corporatism

Shinjuku at night

Despite not being persons, corporations are recognised by the law to have rights and responsibilities like actual people. Corporations can exercise human rights against real individuals and the state, and they may be responsible for human rights violations. Just as they are “born” into existence through its members obtaining a certificate of incorporation, they can “die” when they lose money into insolvency. Corporations can even be convicted of criminal offences, such as fraud and manslaughter.

- Wikipedia

The Government Accountability Office (GAO) examined samples of corporate tax returns filed between 1998 and 2005. In that time period, an annual average of 1.3 million U.S. companies and 39,000 foreign companies doing business in the United States paid no income taxes – despite having a combined $2.5 trillion in revenue.

- CNN

The Outstanding Public Debt as of 13 Aug 2008 at 01:03:59 AM GMT is: $ 9,577,193,968,603.71

- Debt Clock

I think the average person would consider that corporations, having been granted the same rights and privileges as a real live human, should pay similar taxes would be appalled by the figures above. The individual who works for a living – who earns wage by selling his or her time – is paying a disproportionate share of the burden of the war(s), social security, medicare and the myriad frivolities that make up our federal budget.  Investors, corporations and inheritors pay a disproportionately small amount.

For me the answer to this is clear:  while voting, best as I can, to counter these trends, I also have to make my family part of the problem. We have to become investors, corporations (by buying into them) and become prodigious accumulators of wealth (as first pointed out in The Millionaire Next Door).

A wise or forward-thinking government would encourage people to enter manufacturing jobs, or managerial positions or even public service positions. A country can’t continue rewarding investment at the expense of labor and creation indefinitely (although the US is struggling to disprove that).  I often wonder why I work for a living rather than investing, given the tax code.  I also wonder why more people don’t see that the relationship between work and wealth is tenuous – wealth is only generated through investment in this country.

But the point of this post is simply to ask the question:  should a country or society be happy to create wealth by investment, or should it create wealth by work? Is it right that investment income is taxed lower than earned income?  Should the burden of governmental spending be borne by the citizens who receive those benefits – or should it be borne by the pseudo-people, the corporations, who profit by the labor of those citizens?  What is the true role of government?

I wish our elected leaders would address these questions, because all I hear is Britney/tire gauge/drill here, drill now/blather.  People who are trying to organize their financial lives in difficult times deserve better.

photo credit: tanakawho

  • http://www.capitalcouplesfinance.com James@capitalcouplesfinance.com

    I think the biggest part of this problem is the tax code itself. While corporations do have to pay income tax–theoretically, that is–there are so many loopholes, special interest clauses, and outright subsidies in the tax code that benefit certain sectors and industries, that its pretty much a wash. I’m sure that many companies actually make lots of money from taxpayers in this process.

    Maybe it’s time to revamp (i.e. replace) the tax code with something like the flat tax or the fair tax so that corporations won’t have this kind of influence over tax law.

  • http://plonkee.com plonkee

    I don’t know the answers to any of these questions, and I suspect that I’m remarkably ill informed. But, I wonder whether this is along the lines of people questioning whether it’s possible to have a functioning economy without a large manufacturing sector?

    Because I’ve always wondered what people thought about industrialisation 150+ years ago. Then we went from having a huge agricultural sector to having a huge manufacturing sector and have never gone back. In fact no one has that I know of. Large manufacturing sectors turned out to be as sustainable as large agricultural sectors.

  • Jim

    This is such a misleading news item. Corporations are taxed on their undistributed profits, not their revenues. Revenues are taxed through sales taxes on completed products, which the immediate or eventual customers of those corporations most certainly paid. They are also taxed through the individual income taxes of the employees. Profits are also taxed in the name of the dividend payee. The last two taxes are progressive, while a straight corporate tax would hurt all investors the same.

  • Richard

    Jim brings up the obvious – a corporation that’s losing money doesn’t have to compound the problem by paying taxes, and (fortunately) there’s not too many instances where the people who end up getting the money are taxed twice on the way. While the system could be more or less “fair” based on these fundamental rules, it seems like a fair compensation for the risk taken.

    In fact, this is available to anyone – if someone loses their manufacturing job they can become self-employed and claim business expenses to reduce their net income. If they’re losing money they won’t have to pay any taxes either. Of course if you net income for the year is actually negative a little tax break will be a small comfort, but the same can be said of any corporation.

  • http://www.dividendgrowthinvestor.com/ Dividend Growth Investor

    Great point Jim. The CNN article headline is written in a way to attract readers. I am always amazed that newspapers and media consider US people stupid.
    When you read the whole article you’ll see that they use revenues and net income interchangeably which is not correct.
    If I made $100 from work I have an income of $100; however if I bought bicycles and I bought a bike for $200 and sold it for $100 I did have revenues but also a huge loss. I don’t think I should be paying taxes on it,should i?
    In addition to that corporations are taxed twice- at the corporate level as well as at the ownership level. Whenever shareholders get dividends, they give a certain percentage bvack to Uncle Sam in the form of taxes.
    Corporations pay so much in taxes at the end of the day, that sometimes I wonder if its better to work than form a corporation.
    Another popular news story that makes me angry is whenever XOM earns 11-12 billion per quarter. Everyone claims that XOM is a greedy corporation. The truth is that in 2007 XOM paid 30 billion in income taxes and had a profit of 40 billion.

  • http://money-hacks.com/ Bill

    All of the comments above are valid. It all boils down to what you believe is “fair.” Sure, corporations are treated like individuals in the sense that they are afforded certain provisions (like bankruptcy, individual indemnity from lawsuits against the corporation, etc.) but they truly aren’t people.

    People should pay taxes. People run corporations. The best way that people would pay their “fair share” is through a national sales tax: Generally speaking, the more you consume, the more you pay in taxes. There could (should) be provisions in there that say milk gets taxed at 2% but yachts at 35%. You could make a non-regressive/progressive tax out of an income-neutral tax. It would be all about consumption.

    (I hate double taxation. It affects each one of us every day. To buy a TV, for example, you pay tax on the income you made to buy it in the first place and you pay sales tax. OR, you pay an income tax on the dividend and/or capital gain you made on an investment, then you pay a sales tax. Furthermore, the company you work for or invested in has presumably been taxed on any income it derived from doing business.)

    If you don’t have any employment income but you’re able to buy yachts and planes, you’ll pay your fair share in taxes (i.e., your source of funds comes through passive or investment income). If you’re rich, but don’t work (inheritance?), and you spend little money, you pay less in taxes.

    You’ll still pay a good sum — after all, your need for food, shelter, and clothing will always exist, and with those necessities come goods and services that you have to buy — and best of all, you can’t cheat the system.

    Okay, you can cheat the system by participating in the black market. But that’s against the law and nobody would do that, right? :)

    • http://www.bripblap.com Steve

      I’ll try to address all the comments in general. I agree that the article was all over the map, but the simple fact is this: if I’m an individual in America, and I make $100, then spend $100, I owe tax on the $100. If I’m a corporation and do the same, I pay taxes on the net $0 – i.e., nothing. To DGI’s and Bill’s points, though, I have always been mystified by the complaints about double taxation. I’m not sure it’s so much double taxation as the rate of taxation. I don’t think there’s any problem with taking taxes from several different revenue streams, for precisely the reason Bill mentions – we don’t want one revenue stream to be totally “tax free” and therefore wildly preferable to the others. Think of a national sales tax: I am a law-abiding citizen but if I had a 30% tax on my consumption, it would be a lot easier to avoid that than our current income tax is to avoid. And even if the milk was taxed at 2%, the company shipping that milk to the store would be paying 30% more for the truck, for the materials to make milk boxes, etc. – those costs would end up with the consumer.

      I personally don’t think any taxation system can be “fair.” I think in the US more tweaking could make the system “fairer” – but too much tweaking has been done already.

  • Curmudgeon

    Okay, if not fair, how about simple? I curse that I have to spend many hours doing my taxes manually, or spend money to have someone else do them or buy software to automate them. What Congress has created for both individuals and corporations is the Accountants and Attorneys Full Employment Act (sorry, Steve).

    And regarding fairness, I would rather be treated with mercy. I don’t think I would particularly care to be the recipient of someone else’s idea of fair.

  • Curmudgeon

    Another thought . . . the double taxation discussion got me to thinking about the European VAT, where a tax is applied whenever value is added to a product. I was reading an article recently that claimed that despite shorter work weeks and longer vacations, Europeans work just as hard as Americans. Because of the lack of well-developed service industries (fast food, housekeeping, etc.), Europeans are more likely to do such work themselves, whereas in the US, we are likely to take more advantage of available services.

    I wonder if that’s *because* of the VAT. Because value adds are taxed, they are discouraged from developing those industries that we take for granted that make our lives a bit easier. Interesting speculation about the ability of taxes to influence cultural behaviors.

    • bripblap

      Curmudgeon, taxes absolutely influence cultural behaviors. Look at the mortgage interest deduction, or the ability to deduct state taxes against federal taxes. If either one of those was repealed, I would get out of NJ faster than you could say boo – in the Northeast the huge mortgages and massive states taxes are at least slightly offset by their deductibility. VAT discourages low-margin services. A flat tax on income would discourage working at lower wages. On and on, the simple fact is that most taxes discourage SOMETHING. The only real hope is to have them be as equitable and intelligent as possible (a tax on gas to fund solar power research, for example).

  • enricodesimone

    Corporatismo new e' collettivismo privato e non individualismo sfrenato senza fusione con lo Stato

  • enricodesimone

    sono rimasti i nomi ed il commento?

  • enricodesimone

    sono rimasti i nomi ed il commento?

  • enricodesimone

    corporativismo collettivo delle imprese associate e non individualistico della concorrenza sfenata e distruttivao dispersiva: autonomia e disciplina di categorie e programmazione intercorporazione

  • enricodesimone

    corporativismo collettivo delle imprese associate e non individualistico della concorrenza sfenata e distruttivao dispersiva: autonomia e disciplina di categorie e programmazione intercorporazione

  • enricodesimone

    Il corporativismo democratico supera anche il federalismo alla Diogleziano – che pure vedrebbe superate le regioni a statuto speciale -, perche' evita pericoli scissionisti delle regioni piu' tributarie

  • enricodesimone

    Capitalismo corporativo non societario-individualistico con pseudo concorrenza. La sovranita' rimane del popolo con elezioni generali di organo sovraordinato alle corporazioni delle attivita' economiche e non lobby da capitalismo giungla

  • enricodesimone

    Il superamento della attuale crisi mondiale a seguito della globalizzazione dei mercati rende ancora piu' fragile le tesi deifederalisti e richiede e rafforza il corporativismo inteso come unione produttiva delle corporazioni delle attivita' economiche che potrebbero sovrapporsi ai governi nello sfruttamento delle risorse e degli impieghi. I profitti sarebbero subordinati alle lineedi sviluppo impresse dalla globalizzazione delle programmazioni corporative verso le queli i rispettivi governi assumerebbero atteggiamenti di supporto strumentale nelle politiche fiscali e creditizie volte allea produzioone e quindi alla occupazione predefinita

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