Thursday, February 21, 2013

Who is Taxed, Corporations or People?

Some Justices on the Supreme Court still insist that corporations are "people". Pictured below is the Ugland House of Grand Cayman Island. Inside the building is the office of the law firm Maples and Calder, which is currently called "home" by over 18,000 people who reside there, all living blissfully together under the same roof as happy tax shelters --- unless that is, shell corporations are considered as only "half-people".

Corporations were never enslaved, persecuted, discriminated against, tortured or murdered. Corporations were never forced to sit in the back of a bus. Corporations were never sent to prison (although some of their CEOs did hard time).

Our Founding Fathers never stipulated that corporations had inalienable rights. A Catholic priest will tell you that corporations don't have souls that go to Heaven or Hell when they die (when they go out of business).

No one can clone a corporation with DNA.

Despite what the Supreme Court says, people know what people are --- and corporations are not people, at least, not according to the Merrian-Webster dictionary.

Legal scholars will tell you that corporations are just legal entities that exist only because governments (people) permit them to exist. Corporations are just artificial man-made vehicles through which sales, wages and profits flow.

And when governments impose corporate taxes, the actual burden of who pays the corporate tax may fall on any three groups of people that receive such flows: the customers, the workers and the shareholders --- who are the ultimate owners of the corporation.

Corporations cannot raise prices to compensate for the corporate income tax because they will be undercut by businesses to which those taxes don't apply --- such as sole proprietorships, partnerships and S-corporations --- those business owners who are taxed under the individual income tax.

That leaves two remaining groups that may bear the burden of the corporate tax --- workers and the business owners (the shareholders).

The notable Bruce Bartlett wrote an excellent piece for the New York Times, and points out that several economists have shown that usually the shareholders bears the brunt of the corporate tax. One study he cites shows that the shareholders bear ALL the tax burden.

But Treasury economists conclude that 82 percent of the corporate tax falls on capital and 18 percent on labor, just as the Tax Policy Center assumes that 20 percent of the burden is on labor, while 80 percent is on the shareholders.

Another study by Oxford University economist Li Liu and Rutgers economist Rosanne Altshuler concludes that it's labor who bears 60 percent of the corporate tax burden.

One might wish to compromise (for the sake of a convenient consensus) and say that employers and employees each bear 50 percent of the corporate income tax burden (individual income taxes are a separate issue).

So if the corporate tax rate is raised, customers won't pay part of the burden for corporate taxes with higher prices, but newly hired employees might be offered less in wages --- or current employees might be asked to forgo their benefits and/or take a pay cut --- or instead, a few workers could be laid off, with the remaining employees being forced to bear the extra work load. And in doing so, would be expected to be "more productive" (working harder and faster for less).

And the shareholders, which are also usually the company's board of directors, and many times, very large institutional investors (such as the big banks, hedge funds and private equity firms) --- pay part of the burden for corporate taxes by receiving lower quarterly dividends, or they might earn less in capital gains when they sell off their huge blocks of stock.

Also, the CEOs pay part of the burden for corporate taxes, and might earn less if the rate is raised --- they might only earn $12 million a year instead of $13 million a year --- but they will still pay a lower income tax rate on their stock options with a 20% capital gains tax rate, which is lower than what their secretaries might be taxed on their hourly wages --- not to mention, their secretaries will still be paying Social Security taxes on 100% of their income, whereas, stock options (capital gains) aren't taxed for Social Security; and even if they were, the CEOs would be protected by the $113,700 income "cap".

And if a corporation (the shareholders) don't not want to bear any burden at all for corporate taxes, they can always un-incorporate --- but then, they might not also enjoy the full protection of limited liability from lawsuits waged against them in response to bad behavior and poor corporate governance. Many could not avoid jail --- and their personal possessions, such as their homes, could be at risk in legal settlements.

So ultimately, in my opinion, the burden of the corporate tax falls, not on corporate shareholders or the customers, but mostly on workers in the form of lower wages and benefits (and because the major shareholders are in a much higher income bracket than most of the employees).

And this is another reason why labor unions are so vital to the health of the middle-class ---- because when fair wages are negotiated, it "redistributes" a fairer portion of the CEO's under-taxed and excessive compensation package into the empty pockets of their much harder working employees.

Even if the $9.00 minimum wage were in effect this year, the inflation-adjusted value would still be lower than it had been in the late 1960s --- and those workers would still be earning less than their counterparts did almost 50 years ago.

So if corporations refuse to pay better wages (which would also increase federal income tax revenues to the Treasury), then our only recourse would be in the form of a "claw back" --- by extracting more by way of corporate taxes.

We can accomplish this, NOT by raising corporate tax rates (keeping the current 35% "statutory" corporate tax rate as it is), but by eliminating all the tax loopholes that congress has endowed them with, because many of the largest corporations are allowed to pay an average "effective" corporate tax rate of only 14.1% --- while many more pay no
corporate taxes at all

The most recent (and best reason) for reforming the corporate tax code >>> Facebook is getting a multi-billion-dollar tax break on its corporate taxes because it paid its executives income in the form of stock options and dividends --- just like Facebook co-founder Eduardo Saverin, who renounced his U.S. citizenship to avoid paying income taxes on his capital gains.

We should either eliminate all the corporate loopholes (and subsidies), or end slave wages
completely by making the federal mandatory minimum wage at least $15.00 an or the other or both. (Voting for Democrats to do this would be very difficult, but voting for Republicans would make it virtually impossible)

If corporations are people, and people own corporations, and workers aren't owned by anyone, why is it that they are the ones being paid slave wages, rather than evicting the tax dodgers from that house in the Cayman Islands.

* This was also posted at the Daily Kos

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