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Tuesday, March 8, 2011

A Critique of the Corporate Legal Persons Doctrine: The Case of Corporate Taxation

In his commentary in The Wall Street Journal  on May 6, 2010, Michael Boskin went over the disadvantages in levying an income tax on corporations. Within his argument, he observes, “Of course, the corporation is a legal entity; only people pay taxes.”  In so doing, he transcends, if only for a moment, his own approach that is oriented to pros and cons.  His observation is significant, and it gives us a launching pad of sorts by which we can approach the corporate income tax as a phenomenon (rather than simply assessing its utility).  To be sure, utility or the lack thereof can lead us to this level.  For example, double taxation (i.e., taxation of a corporation’s earnings, and then of dividends on investors’ incomes) suggests that only people should pay tax.  Treating a “legal entity” as if it were a tax-payer is unnatural, and thus gives rise to the double taxation problem.  It is interesting that Boskin uses the word “entity,” which is not the same as “person.”  That is, to argue that corporations should not be taxed directly, he seems to assume that he needs to deny the legal person doctrine.  To be sure, it would be harder to argue that human rather than only legal persons should be taxed; to treat corporations as entities expands the distinction and thus is more permitting of Boskin’s argument.

I contend that Boskin was correct in referring to corporations as legal entities.  To treat or consider a corporation as a person in any sense is to anthropomorphise an abstraction.  Put another way, an association of human beings does not constitute in itself a person even writ large. To presume otherwise is to make a category mistake.  This error is evident when someone says, “GM says X,” or “Ford is doing Y.”  Only human beings can talk (at least in a human language).  Furthermore, an organization does not “do” things; rather, people within it are the agents.  So too, an organization cannot be a moral agent.  This statements might as be ignored, for all the sloppy anthropomorphism going on. It is no wonder that corporations are typically regarded as taxpayers.  As long as we limit our arguments to pros and cons (i.e., utility), we will miss our deeper errors or category mistakes.  Even if such faults are covered over by societal blind spots, the errors are nonetheless errors.