James Pethokoukis

Politics and policy from inside Washington

Why Romney’s right that ‘companies are people’

August 11, 2011

Liberal groups, like Think Progress, are jumping all over Mitt Romney for this (via TP):

Mitt Romney completed a rowdy campaign stop at the Iowa state fair, before a key Republican debate tonight and an upcoming Iowa straw poll. At the end of his speech, a Q&A session quickly devolved into a shouting match during which he defended the rich, argued for cutting entitlements, and equated corporations with people. Romney told a group of angry Iowans that raising the retirement age to protect corporate tax breaks is appropriate. “Corporations are people, my friend,” he said.

Now I don’t think Romney was making a legal argument about corporate personhood, which is well established concept in US law:

In the United States, corporations were recognized as having rights to contract, and to have those contracts honored the same as contracts entered into by natural persons, in Dartmouth College v. Woodward, decided in 1819. In the 1886 case Santa Clara County v. Southern Pacific Railroad, 118 U.S. 394, the Supreme Court recognized that corporations were recognized as persons for purposes of the Fourteenth Amendment

Rather, I am pretty sure he was trying to say that corporations are made up of people, but not in a Soylent Green sort of way. Rather they are comprised of workers generating goods and services for customers. And when you punish corporations, you punish workers and shareholders and customers. A few additional points:

1) Here an interesting bit from an OECD paper on taxes and economic growth

Corporate taxes are found to be most harmful for growth, followed by personal income taxes, and then consumption taxes. …  A second option is to reform corporate taxes, as they influence productivity in several ways. Evidence in this study suggests that lowering statutory corporate tax rates can lead to particularly large productivity gains in firms that are dynamic and profitable, i.e. those that can make the largest contribution to GDP growth. It also appears that corporate taxes adversely influence productivity in all firms except in young and small firms since these firms are often not very profitable.  … Lower corporate and labour taxes may also encourage inbound foreign direct investment, which has been found to increase productivity of resident firms. In addition, multinational enterprises are attracted by tax systems that are stable and predictable, and which are administered in an efficient and transparent manner.

2) And here is economist Greg Mankiw addressing the topic in his popular economics textbook:

Many economists believe that workers and customers bear much of the burden of the corporate income tax. To see why, consider an example. Suppose that the U.S. government decides to raise the tax on the income earned by car companies. At first, this tax hurts the owners of the car companies, who receive less profit. But over time, these owners will respond to the tax. Because producing cars is less profitable, they invest less in building new car factories. Instead, they invest their wealth in other ways—for example, by buying larger houses or by building factories in other industries or other countries. With fewer car factories, the supply of cars declines, as does the demand for autoworkers. Thus, a tax on corporations making cars causes the price of cars to rise and the wages of autoworkers to fall.

The corporate income tax shows how dangerous the flypaper theory of tax incidence can be. The corporate income tax is popular in part because it appears to be paid by rich corporations. Yet those who bear the ultimate burden of the tax—the customers and workers of corporations—are often not rich. If the true incidence of the corporate tax were more widely known, this tax might be less popular among voters.

3) Finally, economists Kevin Hassett and Aparna Mathur on who bears the burden of corporate taxes: “The results in this paper suggest that corporate tax rates affect wage levels across countries. Higher corporate taxes lead to lower wages. A 1 percent increase in corporate tax rates is associated with nearly a 1 percent drop in wage rates.”

 

 

 

 

Comments

You know what? Hardworking people out here are coming home from difficult jobs and wondering how they are going to yet again balance the family budget. They are managing to pay their taxes. They are not interested in hearing how corporations don’t want to pay THEIR taxes. Hardworking people don’t want to hear how their wages might be cut because a corporation sitting on a lot of cash loaned to it at a very low rate will be asked to pay a little more of its fair share. Especially when the people at the top are making so much money and they aren’t at the risk of losing their jobs any time soon. At a time of such economic hardship for so many people, your article is very offensive to those just struggling to get by.

Posted by AmericanLady | Report as abusive
 

What a load of you know what.

Corporations are machines of greed that don’t care about people, they care about making money at the expense of people.

If “corporations” were just plain people, regular joes, then would they have fired millions of Americans to better the margins of their ledgers?

If that’s what you call “people” then no wonder our country is going to the trash can. It’s people like you, James Pethokoukis that are running things.

Sure many small companies become corporations but those small companies aren’t the ones that brought our economy to a standstill…..but stubborn and righteous hacks who lead the worlds biggest corporations and banks did.

Funny thing, an argument about taxes is all you muster to save face for the failures of corporate America (are you guys obsessed?). How about the tax loopholes and tax havens? Last I checked Corporate taxes have been at record lows for a decade and how much has that helped the economy? Where are the jobs?

….crickets…

That’s what I thought.

Posted by ApostasyUSA | Report as abusive
 

Funny the author of the Fourteenth Amendment said only rights corporations had were what the municipal that created them gave them and right to contract and be sued.

Posted by Mannix | Report as abusive
 

@ ApostasyUSA,

Mr. Pethokoukis pointed to research that validated his conclusion. Where is your research that shows that taxes do not affect income or GDP growth? The conclusions in the research Mr. Pethokoukis point to bad effects of corporate taxes on incomes. It seems you would be against lower incomes but according to the research that would come. The research also points to the facts that corporate taxes and income taxes would affect GDP growth. We need that growth to help with the deficits. If there is competing research it would be good to see.

Posted by ojfl | Report as abusive
 

ojfl,

He quoted studies and talking points about tax policy. That’s it. Lots of maybes and supposes.

Now, corporate taxes are low, not including the loopholes and offshore tax havens. Where is the jobs? The good economy? You have an answer?

Now I’m not a economist, I think that you can’t blame capitalism for more than you can give it credit for. It’s a wash.

…but I’m certainly not going to let some right-wing hack spew failed ideologies in order to defend the corporations that have obviously failed America’s economy.

Posted by ApostasyUSA | Report as abusive
 

I’m sure Mr. Pethokoukis, given the will, could just as easily come up with some “research” defending the “tax people more crowd”.

What happened to America? I think we got lost in the Bush.

Posted by ApostasyUSA | Report as abusive
 

One striking similarity between modern day corporations and ante-bellum plantations is that then cheap labor was brought by force from across the world to plantations, while now manipulators of financial capital force the work place to go across the world in the search of the cheapest pools of labor.

Posted by mdstm11 | Report as abusive
 

The comments here are reminiscent of every argument I have with liberals over tax policy and “greedy, evil corporations.”

I present them with links to reports, they respond only with derisive dismissal of the report’s author (“the Heritage Foundation! You’ve gotta be kidding me! They’re just right-wing hacks!” etc…) without *ever* addressing the content or providing ANY alternative facts, data, reports, etc. Repeated requests for ANY data results only in more insults and subject-changing.

In their world view, corporations and greedy fat cats simply have too much $$ and taxing them is the “moral” and “fair” thing to do. Nothing else matters and no amount of research will ever penetrate this way of thinking.

Very sad.

Posted by pjaromin | Report as abusive
 

Corporations are a legal state that individuals can assume to protect them personally from certain liabilities associated with doing business. It merely reduces the risk of going into business for oneself and employing others. Corporations are at their heart comprised of individual people who have put their own money at risk to make our economy better for everyone. Sure there are abusers out there, abuse is inherit in any system be it business or government or what have you.
Corporations do not pay taxes. The customers of a corporation are the ones who pay the expense of doing business through the price they pay for the goods and services. If we raise corporate taxes everyone who purchases goods and services will pay more to cover the increased cost of doing business. If we somehow try to prevent them from passing the expenses onto the consumer that we will eventually reach a point where doing business in this country is no longer profitable. There is no reason for individuals to remain in business if there’s no financial gain. Would you like to work for free simply for the good of your employer? Neither would your employer like working for free for the benefit of the employees.
By the way, U.S. corporate taxes are among the highest in the world and we also have policy in place that forces domestic corporations doing business overseas to pay taxes twice on foreign profits. Think about that next time you want to complain about jobs going overseas. Why do some corporations like GE get away with not paying taxes you may ask? I can’t say with absolute certainty since I don’t have access to all the info, but if you follow the money or political contributions the companies like GE, BP, Goldman-Sachs who have a cushy relationship with the white house tend to get away with these sorts of things.

Posted by AquinasTheGoat | Report as abusive
 

I find most of these comments very perplexing… its as though most of you are allergic to the conclusion of the article, regardless of the evidence. Some of you have a vitriolic reaction to the word corporation itself… very strange.

AmericanLady, Apostasy, mdstm… allow me to explain this another way.

Industry-wide corporate taxes are just a hidden sales tax on the consumer. Take gasoline for example… the profit margin on a gallon of gas for an Exxon or Shell is 3-4%, depending on whom you ask. Let’s call it 4% on a $4 gallon, or 16 cents.

So Exxon and Shell both profit 16 cents, and your local politician says he’s instituting a special screw-the-oil-companies tax of 10 cents per gallon to “ease the burden on the poor and middle class.” In this imaginary fantasy land, Mobil and Exxon continue selling gas for $4 a gallon, and have a profit margin of only 6 cents.

In reality, they simply raise the price to $4.10. Your 10 cent tax to “ease the burden” on the poor and middle class just raised their fuel costs.

The fact that all 3 of you WANT to tax more money out of corporations doesn’t mean you CAN. Im not even arguing SHOULD… this is a CAN argument.

In 1990, some brilliant politicians decided “Hey, only rich people own yachts… let’s put a tax on yachts.” We’re not even talking about taxing corporations… just rich people who may run them. The result? Every industry associated with the building, maintenance, and service of yachts was DEVASTATED. Those who build the yachts, clean the yachts, fix the yachts, sell stuff to the yachts all lost money. The yacht tax was a tax on THEM, not the yacht owners.

Here’s the fundamental truth you all need to come to grips with… if the poor and middle class are going to rely on the rich to provide them with jobs, then any attack on the rich is an attack on the poor and middle class. Any misguided attempt to tax more money out of the rich via income taxes, or corporate taxes, or cap gains taxes… any measure of hurt you place on the rich is DWARFED by the hurt you place on the VERY PEOPLE YOU CLAIM TO WANT TO HELP.

Hard working people are remora fish (this includes myself). The remora is a 2 foot long fish that has “evolutionarily” chosen not to go hunt or find food on its own, but instead suck food particles off the sides of sharks and other large animals. If you work for someone, you are a remora. Your choice to poison the sharks will only hurt the remora.

Posted by DanReed | Report as abusive
 

OneOfTheSheep, all business expenses are NOT deductible. Corporations can’t use the Federal Income Taxes paid as a deduction on their Federal Income Taxes. You are right, however, when you say that people eventually pay all corporate taxes. It’s either the consumer who buys the products, the shareholders who have lower profits or the workers who don’t get paid as much.

Posted by wrhodestider | Report as abusive
 

Some responses to specific comments:

“Hardworking people don’t want to hear how their wages might be cut because a corporation sitting on a lot of cash loaned to it at a very low rate will be asked to pay a little more of its fair share.”

If you’re unhappy with the corporation you work for, go work somewhere else. Or start your own corporation. Or go off the grid… farm your own food, milk your own cows like people used to before corporations existed.

“How about the tax loopholes and tax havens?”

They amount to pocket change. Closing them will accomplish next to nothing. We’re talking 10s of billions at MOST… our deficit is $1.5+ trillion with a T.

“Last I checked Corporate taxes have been at record lows for a decade and how much has that helped the economy? Where are the jobs?”

The President attacks corporations and rich people on a nearly daily basis. If you want corporations to start investing their money in expansion instead of sitting on it, tell the President to STOP threatening the money you and he expect them to risk. Secondly it’s THEIR money, you already taxed it, so its none of your business what they do with it.

“similarity between modern day corporations and ante-bellum plantations”

Corporations are plantations… that’s adorable, except that slaves did not have a choice, while all Americans do. You can choose to work for yourself. Most people don’t because that is harder and generates less prosperity than the corporation does.

Do you go looking for the cheapest pool of cell phones, computers and groceries? Why? Why wouldn’t you find the most expensive so that you can help that poor cell phone salesman, computer techie, or grocery store bagger? Why do you so selfishly seek out the cheapest consumer goods and then turn around and criticize corporations for doing the same?

Posted by DanReed | Report as abusive
 

A lot of economic ignorance around here.

Have you ever shaken a corporation’s hand? Sat down for a meeting with a corporation? Talked on the phone with one?

No, you haven’t.

A corporation is a business organization, period. Every dollar it pays in taxes is one less dollar available for productive uses – paying its own bills (its creditors are people too), operations (the expenses of production have to be paid or there’s no production), expansion, paying its work force, paying dividends to its shareholders (all of whom are, ultimately, people).

The “productive uses” are good for business:

Pay your bills “on time” and you eventually get more credit and/or more favorable terms. Helps with business growth.

More $ available is going to do some combination of the following:

1) Expansion: If there’s market demand for the company to grow, more $ staying in the company gives it the opportunity to do so (enhances the ability to borrow for expansion – cash on hand helps – and increases the cash flow required to repay expansion loans);

2) Reward/Improve the Work Force: If there’s more $ staying “home”, pay & benefits can improve. As pay & benefits improve, the quality of the work force goes up – better pay & benefits draws better qualified more expert job applicants.

3) Return on Investment for Shareholders: Pay dividends to shareholders (which, ultimately, benefit PEOPLE once again).

As to the “heartless corporations laying off workers” …

Layoffs suck for the employees & their families. Now, here’s the question …. What would you have the corporation do?

Or let’s put it on a different level … “Mom & Pop Grocery Store” owned by our very own flesh & blood “Mom & Pop.”

“Mom & Pop” has done well over the years. M & P thought about incorporating, thought about expanding … maybe they could be a big regional brand like “Publix” in the Southeast … but they never got around to it. They have their one store & they like the day-to-day, hands-on business of running a grocery store.

Mom & Pop have a staff & employees, of course.

5 folks in the “front office” who assist with general management duties, inventory & the like.

10 folks working various shifts in the Bakery.
10 folks working various shifts in Meet & Seafood.
10 folks working various shifts in the Deli.
30 folks working various shifts on the registers.
30 folks working various shifts as baggers / stockers / floor help.

Unfortunately for Mom & Pop, a major government employer in their market is shutting down & thousands of employees are losing their jobs.

A lot of them will probably be staying in the area – they were close to retirement anyway, so they’ll take it … but retirement doesn’t pay what working did, so they’re going to have less to spend.

As for the younger ones … a few of them may be able to make lateral moves into the private industries in the area which supported the government employer (those that do will probably make more money), but most of them are going to have to move to find similar work (if they can find it at all). And here’s the sad part – those who can’t find similar work are probably going to have to move regardless …. their mortgage payments were based on what they were making in their government job.

All of which means “Mom & Pop” takes a hit – fewer people spending less money at the store.

Fortunately, the hit isn’t so bad that “Mom & Pop Grocery Store” is losing money. It can keep all its employees and leave wages & benefits untouched …. as long as Mom & Pop give up their salaries & any hope of receiving a profit distribution again any time soon.

Of course, if Mom & Pop do that,then their mortgage will go unpaid & the retirement they’ve been saving for religiously over the years goes out the window.

Some here would apparently say Mom & Pop have to go without because the alternative would be to cut their employees wages or lay some of their folks off.

Funny thing – if those same people WERE “Mom & Pop”, that wouldn’t be their answer.

Posted by BD57 | Report as abusive
 

@ApostasyUSA,

Let me get this straight, he cites two studies and an excerpt from a popular economics textbook and you cite…your opinion. It would appear that the onus is on you at this point. Both of the excerpts explain exactly why a low rate encourages economic growth. You seem to be focused on being punitive.

You mention that rates are low. What exactly do you mean by low? As the NYTimes points out, our rate is second highest in the world and although deductions (to the other poster talking about deductions; there is a difference between deductions and credits which is important to note) and breaks make the effective rate lower it is still not necessarily competitive compared to the effective rates elsewhere.

Last, as Mankiw points out, the burden of the corporate tax is borne by society in general in the form of lost growth and opportunities. And to be candid, corporations do not pay taxes for the most part, they simply write the checks. It is their customers that pay them in the form of higher taxes.

P.S. Bush Derangement Syndrome is so 2008.

Posted by Opinionator | Report as abusive
 

Interesting comments. I suppose if you assume that all corporations are General Electric, you might have an excuse to hare off down these rabbit holes. Truth be told, wide swaths of the American economy is based on small businesses, often corporations that consist of only a few people (or in the case of ‘S’ corps, one person).

Posted by markreardon | Report as abusive
 

Apostasy hit the nail on the head as did other posters.

Sir James (RIP) hit the nail on the head when he was interviewed by Charlie Rose in the 90′s. The guy sounded like a prophet but basically told the economist that was there to debate him that GATT would result in the breaking of unions, and the lowering of Amreican wages and loss of jobs abroad.

As more and more corporations left the US, this is exactly what happened. There is a reason why GE spends 10 million dollars lobbying Congress in order to pay zero taxes on BILLIONS of revenue.

When you buy your politicians you don’t have to worry about paying taxes. But normal people do. They are people that bribe Congress, change the tax code, and even vote vicariously through their enslaved politicians, against bank reform, against Glass Steagall, against giving the SEC more money to fight the banksters and other billion dollar corporations, against anything that would help normal Americans.

So, yeah they are people. Our Supreme Court guaranteed the destruction of our economy when they said they were people, because now the gates of political meddling have been opened and they are free to roam, to the destruction of America.
Economists are bought and sold these days to say whatever the person that pays them the most wants them to say, so lets not get carried away by their ludicrous statements cited here in this article.

You know what inspires me though about all of this? Judging by the responses on this board Americans are starting to wake up! They realize that it is not just one party that is corrupt in the US, its BOTH parties.

The closest thing to a Libertarian that is running is Ron Paul(trust me I don’t agree with everything he says or preaches nor his “party” but I would vote for him in a heartbeat Bush and Obama side with the banksters and that is unacceptable). The banksters or MSM will not allow RP to move to the forefront of the race though. Why? Because he is not taking their money, and he will actually DO something if elected.

Absent that I hope that America will have a peaceful revolution hopefully through civil disobedience and not what we saw on the streets of London. As I said, Americans are starting to wake up and its about time. Excellent posts! And this article should be tossed, its pretty lame.

Posted by Independent007 | Report as abusive
 

Per my post: *higher prices* not taxes.

Posted by Opinionator | Report as abusive
 

A, B, C’s of corporate persons- Corporations Are People Too: What Is A Corporation (1949) http://www.youtube.com/watch?v=GOZN92VGr _A

law corpus(body)treatment and responsibilities of persons like Church, state park, endangered species, etc.

Posted by KeyzerSoze | Report as abusive
 

@Apostasy: you wrote: “If ‘corporations’ were just plain people, regular joes, then would they have fired millions of Americans to better the margins of their ledgers?” which to me sounds like “C’mon, would regular people turn off unnecessary lights in their house just to make their electric bill lower?!?”

Seriously. Think through what you just asked…

I imagine if you were around back in whatever year it was that some company somewhere decided to stop making buggy whips and had to fire the last buggy whip specialist you’d be up in arms.

Do you really thing that every single solitary person working at every single solitary corporation right now is a solid employee–that no one ever is in a job that is no longer necessary or not pulling their weight? Laughable…

Posted by phlaug | Report as abusive
 

First, as far as taxes, I think DC should be starved out anyways. But… there are problems in corporations. What used to be a cost of living raise has been eliminated. “Merit” increases can be less than 2%, and are skipped if the company doesn’t feel they have posted high enough profits. So where has the incentive been over the last several years to keep up?

Posted by G_Watts | Report as abusive
 

Yeah, giving tax breaks to companies in this day and age will just go into profit, nobody’s gonna create jobs in this environment just because you lower their taxes. We’re just going to Hope greedy companies Change. Ron Paul for president!

Posted by G_Watts | Report as abusive
 

If we take down all the corporations, then the State can run everything. Opppss… been there with the old Soviet Union… never mind/

Posted by Janelasdedeus | Report as abusive
 

If we take down all the corporations, then the State can run everything. Opppss… been there with the old Soviet Union… never mind/

Posted by Janelasdedeus | Report as abusive
 

James, how much did the Romney For president Campaign Committee pay you to write this nonsense. The US Constitution does not and never has conferred any of these rights on corporations, solely the right to engage in commerce, period.

Posted by seattlesh | Report as abusive
 

Thomas Paine said it best in The Rights Of Man in 1791.

“It has been thought that government is a compact between those who govern and those who are governed; but this cannot be true, because it is putting the effect before the cause; for as man must have existed before governments existed, there necessarily was a time when governments did not exist, and consequently there could originally exist no governors to form such a compact with. The fact therefore must be, that the individuals themselves, each in his own personal and sovereign right, entered into a compact with each other to produce a government: and this is the only mode in which governments have a right to arise, and the only principle on which they have a right to exist.”

Thomas Paine and others of the Revolutionary Era realized that any institution made up by and of humans – from governments to churches to corporations – must be subordinate to individual living people in terms of the rights and powers held by the institution.

Corporations only gained equal status with people after decades of assault on the Constitution by the railroads in the 1800′s. The peak year for their legal assault was 1877, with four different cases reaching the Supreme Court in which the railroads argued that governments could not regulate their fees or activities, or tax them in differing ways, because governments can’t interfere to such an extent in the lives of “persons” and because different laws and taxes in different states and counties represented illegal discrimination against the persons of the railroads under the Fourteenth Amendment.

In 1886 the Supreme Court ruled on an obscure tax issue in the case Santa Clara County vs. Union Pacific Railroad, but the Recorder of the court, a man named J. C. Bancroft Davis, himself formerly the president of a small railroad wrote into his personal commentary of the case that the Chief Justice had said that all the Justices agreed that corporations are persons. This, in fact, was not true at all.

In so doing, he – not the Supreme Court, but its clerical recorder – inserted a statement that would change history and give corporations enormous powers that were not granted by Congress, not granted by the voters, and not even granted by the Supreme Court. Davis’s headnote had no legal standing, but was taken as precedent by generations of jurists, including the Supreme Court who followed and read the headnote but not the decision.

The Founders never intended corporations to have the same rights as citizens. It doesn’t matter how many rationalizations the right wing think tanks disseminate to their armies of bloggers and pundits. It is only because of an obscure headnote written by a corrupt Supreme Court clerk in an obscure railroad tax case that took place in 1886 that they have been able to excercise such power, and to the detriment of the People.

Posted by GetpIaning | Report as abusive
 

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