Caveat: on agency costs and the capital gains tax

I haven’t been posting much of this type of thing, in recent months – since my change in lifestyle with the move to Alaska. But I still read several economics blogs, and I think this is very interesting and insightful.

Very high top tax rates are a means of encouraging “predistribution” rather than the tax part of tax-and-transfer redistribution. Their purpose, their very point, is to create those “agency costs” that economists from the 1970s until now have derided and demanded be ruthlessly excised from corporate practice. But every “agency cost” to shareholders is income to someone else, whether that takes the form of luxury offices and stupid jet travel for firm managers or better work conditions at higher pay for more employees. The ideologically tendentious presumption of the economics profession post-1970s has been that agency costs yield no real benefits, that they look much more like luxury offices for the C-suite than predictable schedules for service workers. But that was always just presumption, and historical experience does not support it. It is, I will admit, not a slam dunk case, it is only suggestive, that the ruthless efficiencies of contemporary labor markets and the shattering of union power happened just after we, in relative-to-prior-period terms, dramatically subsidized payouts to shareholders over other uses of funds. But it is suggestive. And it is plausible that “Treaties of Detroit” and Bell Labses, that corporate practices generally which favor workers, customers, and other stakeholders, are easier for companies to “afford” when shareholders have to give up less to purchase them. Which is precisely the effect, in the most basic economic terms, of taxing payouts to shareholders heavily.from the blog interfluidity

The point above is that by lowering the capital gains and top tax brackets in the 80s, this encouraged companies (via giving incentives to owners and management) to reduce “agency costs” – which weren’t just perks for managers but also perks for regular employees – things like healthcare, living wages, etc. So the tax cuts of the 80s drove the creation of the new, low-perk, low-security workplaces that we see today.

Just sayin’.