“America’s Economic Future Hinges on Tax-Incentivized Conscious Capitalism.”
A staggering majority of Americans believe our nation is headed in the wrong direction. Income and wealth inequality in the United States has risen to the highest levels seen in a century. According to Federal data, America’s richest 1% now own more wealth than all two hundred million Americans in the middle class, combined. It’s no wonder so many feel the economy is rigged and the vast majority of young people don’t believe they’ll do better than their parents.
The causes of worsening inequality are complex—globalization, technological change, regressive tax policies, reduced worker bargaining power, and long-standing racial and gender discrimination. Together, these factors form a complicated stew that is seemingly impossible to untangle.
However, there is a way to solve this stain on our democracy—we need to redesign our economy with conscious capitalism and tax policies that prioritize people over profits. This will usher in the more equitable society hundreds of millions of Americans are longing to see.
Since Milton Friedman’s famous 1970 Op-Ed, “The Social Responsibility of Business is to Increase Its Profits”, American companies have become exceptionally good at growing the wealth of their shareholders and top executives while reducing the share of GDP paid to workers. Record-breaking profits and stock prices of the S&P 500 Index are a testament to the financial prowess of American capitalism. However, these record breaking results have come at the expense of widening inequality and an angry, dissatisfied working class drawn to populist leaders.
Conscious capitalism offers a better path for America, calling on corporations to follow ethical, people-first business practices to drive equitable economic growth. Conscious companies don’t just exist to serve shareholders, they serve multiple stakeholders, including employees, customers, community, and the environment. Some of America’s most successful companies, including Trader Joe’s, Costco, and Patagonia, follow these principles.
This movement has even captured the imaginations of even the staunchest C-Corporations. A defining moment was 2019, when 180 major Business Roundtable companies issued a major statement on corporate purpose. Prominent members such as JPMorgan Chase, Amazon, and Apple committed to serving not just shareholders but also their employees, communities, and the environment. This paradigm shift by globally influential corporations offered a viable beginning but fell short of being the full transformation our system needs.
At its core, conscious capitalism includes four pillars—a higher purpose, multiple stakeholders, mindful leadership, and a conscious culture—and advocates for business to be a force for good. Over time, the landscape of conscious capitalism has developed to include multiple innovations, including B-Corporations, impact investing, and Environmental, Social, and Governance (ESG) reporting. These innovations have now been adopted by 99% of S&P 500 companies.
Transcending theory, forty U.S. states have already passed laws encouraging and legalizing B-Corporations as an alternative to C-Corporations. These “benefit corporations” intentionally serve multiple stakeholders.
It’s time to give this movement more teeth by asking Congress to pass a Federal B-Corporation law and use tax policy to create a people-first economy. First, small businesses that earn less than $1 million per year in profit deserve a 0% federal tax rate. They are the engines of job creation—creating 62.7% of all new jobs—and we need to make it easier for them to get to their first $1M in profit. For companies making more than that, we propel momentum by splitting the corporate tax rate. For B-Corporations, we keep income taxes at 15% to thank them for being demonstrably conscious companies. For C-Corporations that generate more than $100 million in profit, we should increase the rate to 25%.
With these incentives in place, we can confidently predict that there will be a stampede of C-Corporations converting themselves to B-Corporations in order to reduce their tax bills by 10%. In short, they will do what they know is right, and will get to keep more of their earnings for doing so.
Conscious capitalism can also galvanize even the shrewdest of investors. Today, America’s largest investors include college endowments, foundations, donor-advised funds, and pensions. Currently, these pools of capital have little incentive to invest in companies doing good. Yet, research shows that firms implementing conscious capitalist principles outperformed the S&P 500 index by a factor of 7.7 times over a twenty year period.
With conscious companies being taxed preferentially, we would swiftly begin to see capital flowing to benefit society as a whole–ultimately helping each and every one of us, not just the top 1% of earners. As we enter our next great chapter together, this recalibration toward more fairly distributed access to capital will ensure that America’s economy becomes as equitable as it is prosperous.
By: Jason Palmer (palmerforpresident.us) is a 2024 Democratic presidential candidate.
