Corporations Are People

This is one of the dumbest things I have read.  It’s a New York Times editorial.  Clearly, the author doesn’t have a clue about modern economics and how their forces affect human behavior.

Protest Of Corporate Tax-Dodger Verizon
(Photo credit: ProgressOhio)

In order for a capitalistic system to function, corporations need to have free speech as outlined by the Bill of Rights.  They need to have rights just like an individual.

The author suggests that corporations should be taxed as individuals.  Since 1991, our country’s government  has consistently raised taxes and costs no matter who is in charge.  The Bush tax cuts were roughly a 10 year hiatus.  The President’s current budget contemplates even more tax increases for individuals and companies.

As Professor John Cochrane wrote todayThey keep coming back, like the villains of a good zombie movie, chanting “more taxes, more taxes.”

First, it’s important to understand that corporations don’t pay taxes.  They are tax aggregators.   A combination of suppliers, shareholders, workers and customers pay the economic burden of the tax.

Second, he has his facts wrong about lowering tax rates.  The author says there wasn’t a job boom after the Reagan tax cuts.  Clearly, there was a massive job boom and a GDP boom to boot.  From 1982-1999.  One slight recession.

He might want to re-check the economic record from 1972-1982 to see how high taxes and lots of regulation affect an economy.

The proposal is to end the payroll tax, and replace it with a corporate tax.

Who actually pays the payroll tax?  The worker, in the form of reduced wages.  The corporation collects it from the worker’s paycheck and remits it to the government.

If we ended the payroll tax and enacted a new corporate tax to replace it, who pays the tax?

The shareholder, the consumer, the supplier and the worker.  Shifting the burden from the worker shifts it to more sources.  Each of those sources has their own way of trying to avoid taxes-and will avoid as much of the new tax as possible.

Federal revenues would go down as a result and the Social Security system would be even more broke than it is today.

One of the sins the author cites is the amount of money on corporate balance sheets.  There is a reason for that.  First, corporate shareholders are triple taxed when they receive payouts from companies in many cases.  So they don’t want dividends from successful corporate activity.  The cash on the balance sheet is factored into the equity value of the stock price.  Second, because corporations are relatively uncertain about the environment going forward, they are holding more cash to buffer themselves to adverse conditions.  Once they remit cash it’s impossible to get back.   Holding cash becomes a business survivable strategy.

The crux of the argument?  You guessed it, normative economics:  we have redistributed income to the already wealthy and powerful. Our tax system has actually fostered inequality.

Get in line.  The tax system has been slanted ever since it was proposed back in the early 1900’s.

If the US is serious about having a tax system that takes inequality out of the system, the only solution is the flat tax with no write offs.  No special interests, or favors for any one organization over another.  No subsidies.

Since corporations don’t pay taxes, the country would make the corporate tax 0%, relieving the tax burden on shareholders (re: pension funds), workers and everyone else.  Cash would flow off balance sheets and into the hands of shareholders that could do something with the money.   They’d spend, save, or reinvest it causing money velocity to accelerate and GDP growth to increase-rising the standards of living for everyone in the process.

Today when you were filing your tax form, you would have looked at what you earned last year, multiplied it by a fixed percentage and sent it in.  You wouldn’t have to pay an accountant to do that.  If we total up all the accounting costs of doing taxes for individuals and corporations in the US, it’s in the billions of dollars.  That’s dead weight loss for the economy and causes it to grow slower than it should.


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