As 2020 approaches, the crowded field of candidates and onlookers are proposing all manner of economic plans designed to increase productivity, encourage competition, decrease wealth disparity, and promote social good. While all may be well-intended, they also have inevitably ignited firestorms of opposing positions accompanied by name calling and denials.
For example, when BlackRock CEO Larry Fink, whose firm manages $6 trillion in assets, called for social responsibility in a letter to his compatriots, some critics labeled his plan a form of “corporate socialism.” Sen. Elizabeth Warren’s suggested 7% surcharge on corporations earning more than $100 million was referred to by one conservative publication as the “next part of her plan to destroy the economy.”
Enough squabbling already. Isn’t it time to consider a real win-win corporate-tax proposal that — for the good of the country — can be embraced by consumers, politicians, the wealthiest U.S. businesses, and even those who have been most resistant to change? Here is such a proposal, versions of which have worked elsewhere, and deserves a chance at success.
The proposed model calls for participation by every corporation with revenues of greater than $500 million — an arbitrary cap meant to include the highest-earning companies. There would be no opting out. These corporations would develop a public-private partnership, designed for social impact, that aligns with corporate goals, such as infrastructure development, job creation, advancing UN sustainable development goals, or new technologies aimed at meeting medical or social needs.
The partnerships achieve a goal best identified by the corporate executives and corporate employees. A team of executives, employees, and impartial outside judges will rank the projects evaluating impact, feasibility, and financial metrics according to the social and environmental return on investments. The Impact Reporting Investment Standards developed by the nonprofit Global Impact Investing Network in partnership with the U.S. Agency for International Development, the Rockefeller Foundation, and JP Morgan Chase is one example of such standards corporations can use.
The unique aspect of the contest is that winning projects must be underwritten with corporate funds based on corporate profits, maxing out at say, 7 percent. The contest engages executives and empowers employees, and they all share ownership and agency. Consider this as enforced corporate social responsibility, coupled with positive return on investment.
India is trying something like this, without the profit component and with some success. Companies in India with a net worth of Rupees 500 crore (approx. 71 million USD) or a net profit of Rupees 5 crore (approx. 700,000 USD) program are mandated by law to spend 2 percent of average net corporate profits of the preceding three years on topics including: arts and culture, improvements in rural areas, environmental sustainability, health and sanitation, education, and gender equality.
True, many large organizations already have corporate foundations which can have substantial impact. But those arguably exist so the organization can enhance their brand, avoid non-strategic giving, and fund the foundation as a justifiable cost of doing business, which is charged against profits. Legal structures exist in certain states for new corporate entities that have social benefit as a major mission, such as the low-profit limited liability companies (L3Cs), benefit corporations (B-Corps), and flexible purpose corporations (FPCs). However, the public-private partnership/impact investment program proposed here creates new businesses and new jobs and generates new wealth, which is quite different in its intent and governance structure from the corporate foundation and the corporate social responsibility funds.
The Philadelphia region is home to 12 corporations on the 2018 Fortune 500 list: AmerisourceBergen, Comcast, DowDuPont, Aramark, Lincoln National, Universal Health Services, Crown Holdings, Campbell Soup, UGI, Burlington, Chemours, and Toll Brothers. These corporations alone have hundreds of billions of dollars in total revenues with close to three-quarters of a million employees — a powerful combination of human ingenuity and financial capital that together, properly motivated, can solve local, national, and international problems.
The enterprise described here actually becomes a profit center for such companies while channeling capital and talent to improve the human condition. It is not charity. Corporate moguls will not fear that an additional 7 percent tax on profits will fall into the black hole of the federal budget. They will proudly announce to their board of directors that they carefully selected the partnerships with iron-clad metrics, nurtured by their combined corporate expertise and passion. The executives and employees will generate positive social and financial returns. Corporate pride, morale, and productivity will go up and communities in great need will enjoy the benefits.
It is a corporate tax everyone can love.