Fiscal policies and wealth ownership to prosper society | Solving society's problems VI

Policies

Keywords: taxes, shares/stocks, universal basic asset and dividend, sovereign wealth fund, extra wealth, stimulate business growth, sense of and actual ownership, corruption, global competition, inflation, fairly distributed shares, workers versus rest of the population, majority stake

Some people don’t want to pay taxes and others are happy to. High taxes aren’t necesarrily bad, but there’s a way to satisfy both kinds of those people by reducing or eliminating income taxes, but at the same time implement several other efficient or effective taxes. These other taxes will also be helpful to people in other ways and stimulate the economy.

In several of my blog posts I mentioned ways to help prosper the economy of the country. Sovereign wealth funds is a new way that I will discuss here.

High taxes doesn’t mean you stifle an economy. I mentioned this in a previous blog post: Change how we work or vote, change the world | Solving society's problems III. Nordic countries have among the highest taxes, income and VAT, but they are still wealthy. Singapore has relatively low tax rates and they are also wealthy, but car purchase prices are high and you need to pay for use of your car on the road. In the Nordic countries and Singapore, they take care of their people by social policies. In the Nordic countries you have, welfare, unemployment benefits, affordable health care. In Singapore you need to mandatory save part of you income, then it’s put into a fund, but you’re only allowed to use it for healthcare, buying a house or your pension. Therefore it depends on how you tax and how you spend it.

Edit: Recently, around the weeks of 1-2-2025, I came again into contact with the concept of tariffs, which Trump and his administration wanted to implement and how that’s a tax as well. Also I saw another video about destination-based cash flow tax (DBCFT), which acts as a value-added tax, but some people see it as a tariff.

Furthermore I read an article at the Guardian via X about an extraterritorial tax as interposition protectionism to reduce wealth inequality and promote a race to the top instead of the race to the bottom of companies. The (percentage) amount of profit of the foreign company or person, say 5%, in your country, you apply your country’s tax law to the foreign country and collect that from the company. It’s kind of like a tariff for companies, but it would be the only tax you would levy instead of the standard corporate income tax. Those foreign countries would have no further incentive and reason to offer tax breaks.

Edit: 14-3-2025 I read an interesting piece about taxing or tariffing capital inflows. Since the trade war is still ongoing, this article mentioned that could be the next option. It is a tax on inflows or imports and is therefore similar to the DBCFT, but instead of goods only on capital. It acts as a means to rebalance the current account, if you have a trade deficit. However it has least five other benefits, with number 2, 3 and 5 were of interest to me, because those disincentivize unwanted volatile financial behaviour, similar to other financial taxes I mentioned below: bank tax, FTT and Spahn tax. It can act as an alternative for traditional tariffs. Lastly I think that even if you have a trade surplus, but see a lot of capital inflows because of financial activity, then you could also apply. This would be like if China, would be the financial center of the world or the USA who is currently the financial center would have a trade surplus. The five benefits are:

“First, if it is designed for flexibility, it allows the U.S. current and capital accounts to be broadly balanced over a period of several years. Over shorter periods, trade can be temporarily imbalanced for good reasons, and any good proposal must allow for that flexibility.

Second, the tax on inflows should penalize short-term and speculative inflows more than longer-term inflows into productive investment. This would create greater American financial stability.

Third, unlike tariffs, which benefit one set of American producers at the expense of another, a tax on capital inflows benefits nearly all domestic producers, mainly at the expense of the banks. Because large international banks profit from intermediating major capital flows into and out of the U.S. and from borrowing cheap, short-term money and lending it for longer terms at higher rates, they — not producers — would be the losers from a tax on capital inflows.

Fourth, taxing capital inflows doesn’t distort the relative prices of goods and services and disrupt value chains, as tariffs do.

And fifth, while such a tax does distort capital inflows, to the extent that international capital is driven not by efficient capital allocation but by short-term investment fads, capital flight, reserve accumulation, debt bubbles and speculation, this distortion can actually enhance the efficiency of capital allocation.”

Guardian article about extraterritorial tax: "Trump threatens a global trade war. Europe must unleash a radical alternative"

X thread by the author/inventor explaining the extraterritorial tax

Tariffs on goods may be a prelude to tariffs on money

5 smart reasons to tax foreign capital

Generally whatever you tax, you will see less off. That got me thinking, we should tax all unwanted or undesirable behaviour and implement efficient taxes. Initial thoughts were to employ:

1. Land value tax (LVT)

2. Destination-based cash flow tax (DBCFT)

3. Extraterritorial tax

4. tax the inefficient financial sector

5. and tax waste or other negative consequences, like carbon dioxide, CO2

What are efficient taxes? Instead of taxing the traditional way, like goods, income and profits, maybe it’s more efficient if we made use of financial ratio’s like accounting. After that I went to research the concept of taxes.

Pigouvian tax, these are taxes on negative externalities (or waste)

Inefficient finance capitalism is a reason to tax the financial sector: Bank tax, Financial transaction tax (FTT), Tobin tax and the “improved” Tobin version Spahn tax; the last two are currency transaction taxes.

I asked Grok, an AI model: What are considered efficient taxes by economists? Characteristics of efficient taxes:

1. Low Deadweight Loss

2. Broad Base

3. Low Administrative and Compliance Costs

4. Less Influence on Economic Decisions

Examples: value-added tax (VAT), land value tax (LVT), flat or proportional income taxes and Pigovian taxes.

In a previous post I mentioned Michael Hudson, he is an economist that specializes in debt and unearned income: How to solve unemployment and poverty? | Solving society's problems V. I asked Grok again: What taxes does Michael Hudson in his works propose?;

1. Land value tax (LVT)

2. Taxation on economic rents (Economic rent): (I want to expand this one as I find it important) He emphasizes taxing what he refers to as "free-lunch rents," including financial rents, property rent, fees for using natural resources like airwaves, and monopoly rents. Hudson argues that such taxes would not raise the cost of doing business and would instead collect income that does not contribute to production

3. Abolition or reduction of income tax

4. Higher taxation on real estate or capital gains

5. Against tax cuts for the wealthy

6. Tax policy to counter debt deflation (I have never thought of this, but this one is important for whenever we are in a recession)

Related to financial transaction tax, which extends the tax to all transactions, as a way to replace all taxes: Automated Payment Transaction tax (APTT).

The opposite of tax cuts for the wealthy is a Wealth tax to reduce (wealth) inequality.

To reduce sellers inflation, part of inflation, we can apply a tax to the (yearly (or whatever time period) percentage) change in profit margin ( = revenue/sale), a profit margin change tax (PMCT), this lies somewhere in between a Windfall tax and an economic rent tax.

To reduce the wage price spiral, part of inflation, we can tax the (yearly (or whatever time period) percentage) change in wages, call it wage change tax (WCT). So if it doesn’t change you won’t get taxed. It should also be set at a threshold of the inflation percentage, at or below that you won’t get taxed.

As inspiration for other efficient taxes, I look at my blog post for the so called transitional (macroeconomic) indicators: Is money everything? | Solving society's problems VII. These indicators measure how the economy is doing. Similarly there are also key performance indicators (KPIs) for companies that measure the efficiency.

Labour productivity turns into: number of hours worked per profit (or per goods) = labour efficiency tax (LET); this will encourage people to get the most out of their work, the most bang for their buck literally and will possibly reduce the total of hours worked for the same result, as you get less taxed for the same amount of profit your company generates; the tax can be for companies as well as people, then instead of per profit it becomes per average or typical income of the company. Though there has to be a accompanying metric for startups, say if it’s unprofitable don’t use this tax.

Material productivity becomes: resource use per goods produced = material efficiency tax (MET); this will encourage the company to not waste resources unnecessarily.

Economic energy efficiency changes to: energy use per goods produced = energy efficiency tax (EET); this will encourage the company to use energy efficiently, similarly to MET, but now for energy instead of resources.

Combining everything together, use:

• LVT instead of real estate tax

• replace VAT with DBCFT (but if the extraterritorial tax is as effective as it says, along with maybe a capital inflow tax, then maybe there’s no need for this tax)

• Pigouvian taxes

• LET, MET, EET

• Bank tax, FTT, Spahn tax, capital inflow tax

• wealth tax instead of higher real estate tax, because real estate is an asset or equity as well and the wealth tax affect more broadly; capital gains tax

• extraterritorial tax

• WCT, PMCT and more generally taxation on economic rents

All of these together and we can possibly abolish, but surely reduce income taxes and probably reduce corporate income ( = profit) tax. Also we can possibly eliminate corporate income tax if we replace it with LET, MET and EET. All these taxes show no need of APTT, even though it sounds ideal. Also LVT was supposed to reduce or eliminate all other taxes, depending on the figures it already does the job of APTT. Another reason for not having (only) a general tax is that I think taxes should help curb unwanted phenomena. For exact numbers you can look them up in the references, but usually it’s in the billions. Maybe one day I will have a summary of all the projections to have an accurate picture. Also all the taxes in the financial sector should take into account that pensions are not at risk. The newly invented taxes: MET, EET, PMCT, maybe there should be a threshold depending on what the research says, similarly to the threshold at LET and WCT.

There is one important tax I haven’t mentioned a Pigouvian tax, that takes inequality as an externality. A little inequality is good, but too much can lead to all kinds of problems. There will always be wealth inequality, but what would the “optimal” inequality be? Instead of reaching for a gini coefficient of zero or any other supposedly optimal number, I’ve got another idea. In my opinion, the answer would be: tax policy to optimise social (economic) mobility, that way everyone at any step of the socio-economic ladder has equal opportunity to climb said ladder. This tax policy should probably include the wealth tax, extraterritorial tax, economic rent tax and other related taxes, such as inheritance tax. A way to measure social mobility is through “intergenerational earnings elasticity” mentioned in the video below “Why meritocracy is a lie”.

A measure of inquality would be mean (average) wealth minus median (typical) wealth; mean gross wealth minus median gross wealth or mean net financial assets per capita minus median net financial assets per capita. These are based on transitional macroeconomic indicators from the blog post mentioned before.

In my blog post: Constructing an economy in the best possible way | Solving society's problems X; capitalism is modeled through a modified GBM equation: dx=x(μdt+σdW)−τ(x−⟨x⟩N​)dt. For inquality to stabilise, the social cohesion parameter τ has to be greater than zero. As a result, another measure of inequality can be derived, that is mentioned in my blog: Is money everything? | Solving society's problems VII; J: mean-logarithmic deviation MLD; J = ln GDP − ln DDP. J has to be zero for the mean income to be the same as the typical income. Mean-logarithmic deviation along with intergenerational earnings elasticity (but maybe calculated in a non-ergodic way, i.e. not population average, but time average) and the other 3 inequality measures for wealth are good indicators for “optimal” inquality, but I prefer the first two, because they have a more accurate and a more mathematical description.

Thread about belief in meritocracy and the connection with inequality

In my blog post: How to solve unemployment and poverty? | Solving society's problems V there was a way to fund Universal Basic Income (UBI), through another method called Universal Basic Asset (UBA) or Dividend (UBD), even though you didn’t need to, like I explained. That method of funding I’ll explain next. Companies like Google and Microsoft are basically monopolies, every time we use, each one of us in the whole world uses one of those companies, or if we have a subscription, we contribute to (the stocks or shares of) or shape those companies. It’s not like a baker or other retail companies, where you just buy the products and we consume it or has a lifetime on the product. So then we should all profit from those companies as well. The government would create a fund where they own the shares of those companies and distribute the dividends of those companies to the population of your country. If you have a way to fund UBI, then UBA or UBD could come on top of that.

The aforementioned fund, sometimes called a citizen fund, would be similar to some sovereign wealth funds, for example Norway, where their sovereign wealth fund provides for their people pensions. Only now for countries who don’t have oil companies, the fund would invest in all other local and foreign companies.

Initially the two main benefits of a sovereign wealth fund were:

1. Possibility of higher returns

2. Defends against “Dutch disease”

Two main conditions to set it up:

1. Excess cash in domestic economy (originally due to a natural resource)

2. Strong foreign reserves

The modern sovereign wealth funds today are stabilisation funds or government monitored pension funds.

Currently politicians want to create them for the following reasons:

1. Sounds good to voters

2. Good way to showcase assets

3. Helps fight short-term political pressure

The third reason is similar to another method I proposed in my blog. New indicators or metrics to measure the well being of a country: Is money everything? | Solving society's problems VII. These will ensure long term guidance to the development of a country. Though the sovereign wealth fund would have more direct and immediate impact.

A sovereign wealth fund would benefit your people and your country in several ways.

You can fund social services, if necessary or desired, this way you can lower taxes overall. That is a tax cut or benefit that will help prosper society.

You can invest in local and foreign companies to stimulate the growth of businesses, profit off of them and increasing return on investment (ROI) for the fund.

If you have a sense of and if you have actual shared ownership of all the companies in your country, people would be more motivated to create wealth for all, because it would literally pay off more. Think equity ownership or stock based compensation on a national scale. Employees of companies more often part owner: "Five to six month salaries extra". (Dutch)

If people have shared ownership, then people would have less incentive to be corrupt and people would accuse others less of being corrupt, unlike what we have in capitalism. Of course people can still be greedy and there still would be white collar crime, but I mean overall, on average it would reduce those incentives and accusations. This is another way to reduce corruption on a large scale, for another method see my post, there workers should get a bigger share of the company through stocks (stock based compensation), this is a worker coop variant, this reduces the greedy capitalist incentive: Change how we work or vote, change the world | Solving society's problems III.

Furthermore you’d be able to compete with other countries on the aspect of the direction of company management. For example Norway has 1.5% of all global stocks. Would you want one country to influence the direction of say Google?

Also depending on how you structure your sovereign wealth fund, that may or may not include the country’s Central Bank, then you can also curb inflation (partially), if the Central Bank would be part of the fund and be able to buy back stocks or currency. Another way to reduce inflation by having a 4 day workweek, is mentioned in my blog post: Work, problem or solution? | Solving society's problems I.

Finally by creating a sovereign wealth fund, by distributing the wealth more fairly, you solve part of the wealth inequality problem, this is even if your country would already have low income inequality.

To get a clearer picture of a previous point I made, I ask the following question, how much of the companies should we own?

Mind you, I’m only talking about ownership through shares, not income (or bonuses for that matter), which should be the reward for the work that you do. Though the dividends, that accompanies those shares can be seen as a reward.

The country can’t own the whole company, that would mean it’s nationalized even though the workers act like they are a private company. That generally won’t work in the western and/or developed world.

So the country in terms of population consists in the broadest of terms of workers and consumers. So let’s say ideally the whole population can have up to 50% ownership and the other 50% is for the rest of the world, they can be freely traded on the open market. Then how are the shares distributed between workers and consumers.

Since workers contribute most to the company, they should have a lion’s share, pun not intended, although subconsciously maybe I did. Even if you have a worker cooperative, see my blog post: Change how we work or vote, change the world | Solving society's problems III. Maybe you could make the case that the workers would own 100% of the company, but this seems more fair. Even this way for big companies like Amazon, Google or Microsoft, you would have thousands of shareholders with a few hundreds to thousands of dollars instead of a few billionaires. I like that distribution more than what we now have currently, don’t you? Let’s take Google, the largest individual shareholder, Brin Sergey owns 2.93% of the company, the shares are valued at 48.69B USD in 2023. If 50% of Google’s value of 1.667T USD would be divided among it’s approximately 150.000 workers, then each worker would get 0.0003% of the company, with shares that would be valued at around 5000 USD.

However there’s a problem with the definition of a worker. If the person would stay only 1 or 2 years, would they still count? What about 10 or 20 years? How about if the company grows to accomodate more or less employees? This indicates that workers should be compensated by how long they stay at the company with respect to how long the company exist and also accounted for the total workers. For example if we would have a worker who worked 2 years at the company, that existed for 5 years and the company has 1000 employees. Then the amount of shares he/she would get is (2/(5*1000))*0.5 = 0.0002 or 0.02%. These values would be constantly updated at a set time interval, depending on how the sovereign wealth fund would be set up, it can be monthly, quarterly, semi-yearly or yearly.

Now how much should the rest of the population, the consumers get via the government through it’s sovereign wealth fund?

That depends on how much the company contributes to society and that is difficult to measure, for now I propose net profit as percentage of GDP or something similar, earnings-before-interest-and-taxes(-decpreciation-and-amortization) (EBIT(DA)) or free-cash-flow (FCF) as percentage of GDP for mature companies and revenue as percentage of GDP or something similar for growth companies.

Though we should cap that for small to medium companies as even though they contribute to the national GDP, they only affect the local or regional area. Like the fund wouldn’t have a stake below 250 employees or below some revenue or net profit number, say 1 million, but an appropriate number should be chosen after research.

Also the fund would only have a maximum stake of 8% in local companies and the remaining 42% would be for the workers, applying the 1 to 5 ratio from psychology where a relation would be sustainable if there are 5 positive interactions/rewards w.r.t. 1 negative one. If foreign companies don’t have their headquarters in your country, but still make a profit in your country, then they can’t contribute to the sovereign wealth fund, because the shares aren’t distributed in your country. However you can apply an extraterritorial tax I mentioned in this post before and extract the fair share they generate in your country. That whole tax could contribute to sovereign wealth fund or the amount that would be dividends can be directly distributed to the people.

An accompanying advantage with this distribution is that foreign companies aren’t able to outright buy a majority stake in the company that resides in your country. If they then would relocate the company, that results in possible unwanted effects. Thus with this advantage you would prevent brain drain and/or capital flight, increasing national security and economical independence.

Ultimately it depends how you tax and how you spend those taxes to stimulate the economy in a country. Use efficient taxes as mentioned in the post. If you create a (sovereign) wealth fund and by distributing the shares fairly between the workers and that fund, then that would help the people and society. Thereby creating positive secondary effects that will also stimulate the economy in your country.