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Tuesday, September 18, 2012

Corporations and Political Debate: Taxation & Regulation

Under an American judicial doctrine, the corporation is a legal person, whose wealth translated into political influence is speech protected by the first Amendment. It is no matter that the corporation is an artifice constructed by the state for economic purposes. That a role in governing would “reverse the arrow” does not seem to trouble those who believe that the modern corporation should lobby and spend money (or “speak”) in terms of political advertisements on behalf of candidates for public office.  It is as if the American family had been turned upside-down, such that the kids were now to direct the parents rather than vice versa. Even a “business-government partnership” can be reckoned as a sort of “my mom is my best friend” approach to raising a child.
In general terms, to regard the agent of a principal as equal or superior to the principal is to commit a category mistake. For a creature of government to own said government puts the effect before the cause. Less abstractly, one could point to problems of accountability. The corporate benefits of immortality and limited liability should be offset by limitations, such as those on commercial speech (e.g., fraudulent claims), rather than accompanied by a still-greater benefit, such as a dominant role in setting the terms of the debate in the public media during a political campaign.

That deregulation could have come out as a major winner in the 2010 election following the financial crisis in 2008 is mind-boggling, and yet the scores of new Republican representatives in the U.S. House had precisely that as one of their main objectives. That unregulated derivatives had almost brought the house down two years before was a point too inconvenient to have been part of the electoral debate in 2010. The debate was not on whether banks that are too big to fail and yet are extant should be broken up like Standard Oil in 1913. Out of sight and out of mind. Instead, the public got to talk about whether the existing regulation on businesses in general should be discarded in favor of ostensible economic growth. Such is the power of self-interested money in setting the terms of debate at the societal level.
Accordingly, debate on whether the corporate statutory tax rate of 35% should be lowered never bothers with the inconvenient truth that the weighted effective tax rate (taxes as a share of profits) was 27.1% in the U.S. in 2012 (i.e., below the 27.7% average rate of O.E.C.D. members). The weighted average marginal tax rate on corporations was 20.2 percent.
That none of the corporate tax rate is shifted to consumers in the U.S. is somehow absent when the claim that taxing business more will only be passed on to you and me. A U.S. Treasury Department report concludes that 82 percent of the corporate tax is borne by capital, while 18 percent is borne by labor.
Defining the contours for a debate goes a long way in terms of having one’s candidate come out on top on election-day. This is not lost on corporations, whose treasuries are fair game as political influence after the U.S. Supreme Court’s Citizens United ruling in 2010. Whereas hitherto only employees and executives could contribute personally, the ruling enables corporate executives to use corporate wealth (i.e., treasuries) to contribute to PACs oriented to a particular political message or candidate (yet without contributing directly to his or her campaign directly). General Electric, the sixth largest corporation in the U.S., had profits of $14.2 billion in 2010. Even spending just 1 percent of that on political ads would dwarf the contributions made by you and me and thus dominate the terms of the ensuing debate.

                                                                             For all that G.E. does, it paid no U.S. corporate income tax.     Businessweek

Accordingly, it should come as no surprise to hear that corporations are taxed too much, and even regulated too much in spite of the fact that a lack of regulation (of derivatives) contributed to the near collapse of the financial system in September 2008. The resulting direct interference in the causal relationship between “lack of regulation being a problem” and “let’s deregulate” can be attributed directly to “corporations are legal persons” and “money, even in a corporate treasury, is speech.”  Unfortunately, even debating these notions would require breaking through the tight money-grip that corporations have on political advertising. As a result, the corporate good becomes the public good even as the general public is none the wiser.


Bruce Bartlett, “Some Big Corporations Don’t Pay Taxes, Either,” The New York Times, September 18, 2012.  http://economix.blogs.nytimes.com/2012/09/18/are-corporations-overtaxed/?ref=business