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If there are American states, like the former U.S. Supreme Court Justice Louis Brandeis once you say “democracy labs,” it’s worth seeing up close what’s happening in California.
The threat of tax hikes and the “exposure” of the rich atmosphere has led some wealthy Golden State residents, including many tech entrepreneurs, to flee. leave For cheaper pastures like Austin or Miami. This, in turn, has raised concerns not only about the state’s tax base, but also about the increased migration that will affect California, which has become the fifth largest economy in the world.
The state of emergency is dire. Even if no one today has much sympathy for wealthy people or companies (because of the witness ProPublica leaks It shows that the richest Americans pay little tax), or that when they believe in the economy, the threat of tax and regulatory arbitrage in other states is real.
The good news is that California is applying creative thinking to the problem. What would happen if there was another way to take advantage of the wealth of the company and its citizens for the benefit of all?
One of those ideas that is gaining popularity is what has been called “pre-distribution”. Unlike traditional redistribution methods, in which the state taxes existing wealth and then uses it to strengthen various projects and components, pre-distribution capital is leveraged as investors do and then the use of capital growth yields exceeds revenue growth) to finance the public sector.
Permission to get more people to own capital has long been in place. The CalSavers program, Created in 2016, allows concert workers who don’t have access to private sector retirement accounts or like independent contractors to contribute to professionally managed funds in the state-run system.
Also, Proposition 24 California Privacy Rights Act, was approved last year and will come into force in 2023. This, in fact, creates a kind of sovereign wealth fund, where companies can invest 93 cents (probably capitalism, which is likely to be essential) in the $ 93 cents earned from fees paid for privacy violations, and the profits used to pay for government operations can be invested. “It’s a way to avoid having to raise taxes,” says California Senate Majority Leader Robert Hertzberg.
He, along with former wealthy Californians like former Google CEO Eric Schmidt and Snap founder Evan Spiegel, has proposed expanding the concept to something called “basic universal capital”. The idea is that equity contributions generated by companies or philanthropists could be invested in a fund that Californians would use for individual retirement safety, health, and so on.
Already, in the 2021-2022 budget, California Governor Gavin Newsom has proposed the use of some state tax surplus this year – which he has put in place with the help of federal Covid $ 100 million into public coffers – to start college accounts for every first-year first-year student in the state.
One can imagine going further and having a low equity position in states, perhaps 3-5 percent, in new companies, like countries Israel or Finland already done. Considering that the current value of public trading companies in California is around $ 13 billion, it’s not a small change. If the state had also taken a small stake in top companies a few decades ago, the Silicon Valley “Occupy” atmosphere in California would have been much less.
Pre-distribution should not, in my opinion, be a substitute for taxes. He could not fill the gap, and taxes, in any case, are a way to strengthen the duty of citizens and a sense of belonging. But it should be seen as a new flow of input that adapts to the times when the effects of the networks and age are appropriate. intangible assets they are concentrating wealth in fewer hands, rather than in fewer businesses that can generate excessive profits with fewer employees.
Incentives and public and private rewards can help align better. The enormous wealth created by major companies is, in part, in the power of public goods: good schools, decent infrastructure, basic research, and so on. As economists like Mariana Mazzucato frequently noticed, why should taxpayers receive a bill to place high-speed fiber, for example, without getting into commercial trouble?
In fact, if pre-distribution works in the California lab, I hope it will be accepted at some federal level. The Obama administration tried to implement its own version of the CalSavers program for the whole country, called myRA, but it failed in part because the funds were only very safe because they invested in low-yield Treasury bills as the whole market grew much faster.
Even in this politically polarized moment, it is an idea that his time can come. Pre-distribution is unlikely to support regular friends like the hedge funder Left economists Ray Dalio and Joseph Stiglitz. Perhaps this, while not fundamentally changing the market system, expands the ownership of shares: a mixture of capitalism and socialism that is appropriate for our time.
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