a Hollywood movie production. A company is created with a specific value-creation goal over a finite time-frame. Employees are hired to work either at a specific location, or any "connected" location. Roles, responsibilities and progress are managed online, where contributors and managers have instant access to the rate and direction of progress.

What are the barriers to such a system today? For one, the burdens of forming a company: taxes, employee benefits, laws. Corporate taxes should not exist in the US. They limit business creation and encourage offshore expansion to lower tax-base countries. For example in the semiconductor industry, integrated circuits are designed in the US, but IC wafers are tested, assembled and sold from offshore tax havens like Singapore or Ireland. If there were no corporate taxes in the US many of those jobs would stay here.

The second big barrier is employee benefits, e.g. healthcare. Healthcare should be a social responsibility not an employer responsibility. Your healthcare costs and provider network should not change if you change companies. It should only change if you change the state or country where you live.

So how does America fund social change without corporate taxes? With a new tax system. The Federal Income Tax system is absurd, wasteful and an ineffective tool of economic or social change. The solution is value-added consumption taxes (VAT), paid by every entity that consumes value, at the time of consumption. If your job is to sit at home, living off the grid, growing your own food, then you might only pay taxes on the medical treatments you receive. If you make and spend $200,000 per year, then you are paying taxes, but probably a lot less than a 38% bracket. And you would be paying a similar amount to your $200,000-income neighbors who can deduct items that you may not be able to deduct on today's 1040.

Social and economic change is managed by a non-uniform version of VAT. For instance, this is one way to introduce a carbon tax. A kilowatt of kerosene has a higher VAT than a kilowatt of solar/wind energy. It's that simple. Rather than obtuse 1049A deductions based on last year's expenditures, put the incentive right into the price of the item or service you need to buy today. The government collects taxes in real-time and adjusts VAT taxes in near real-time. They do this on toll-based freeways in Los Angeles, and it works.

With the right changes, companies of the future can freely form to create and export value. Value is taxed to fairly meet the needs of the government.

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