The “people” Washington helps most: big corporations

August 19, 2011

By John F. Wasik
The opinions expressed are his own.

If corporations are people, as GOP Presidential candidate Mitt Romney recently declared, they are very special people indeed.

As you know, big corporations are treated by the courts as if they are people, yet can contribute infinite amounts of money to purchase politicians, legislation and tax breaks.

Megacorporations’ access to tax breaks and loopholes has gotten so out of control that even General Electric CEO Jeff Immelt says that the U.S. corporate tax code should be reformed. The $150-billion company managed to have a negative 61 percent tax rate last year.

Just for some late summer fun, let’s do a side-by-side comparison on how an ordinary, middle-class person would be in taxed in the U.S. and how a large corporation with a reasonably agile accounting department would operate.

You Get a Bonus. Congratulations. Maybe you can go out and buy that boat, patio set, home theater, dream vacation or pay off your credit cards. Unless you’ve made some tax-deferral arrangement, your employer will reduce your net payment by federal and state taxes plus other payroll taxes (Social Security and Medicare).

If you buy anything, you’ll pay state and local sales taxes on your purchase. If you significantly improve your home, you might pay higher property taxes. And if you’re doing the right thing by paying off your credit-card debt, you can’t deduct the finance charges. You’ll get a break if you contribute to your 401(k)-type plan, but you get taxed on all withdrawals and penalized if done before age 59 ½.

Being a hedge fund manager is a much better deal. The top 25 hedge-fund managers, who took in $22 billion last year, were blessed by a “carried interest” rule that allowed them to pay a bargain 15 percent federal tax on their profits. They didn’t have to build a thing to get this break — other than construct big piles of cash. Nice work if you can get it. Had they all been taxed at 35 percent on their profits, they would have been able to boost Social Security benefits for Baby Boomers by $1,000 apiece.

You Fix Your Roof. To come up with the money to cover this capital investment in your home, you had to pay income and payroll taxes. There’s no deduction for maintenance on a primary residence (rental properties get a break).

Let’s see what a corporate number-cruncher can do. Many capital investments are covered by specialized allowances depending on the industry. Is your company in the oil/gas business? Uncle Sam rebated some $44 billion last year. Coal? Some $2.6 billion.

What about the foreign tax credit, inventory accounting and “excess returns on intangibles transfers?”

According to the Center for American Progress, those items cost the U.S. Treasury more than $200 billion last year.  That’s roughly what the government spends annually on interest. If it received more income by closing these loopholes, Uncle Sam wouldn’t have to borrow so much money to pay its bills.

You Grow Your Own Food. Smart move. If climate change gets ugly or  the economy collapses due to bad banking practices again, cheap, accessible food will be worth more than gold or oil. Yet you would be taxed on fertilizer, seeds and the equipment you buy.

Oh, to be a corporate farmer. Bigger is better! Corporate agri-business reaped more than $10 billion from the U.S. Treasury.

That’s not to say there weren’t some benefits you shared with corporations: Both you and your employer could write off hefty amounts of meals and entertainment — worth a whopping $139 billion last year. But since you can’t legitimately “offshore” cash to avoid U.S. income taxes like a corporation through a foreign bank, you’re still stuck with the much bigger tax bill.

The moral of this story is that middle- and lower-income taxpayers don’t have anywhere near the kind of tax benefits that corporations receive.

If most of your income is from wages, you get almost no long-term break from payroll and income taxes while your employer gets to write-off any contributions to your retirement and health care. Note: The temporary payroll tax break enacted by the 2009 stimulus package will expire soon under a debt-reduction agreement.

Unless you incorporate yourself, create income for your business entity and hire competent accountants, all of those lucrative write-offs will continue to flow to the well-lobbied corporations.

When it comes to tax holidays, corporations still have all the fun in the sun while working people get rained upon. It’s a blue deal for most Americans. How do we level the playing field?

If corporations are to be treated as people, for the sake of the Republic and deficit reduction, shouldn’t we heed Warren Buffett’s suggestion to tax them more aggressively?

14 comments

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Looks like General Electric would support Bachman. She says she wants reform. She worked at the IRS as a spy, and told her supporters at a recent rally, that you have to “know your enemy”. Since when is the IRS an enemy? GE has plans to build a nuclear power plant with Hitachi in Lithuania and is attempting to gain the contract for a Polish plant, and they will. The deal is in. Of course, GE would like a tax reform in their favor. Why not pay zero taxes while employing thousands of non-American workers in a foreign country. GE is a threat not just to America, but to the whole world. Bachman is likely to fail in her bid due to the strong anti-gay rhetoric, so who will GE turn to to get their way?

Posted by JEFFREYTAOS | Report as abusive

“It might also be added that corporations have no consciences, no beliefs, no feelings, no thoughts, no desires. Corporations help structure and facilitate the activities of human beings, to be sure, and their ‘personhood’ often serves as a useful legal fiction. But they are not themselves members of ‘We the People’ by whom and for whom our Constitution was established.” — Justice Stevens’ Dissenting Opinion in Citizens United v. Federal Election Commission

Posted by PCScipio | Report as abusive

If corporations are people too then…
A)I should get taxed only on my profits which would be the amount I put in savings that year.I can write off living expenses as overhead.
Or…
B)Corporations should be taxed on income, which means if they sell something for $100 that costs them $90 to make, they get taxed on the $100, not the $10 they made in profit.
If they have all of the rights of people, they should have the same responsibilities as well.

Posted by Potatoe1 | Report as abusive

yes, Warren B. is right on the money. If the middle and lower income improve thier financial situation, they the rich will get even richer cause they depend on avg. consumer purchasing, right.
Secondly, go futher, don’t forget who’s the major parties to blame for this tumoil – it’s Wall St, Banks, Standard and Poors who engineering toxic assets, right.
And the Gov. bail them out, and the tax payers stuck with the bills, provoking the debt ceiling.

Guess what, do you think the resonsible parties have pay their bills? Nope. Thus, I think we should have a new tax law to increase the tax bracket for banks, Wall Street Enginners, and S&P. Right?
Sorry for not writing neatly (ESL).

Posted by CommonSense1A | Report as abusive

I am interested in your observation on preferential support for big organisations rather than targeting aid at certain sectors of the population.
I think this has been responsable for the prolongation of the current economic difficulties. If a few people lose their homes the economy does not feel the effect, but if this happens in a large scale the diminution in their spending power (and the depression in the housing market and the building sector) has knock on effects on the economy as a whole and supporting only big institutions will not correct this problem

Posted by FrenchObserver | Report as abusive

Please let’s spare the small business, still corporations, the one that gross few millions a year and employ 10 to 50 employees all in the US. They do not use outsourcing, they do not have foreign subsidiaries and they do not farm out their manufacturing wherever is cheaper without any respect for the domestic work force. These small businesses, for example here in California, are taxed ~ 43% for every $ in excess of $ 75K earned. This $ threshold has been the same for over 20 years and should be increased (adapted to inflation) to allow small business to capitalize and grow. That means local employment. On the contrary, one thing that should be really penalized is outsourcing of labor outside of the US. If we tax that we will gain.

Posted by robb1 | Report as abusive

Robb1′s point is well taken, but therein lies the rub. The US Chamber of Commerce and the megacorporations have a done a great job of confusing your small, mom-and-pop “corporation” with the globe-spanning and outsourcing megacorp. Perhaps, there needs to be a fundamental change in the nature of incorporation laws and the structure of the tax code.

It is asinine for nations to continue to treat international megacorps in the same way their treat local “mom-and-pop” corporations. These smaller companies are embedded within a community, while the megacorps are disconnected behemoths. Ford is no more “American” than Toyota is “Japanese.” It is only when nation-states begin to release that corporations are on the path to sovereign status, that they will see them as for what they really are.

Posted by SidtheSingh | Report as abusive

And to think, Mitt Romney is leading the pack? And this system will not change as long as these big corporations spend as much as they do on politicians. I continue to feel sad for our country.

Posted by davidrayburns | Report as abusive

Corporations are “entities” created to help business owners avoid personal liability for negligence and torts and tax liability. That’s it. Period. They are not people, but a business form created on paper. Perhaps its time to GET RID of corporate entities so that business owners are completely responsible for their actions in every way – like “real living, breathing human beings.” Real individuals are forced to pay for their idiotic behavior, the corporate form “prevents” CEO’s and directors from personal responsibility. Let’s live in reality – okay?

Posted by KimoLee | Report as abusive

Plain and simply, these corporations need to start paying their employees a LOT more money if they are able to do so. Lower level people at Apple/Google/Amazon should make a ridiclous amount of money.

Posted by SensiLove | Report as abusive

Robb 1, I agree. As a small business owner here in Washington state we have few resources available to us as even the bank that I have been with some 12 years now would not loan our business a dime in the current environment. By the way that bank is under audit by the feds and has a liquidity problem associated with bad loans to large corporate real estate developers for dubious projects. We small depositors are shoring up the bank and yet are being penalized.

Microsoft on the other hand formed a shell corporation in Nevada in 1997 to funnel all bulk sales of its software to PC makers such as Dell, HP and so forth. Nevada has no corporate income tax. Since 1997 the lost tax revenue to Washington state has been estimated at $500 to $525 million and one can only guess that this must have been in part what Bill Gates recently referred to as “creative capitalism”.

Most contemporary treatment of corporations as individuals has no foundation in the Constitution or specific legislation but solely as a result of actions by the courts over time. It is long past time to review just what corporations are and are not from a constitutional perspective and enact legislation that mirrors the original intent that they be entities licensed to carry on commerce. But as we all know the plutocrats that control Congress and the President would never sit still for this.

Posted by seattlesh | Report as abusive

Why is it news that Corporations own America? After all, they have always owned Presidents! Obama is the first one to raise most of his funding from the little people.

The new and scary development is that multimillionaire owners of corporations are getting elected to Congress – where they proceed to insist ONLY on protecting the rich, the country be DAMNED. That, my friend, is the Tea Party for you.

Posted by sooku | Report as abusive

PCScipio, you’re right on. If corporations are people, let them be taxed like people.

Posted by sooku | Report as abusive

Face it. If Obama gets re-elected with a democratic congress.Maybe,just maybe, some of these tax reforms MAY get addressed, after all he will not need to worry about re-election.
After Bush was re-elected, He got rid of Rumsfeld, relegated Cheney to the back-bench, and started running things himself. This was not by chance.
America has got to get BIG MONEY out of Politics.
PUBLICLY FUNDED ELECTIONS (LIKE CANADA) WOULD PUT A SERIOUS DENT IN CORP. INFLUENCE….

Posted by TED53 | Report as abusive