Wednesday, August 24, 2011

Corporate [ TAXES ] are [ PAID BY ] People

Not sure why the goofy lefties are so gleeful about Romney's "corporations are people" statement (gaffe, they would say).

Here is a NOT goofy lefty, my PhD student Tom Schaller, going ballistic, even planetary orbital, over Romney. Tom is a smart guy. But like most people on the left, almost entirely innocent of economic knowledge. I submit that is the only reason they COULD be on the left, since an understanding of basic economics moves one over to the center right position, almost by definition.

Good lord. Let's do this. Corporations are owned by stockholders. Corporations don't pay taxes, stockholders pay taxes. They pay taxes on income, and they also pay an implicit tax in the form of reduced stock prices when gov't taxes corporate income separately. (Consumers may also pay corporate taxes, if the taxes are on inputs, raise prices of production, etc. I submit, without further discussion, that consumers are people).

Every intro econ book, even Samuelson, noted that the corporate income tax is "double taxation," and therefore inefficient. It restricts investment and reduces employment. Better to have a lower corporate income tax, and much more progressive income tax system.

The US has corporate income tax rates that are 5-10% higher than almost any other country we compete with. If you add fed and state CIT, our rates are 50% or higher; Germany is 30%; France is 33%.

Corporations can move around; stockholders won't move around, at least not as much.

So, Romney meant, "Corporate taxes are paid by people, my friend." And it was absolutely clear that that is what he meant. People misspeak in the heat of the moment. IT. WAS. CLEAR.

Look, I am not a Romney fan. He's an unprincipled gas bag. But this whole "corporations are people" kerfuffle really shows why our center left folks cannot understand even basic economics. The Obama admin, and as far as I can tell the entire Washington press, thinks corporations are just cows to be milked. Instead, they are geese, laying golden eggs. BUT GEESE CAN FLY. Why are "jobs" leaving the U.S.? Because our corporate tax rates are too high, and our regulatory policies too stupid.

And, in any case, corporate taxes are paid by people.


Anonymous said...

I have yet to hear any lefty actually come out and explain why they're so enraged. They know corporate taxes come from people, they just won't admit it because those taxes come from people they don't like. By burning down the "corporations are people" strawman, they can stick it to the fat cat CEOs and stock holders without having to acknowledge that they're also sticking it to Dad's 401(k) and the state's pension fund.

Dirty Davey said...

Two points.

(1) While US corporate statutory tax rates are high, the US tax code allows excluding a lot of income from taxes. The effective tax rate in the US, measured as the overall ratio of taxes collected to profits, is at the LOW end of the worldwide scale.

(2) What do shareholders give up in exchange for limited liability, and what should shareholders be asked to give up? Can it be that the "double" taxation is a fair price to charge for this protection?

(Given the dysfunctional political environment, I also find it hard to trust "compromise" suggestions that will be half-implemented. That is, I can see a reasonable case to be made for taxing capital gains as normal income, making personal income taxes more progressive, and cutting taxes on corporate profits. But I feel certain that any actual attempt to implement these changes in 2011-2012 will result in rate cuts with no offsetting increases, making the deficit worse and producing a new baseline under which reaching the target end state becomes even less likely.

Paul said...

The best quote I've seen on this subject (I forget where I saw it) is this. Do you think that if we imposed a tax on cows that they would be paid for by the cows?

Dave Killion said...

I wonder what the Left's reaction would be to the idea that "Societies are people", or "Communities are people"...

cfell said...

I work for a fortune 500 corporation. There are 90K people who also work for this corporation. These are real, working, middle class, tax paying people. And they are solidly aligning against anti-corporate, anti-business belligerents that attack the source of their livelihoods. Multiply this one company times 500 and count the voters. Corporations are people !

mudpuppy said...

Well, not only do people pay the taxes and own the stocks, but in the law "a person" is defined as a human being or an organization with certain rights and obligations.