Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
MODULE 39: Taxes and Salaries: Egalitarian and Libertarian
Policies
Core Module Issues:
• Should compensation policies be more egalitarian or libertarian?
• Should taxation policies set by the government be more egalitarian or
libertarian?
Module Teaching Notes
This module introduces two sets of ideas that seem to me to be very significant drivers of both corporate
and government policy. To recap the text's presentation of the ideas:
Libertarians often argue that people should keep the wealth that they generate. In politics, libertarians tend
to favor low taxes and fewer social programs, and they often campaign against governments “redistributing
wealth.” In business, they tend to advocate large salaries for employees who add large amounts of value to
a firm in some measureable way. To libertarians, an employee who brings in a large number of clients,
makes strategic decisions that increase profits, or creates valuable intellectual property ought to be
compensated handsomely, and perhaps very handsomely. The same holds true, they argue, for owners
who create enterprises in the first place.
Egalitarians do not generally favor complete equality, but they do favor providing everyone with reasonable
access to the wealth that a nation or a company has to divide. Egalitarians in politics favor, for example,
universal health care, welfare systems, and a progressive tax system. In business, they tend to favor
across-the-board raises for all workers and a smaller concentration of wealth among top executives and
owners.
Politically speaking, Republicans trend toward the former idea, and Democrats toward the latter. (You may
not want to go there, sometimes I find that discussions are better without GOP/Democrat labels, since many
students self-identify with one party or the other.)
The scenario builds upon the ideas from the last module. Students are asked to set reasonable
compensation for a CEO in one question, but they are asked to do much more with setting taxation policies
for an imaginary island nation.
There is a lot to “fill in” in this module's questions, and the students need to have done more work than
usual ahead of time. Encourage them as much as you can to come to class with their answers already in
place.
If they have done the exercise, they are often quite passionate in defending their answers. If they try to fill in
the blanks on the fly, then the discussion will drag this time.
And so, again, when you make this assignment, encourage them to come to class prepared.
Discussion Points for Scenario Questions
1. Where should the $7,000,000 in taxes come from? Create an ideal system for spreading Tiny
Island’s tax burden on its residents, and support your system with egalitarian or libertarian
thinking.
Percent Total Amount Earned Tax
Paid in x by All Workers Earning = Revenue
Taxes this Salary Raised
Workers earning $25,000 will pay _____ % x $6,000,000 = ____________
Workers earning $50,000 will pay _____ % x $7,000,000 = ____________
Workers earning $100,000 will pay _____ % x $12,000,000 = ____________
Mr. Smith will pay ________ % x $10,000,000 = ____________
(TOTAL TAX MUST EQUAL $7,000,000)
A. WERE YOUR TAX BRACKETS THE SAME? WHY?
B. WERE YOUR TAX BRACKETS DIFFERENT? WHY?
2. Is your system more egalitarian or more libertarian? Why? Is your system reasonably similar
to the current U.S. system of taxation? If not, what makes your system better?
A. EGALITARIAN – DO YOU LIKE THE CURRENT US SYSTEM?
B. LIBERTARIAN – DO YOU LIKE THE CURRENT US SYSTEM?
3. Now, let's apply the libertarian and egalitarian ideas to the company's compensation policy.
Focus on the software company's compensation policy. Mr. Smith takes home one-third of all
pay in the 401-person company, but he owns the business that employs 80 percent of Tiny
Island's residents. Is his large payday justified? Or should more of his annual take “trickle down”
to lower-level employees?
A. REASONABLE – BUT DOESN'T HE TAKE A VERY LARGE SHARE?
B. MORE SHOULD TRICKLE DOWN – HOW MUCH MORE?
4. Suppose that Mr. Smith was not the owner of the company but had been hired by the owner
to be the CEO. Mr. Smith made excellent strategic moves and helped the company experience
substantial growth. Would your answer to the third question change?
5. Assume now that Tiny Island's political leaders are debating raising taxes for various
reasons. The proposed new programs are egalitarian in nature and must be funded directly from
the incomes of the 501 workers. Indicate your approval (or lack of approval) for the ideas
proposed.
Idea Annual Cost Approve/Reject
Create a Government Pension for All Citizens over Age 65 $2,000,000 _____________
Government-Run Health and Dental Care for All Citizens $2,000,000 _____________
Pay Raises for All Government Employees $1,000,000 _____________
If you approved any of the ideas, where would you raise the tax revenue to pay for them? Work
through a simpler system than in the first question:
Additional revenue needed to pay for approved programs: ___________________________
Source: $ ____________total from $25,000 per year workers
$ ____________total from $50,000 per year workers
$ ____________total from $100,000 per year workers
$ ____________total from Mr. Smith
A. WHICH IDEAS (IF ANY) DID YOU APPROVE?
B. HOW DID YOU PAY FOR THEM?
