We are dealing with gross profit again. It's not like the government would take away all of your money. They would tax it off and help businesses (Like the farming market) that need more income than they earn to support themselves. A Socialism is focused on the lower working class.
Cash flow does not equal profit
The problem with taxing gross profit, is that rarely does that profit come in as cash. A company could easily make $1,000,000 in gross profit, but only end up with about $10,000 in actual cash. Lots of that will then be paid out in dividends to the shareholders. All managers know that cash is the worst sort of equity a business can have. Cash decreases in value because of inflation, while using cash to buy more warehouses/machinery/employees to produce more product will result in more profit in the future. Machinery can also be depreciated in value against your profit margin so that you don't pay as much in taxes.
If the government were able to take any percentage of money from a company's profits at will, they easily could be taking away all of a company's cash. The company would then have to raise money by selling equipment/land, and laying off employees, because the government just decided they were making too much money and increase their taxes from 40% of income after expenses to 60% of income after expenses.
Some industries are key for an economy to work. I'm going to bring up the farming market again, because it's a big example. They're an industry that's very important to many economies. If we left them alone is a laissez faire capitalist economy, they would die out. This would be harmful. Without government intervention or ownership, they would die out.
If we left them alone and they wouldn't die out. The best farmers would make all the money, just like all the best software companies make all the money in their field. Any producer that can supply a product better and cheaper than their competitors just put their competitors out of business. This includes the farming market. If farmers can't cut it, they will stop farming. If tons of farmers stop farming, a huge market hole just opened to be filled up by other businesses.
If any market did that, they would kill whatever farming market is charging any price like that, and rely on imports. Again, in a Socialism a government is not looking to make a profit. I can understand this mindset on an industry like say, the soda industry, one that is not as important, but something as important as the farming market should be supported whenever possible. By the Goverment, which is a socialistic ideal.
A government is not a business, they don't look to make profits. And who is going to be deciding which industries are more important than other industries. The farming industry isn't any more important than the soda industry. If all the current farmers go out of business, it would be a safe bet that we would find pepsi/coca-cola brand fruits and vegetables. Markets don't disappear, there will always be a company supplying a product. Especially when the target consumer includes EVERYONE WHO EATS.
If farming becomes top priority in a socialistic government, the big companies are going to flush the little farmers down the drain to get that priority market moved over to them. This will only cause more problems with lower class workers.
It doesn't matter what government you have you can't stop competitive business. Managers will be looking at how they can increase their profits. If owning all the farmland is how to do this, then they will buy out all the farmland.
#1: The people shouldn't have to quit their jobs to get better pay. Some people can't afford an unsuccessful strike, and many businesses have made so much money (Possibly after cutting the employee wages) they can outlast a strike, and the people are back to their underpaid jobs.
People shouldn't get better pay for doing the same job. Raising the minimum wage only increases the cost of what they produce, which increases the cost of living, which makes employees want bigger wages again.
#2: Strikes don't always work. Remember the recent strike with the television writers? They ended the strike because they couldn't outlast the TV industry. They're still being underpaid for their work.
The television writers didn't strike because they weren't getting enough money. They went on strike because their companies started airing television shows on the internet. They believed they should get more money because of this. Which was a load of crap. They are paid a salary to write a script for the producers. Why should they get more money because the producers used more than one form of media to broadcast the episode.
The writers were making tons of money, they just wanted more.
Does it matter if you meat, or exceed the standards? What are the standards? What if excellence is the standard?
Excellence isn't the standard, it's above the standard. That's what excellence means. If the only thing a company has to look forward to by doing a good job is getting their money taken away from them to be given to companies that can't cut it, then why do anything above average.
On that note, a company would actually aim to reduce their profits in order to avoid getting it taken away from them. Management wages come before income taxes, so all a company would have to do is increase all the managers salaries so that their profit stays as low as possible.
Aha! This is where capitalism falls apart. Capitalism is the people running the economy without government intervention. Companies could agree on a price, and jack it up.
No they can't, anti-trust laws make it so that companies can't agree with each other on what to set the price of a product too. If all the gas companies agreed to raise the gas to $10 a gallon, it would be obvious to everybody that they agreed on it. There would be no legitimate argument on an economic standpoint to raise the product that high. The managers who were in on the agreement would be sent to jail, and new managers would come up and fix the problem.
One company can own an entire industry. Imagine if the only way to buy gas, was from say, Shell. Shell, seeing that they have no competition, could jack the price up to say, $10 a gallon. With a Socialist approach (Government intervention, similar to what the United states has done) they would solve the problem by axing the monopoly.
The problem with that is that the gas market isn't too hard to get into to where you couldn't undercut Shell's ridiculous $10 per gallon price. Some other company with some money to invest would set up a refinery and offer gas at $7 per gallon. Shell would be out of business.
Why should the government tell you how far a business can go? It's my right as a capitalist, to become as successful as I want, right?
Sure.
Actually, you have me there. I think this is a problem for both economies. Socialism can't do much about it, because the government should never tell someone if they can or can't sell x item. I will admit defeat here, but don't say that this isn't a problem in capitalism. America's economy is an example.
The problem was a little more complicated than loans not being paid.
1. People were using their houses as their own credit cards.
Every time the value of houses goes up, a huge amount of people would take equity out of their homes to spend on themselves. This made it so that most of the nation was just staying in debt, and not making any headway towards actually owning their homes.
2. CDOs
This was the major downfall of the loan business. CDOs were pretty much an equity on bits and pieces of many loans. The belief was that if your equity was based on 200+ separate loans, the odds of a lot of those borrowers defaulting were very low.
3. The Rating System
The people rating these forms of equity were the same people selling them. For some reason all these CDOs were getting AAA ratings. This made selling them to all sorts of investment firms very easy.
4. Quick Loan Comapanies
There were tons of people starting their own loan companies because it was easy to make money off of it. If you've ever seen the movie "Red Line", that movie was entirely funded off a pizza delivery guy's realization in how much money he could make in the loan business.
What these people would do is offer loans to EVERYBODY. You didn't have to prove anything you told them, so you could just say your income was $1000 a month when you were currently unemployed, and they would hand you a nice half a million dollar loan. The reason these companies were so carefree in taking these loans, was that they didn't care whether you paid them back or not. All they did was resell these loans to the banks that were repackaging them into CDOs to sell to people wanting to invest in them.
Well, this is opinion from both of us. If you would like to argue it further, bring it up in your next post. If not, I'll leave this be. I still think the solution is more important than the prevention, but that's opinion. I understand the idea of prevention though. If it never happens there is no need for a solution.
5. Banks response to Quick Loan Companies
The minute Quick Loan Companies started giving out these loans to everybody. The banks had to follow or be out of business. Why would anybody get a loan from a bank, where they had to fill out tons of forms and prove their financial situation to get a loan, when they could go get a loan without any sort of income whatsoever? To stay in business, the banks loosened up who they gave out loans to, and didn't require proof of income either.
6. People didn't come up with the income they lied about
To no surprise, people weren't able to make the payments on their loans. Which caused the banks to lose tons of money both by losing their initial investment to the people that weren't paying them back, and they had to keep paying taxes on the houses they foreclosed on. This just destroyed the banks to the point where some of them had to file for bankruptcy.
The CDOs that were rated AAA investments and were sold to investors tanked, which made a lot of investment firms also go out of business.
7. Bad retirement investing by people
People just never thought that the stocks would go down, so they based their retirement fund in the stock market. An educated investor would know that when you get older, you should switch your investments from the risk heavy stocks, to the much safer bonds. People who actually did this would not have been hurt as bad from the market drop.
8. People are sitting on their money again
In response to the market taking a dump and lots of people losing their investments, people stopped buying things and are starting to save all their money, which is causing all the companies like Microsoft/Apple to drop as well.
...But that's not work. That's stupidity. No one would ever carry a ten ton block of cement back and fourth. I understand your argument, but don't take things out of proportion. Pulling ten ton blocks of cement is not a job.
Your right that example is out of proportion, but the meaning still rings true. You can easily start a failing business and rake in the big bucks if you know that the government is gonna take from Microsoft and hand it to your company.
Of course, said line is arbitrary, like you said. It can be anywhere, since it's arbitrary. And again, supply and demand is important in capitalism, not Socialism.
Supply and demand is still important in socialism. Price is not arbitrary, if you put it too high, people will not buy it. America isn't the only country in the world, if America becomes a highly socialistic country, what's stopping other country's companies from undercutting our prices to get a part of the American market. Unless this socialistic America would completely cut off Ebay and any sort of trade with foreign countries.
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Here's what I think of the matter:
You can change the rules of business all you want, but you can't stop the competitive nature of business. Even now lots of government intervention with business has ended up doing more harm than good.
However, we can't have a government that is completely hands off in the economy. Most of the damage from the loan crash could have easily been averted by the government stepping in at any one of those reasons behind what went wrong. It was obvious that the banks were rating their own CDOs with a AAA rating so that they could easily sell them, it was obvious that loan companies were giving loans to people that couldn't afford them, and it was obvious that people were lying about their income to get loans they couldn't pay for.
I believe in a largely capitalistic government, with a little regulation where it's needed.
And I hope people realize the American government already takes money from the big companies and gives it to the little ones. Hence the tiered tax system. If you don't makes as much in profits, you don't pay as much in taxes.
