Capital for the People – an idea whose time has come

If the American states, such as the former US Supreme Court judge Louis Brandeis Once coined, “the labs of democracy,” it is worth keeping a close eye on what is happening in California now.

The threat of higher taxes and a “sucking up the rich political atmosphere” of some wealthy Golden State residents, including a number of tech entrepreneurs, led to Leave For cheap pastures like Austin or Miami. This, in turn, has raised fears of greater immigration that could have an impact not only on the state’s tax base, but on the growth and innovation that have made California the world’s fifth largest economy.

It is an exceptionally precarious situation. While no one these days sympathizes much with wealthy individuals or companies (watch the recent justified outrage about ProPublica Leaks Show how little taxes the richest Americans pay), or truly believe in a tiered economy, the threat of tax and regulatory arbitrage by other nations is real.

The good news is that California is applying some typical creative thinking to the problem. What if there was another way to harness the wealth of the company and its citizens for the benefit of all?

One such idea that is gaining popularity is what is called “pre-distribution”. Unlike traditional methods of redistribution, where the state taxes existing wealth and then uses it to support various projects and components, ex-distribution is about harnessing capital in the same way that investors do, and then using the returns on capital growth (which is like we know it outpaces much income growth) to finance the public sector.

The idea of ​​allowing more people to become owners of capital has actually been in the works for some time. The CalSaversCreated in 2016, it allows individuals such as temporary job workers or independent contractors who do not have access to private sector retirement accounts to contribute to professionally managed funds in a state-run system.

Similarly, proposition 24, and California Privacy Rights Act, which was passed last year and will take effect in 2023. This actually creates a kind of hidden sovereign wealth fund, where 93 cents of every dollar is charged in fees companies pay for privacy violations (which, given the nature of capitalist surveillance, is likely to be significant) can be invested by the Treasury, the proceeds of any gains used to pay for government operations. “It’s a way to help us not have to raise taxes,” says Robert Hertzberg, California Senate Majority Leader, a Democrat.

He, along with some wealthy Californians like former Google CEO Eric Schmidt, and Snap founder Evan Spiegel, have suggested expanding the concept to what’s called “global seed capital.” The idea is that initial stock contributions from companies or philanthropists can be invested in a fund that can then be used by individual Californians for things like retirement insurance, health care, etc.

Already, in the 2021-2022 budget, California Governor Gavin Newsom has proposed using some of the state’s tax surplus this year — which was put together with the federal Covid exemption. 100 million dollars In public coffers – to start college accounts for every low-income first-grader in the state.

One can imagine going even further and having the country take a small stock position, maybe 3-5 per cent, in start-up companies, as countries like Israel or Finland I have already done it. Given that the current value of publicly traded companies in California is about $13 trillion, that’s not a small change. If the state could have acquired even a small stake in the big companies a few decades ago, there may be much less “occupants” in California’s Silicon Valley today.

Advance distribution should not, in my opinion, be a substitute for taxes. The gap cannot be filled, and taxation is by no means a means of promoting a sense of civic duty and belonging. But it should be seen as a new source of income especially suitable for an era in which the network and intangible assets They concentrate wealth not only in the hands of fewer hands, but in fewer companies that can make big profits with far fewer employees.

It can also help to better coordinate public and private incentives and rewards. The enormous wealth generated by the leading firms is partly due to the power of the public commons – good schools, decent infrastructure, basic research, etc. as economists like يحب Mariana Mazzucato We often notice, why should taxpayers bill for, say, laying high-speed fiber without getting any of the business benefits?

In fact, if predistribution works in a California lab, I expect it will somehow be approved at the federal level. The Obama administration actually tried to implement its own version of CalSavers for the country as a whole, called myRA, but it failed in part because the money was only invested in low-yield, high-security Treasuries at a time when the market as a whole was rising much faster.

Even in this politically polarized moment, perhaps its time has come. Advance distribution is supported by potential partners such as the hedge funder Ray Dalio and left-wing economist Joseph Stiglitz. Perhaps this is because, although it does not fundamentally change the market system, it does expand stock ownership: a mixture of capitalism and socialism is appropriate for our times.

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