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It seems to me that all too often, we see big corporations and companies downsizing, laying off thousands of employees at a time.  This is often done in the name of increasing efficiency and helping the corporate bottom line.  What has become an increasingly disturbing trend though is companies that are profitable, laying off thousands of employees anyway, and using those profits to benefit their executive leadership.  I was reminded of this again today when I saw the news that Bank of America has already begun it's massive layoff of over 100,000 workers.  

Mass layoffs don't just cause pain to those who are laid off but they cause' a great deal of harm to the rest of society.  Our economy loses the spending power of those now laid-off employees.  For businesses who relied on the spending power of those employees, they take a hit.  The government loses the ability to tax the income of individuals and instead must dole out money on things like unemployment insurance and other government provided neccessities.  An already overcrowded job market becomes that much more competitive.  When it comes to housing, the community suffers when laid-off employees can no longer afford to pay for the homes they own and are foreclosed upon.  Landlords also suffer when they lose good paying tenants (either to branches and stores being shut or when their downsized tenants can no longer afford to pay the rent).  Basically, everyone takes a hit.  

Now part of this is inevitable.  When companies go under or suffer major loss, they are forced to layoff employees.  It's just part of life.  We also understand that technological innovations will make some jobs completely obsolete, requiring layoffs.  Again, it's part of life.  But it's quite another thing to see (as we seem constantly reminded of) otherwise profitable companies engaging in mass layoffs because those layoffs would help them be just a little more profitable with the resulting savings going to large corporate executive bonuses.  This we need to stop.  And I believe the solution to this is what I would call the "Shared Sacrifice Act."  

The Shared Sacrifice Act would require a company to reinvest 100% of its downsizing savings back into its company or pay those savings back to the government.  

Here's how it would work.  Large profitable companies that engaged in downsizing would face a 100% tax on all savings gained through downsizing.  Basically the money that you would have used to pay that employee that you've laid off will instead be given to the government.  Companies would be prohibited from using any of the savings to increase the salaries of or give bonuses to any of the company's other employees.  

Now, there would be a major exception.  Companies who take savings garnered through downsizing and reinvest in their own companies (excluding corporate pay obviously) would not be taxed.  When it came to reinvesting the funds, they wouldn't have to be reinvested right away and instead could be placed in a non-taxable account (marked for tax purposes) though there would be a time limit on how long the funds could be used and when they are dispersed, a full rendering of where the money was spent must be made.  

Furthermore, under the act, all this tax money collected from downsizing savings would be earmarked for programs to help the unemployed including worker retraining and adult re-education.  The act would exempt all small (and even most medium sized businesses) and apply only to companies who have 500 or more employees.  

The rationale for this is simple.  We generally don't want large companies downsizing when they're profitable.  It's one thing to lay off employees who you simply can't afford.  It's quite another to lay off employess you can easily afford but realize you could make that much more profit without them and use that profit to increase corporate pay.  By taxing these savings, we will discourage corporate heads from downsizing unneccessarily.  By requiring that the savings be reinvested, we ensure that when downsizing occurs we accomplish two things.  First, corporate executives will not directly benefit from layoffs of employees.  Second, savings reinvested back into the company will often go back into the economy.  This helps buffer the harmful effects that mass downsizing can bring.  Finally, by diverting the tax funds into help for the unemployment, we can ensure that when downsizing occurs, the revenues taken in by the government are reinvested into resources to help those who are most affected by downsizing.  

I believe that through the Shared Sacrifice Act, we can stop corporate CEOs from benefitting from downsizing employees and we can make sure that when downsizing occurs, the savings will go to helping the unemployed.  

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Comment Preferences

  •  Tip Jar (2+ / 0-)
    Recommended by:
    TDreamer, hlsmlane

    Check out my new blog:

    by SoCalLiberal on Mon Sep 26, 2011 at 06:13:25 PM PDT

  •  This is an excellent (2+ / 0-)
    Recommended by:
    SoCalLiberal, TDreamer

    starting point for dialogue. Executives are looting their own companies after maximizing short-term gain at the expense of long-term survivability of their companies.

  •  When you create structural barriers (0+ / 0-)

    it often has unintended consequences. The solution to proposed laws like the Shared Sacrifice (which no one will take seriously) is to keep your US employee count at the bare minimum and add any new capacity in a country that isn't trying to use punitive tax laws to run your business. In addition, use even more temps if they don't count in the Shared Sacrifice scheme.

    If we want to have companies add employees here we need to make the US a place people want to come and invest. Currently the international business community does not think the US is a good place to do business. Other countries have faster growing economies and more business friendly laws. Regulations that take away employment flexibility are why Europe has high structural unemployment that will never go away. In Europe it's very hard to terminate employees and change your total labor costs because even if you terminate them there is a long tail of compensation, much like your proposal. The answer for multinationals in Europe is to undersize your European companies, and use expats that you can move around the world.  

    One of the great competitive advantages we have here is that when there is an uptick in demand companies are can hire knowing that if things slow down they can adjust their headcount. Anything we do that makes that more difficult will cost Americans jobs over the long term.

    "let's talk about that"

    by VClib on Mon Sep 26, 2011 at 06:59:41 PM PDT

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