HomeArticlesEconomicsCorporate Taxes, Mass Envy, and Economic Justice

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Corporate Taxes, Mass Envy, and Economic Justice — 5 Comments

  1. A very good analysis Gordon. It often surprises me how hostile some people are to companies that try to avoid paying tax. If they paid a lot more tax they would go out of business. Business are the wealth generating part of a society. In that sense business should be called ‘public service’ and the ‘public sector’ as it is the one that contributes the most. It is a misnomer to call government the ‘public sector’ or to call people who work for the government ‘public servants or employees’ as they are consumers not creators of wealth. The so-called ‘private sector’ has to support people who work in the ‘private sector’ as well as the people who work in non productive jobs in the ‘public sector’. So who is the most ‘public minded?’ I guess the envious one tend to be the ones working for the government. The British government under Gordon Brown failed to regulate the financial sector properly because the banks were generating such huge profits that could be taxed. So there was a lot of collusion going on – ‘you scratch my back . . .’

  2. William, Thank you for the comment. There are three spheres of society; culture, economy, and government. These three spheres are governed by the respective principles of love, the market, and force. I think “Public” and “Private” generally denote whether a collective activity is run under the auspices of government and with the principle of compulsion, or as a private voluntary activity. In this regard the more activity is public, the less freedom exists, the less the market works, and the less love can be exercised. While it is true that churches and NGOs can be said to promote the public good, they are not what I would define as public institutions, but cultural ones.

  3. Gordon,

    Main reason not to have corporations pay tax is that it is a way for governments to hide how much they are spending, by pretending that individuals aren’t paying the taxes. No corporation has ever paid a cent in taxes, taxes are considered a cost of doing business. All the government has done is make their products more expensive, for if the company can not recover the costs of the taxes in the price of its products, it will go bankrupt and cease to do any business at all.

    Essential fact of life is that the individual citizens pay the taxes on corporations. For the citizens of a nation, what they have done is made the products of their labors harder to trade with other nations, because the products you made are now being sold there, and the company has to pay the taxes you made by charging more there. It directly hurts the citizens every time, and the only way that government gets away with it is by maintaining the ignorance of the citizens and falsely promoting themselves as the savior of the people, because they are ‘taxing the corporations their fair share.’

  4. As I discussed with you on FB, I am typically impressed with your logic and penmanship. But in this case, I must disagree with you. The only thing the government has a moral right to tax are things it created. And about the only things it created are corporations.

    Corporations are given benefits not available to people by their creator ie, God. Corporations live forever, enjoy limited liability, the ability to raise monstrous sums of money on Wall street, etc. As a price for these significant advantages they have over Mom & Pop operations they should be taxed heavily, in order to level the playing field between the Home Depots of the world and “My Pa’s Hardware Store” on Main Street.

    All the tax avoidance measures you cite can be easily handled within the code. Don’t like that the CEOs are paying themselves to avoid taxes? Tax their Gross before executive compensation is factored in, etc…

    Love your work Gordon! This is the first disagreement I have had with anything you have written, and I have read!

  5. Yes Jim, I generally agree with you on social issues, and it would probably take more dialogue on this matter as there are several conflicting questions at issue. You have a certain moral logic to your reply, but I don’t think it addresses practical economic incentive very well. And, I think the high CEO pay is better attacked by distinguishing between two forms of income. Let me try to explain a bit more:

    One point is whether corporations ought to exist at all. Another is whether they ought to be entitled to hold patents or get any other form of government protection. Another is whether they ought to have personhood. Another is whether they ought to be able to contribute to any political candidate or party. I have questions about all of these points.

    However, if they exist as they do now, then I want to separate the cost of production of goods from the concept of profit. And, I want to separate the cost of labor in the production of goods from income due to sales of products. These numbers are currently conflated for political purposes by both corporate and government spokespersons.

    As I said in the article, high CEO pay is one of several ways of masking profit from sales to avoid paying taxes. There are many other types of non-productive expenditures, as I outlined above, that taxing corporations causes. Most companies that pay taxes do so as a result of some bad law that gives them more protection from the government than they pay in taxes.

    If you increase the taxes on the corporations, they will just re-organize or move out of the country. They understand money better than the government does. And, they can respond to market conditions faster than a government can. The real thing that seems to irk you–and it irks me too–is exorbitant CEO pay that is hard to justify on moral grounds. This ought to be taxed before your wage laborer trying to make ends meet, but not as an income tax from labor but as a tax on profit. Hence, if you take money out of the corporation after the production processes are complete, you can tax them.

    However, as I have said elsewhere, this high CEO pay could not exist in a market with pure competition, only in a market that has a measure of protection by the government. Hence, government economic policies are a major source of this high pay to begin with. It is ironic that government policies cause the high CEO pay, and then government gets angry and jealous. It is a sign of dysfunction.

    As Hayek has said, the solution is for the government to ensure conditions of rigorous competition, in which case profits tend toward zero and maximum productive efficiency is achieved. In pure competition there could be no exorbitant CEO pay or spurious corporate expenditures for very long because a competitor would be able to provide the same goods at a lower rate by running a leaner company. Wayne Miller outlines the conditions for a competitive market here: http://www.youtube.com/user/wmiller24#p/u/14/DZhphhNk1e8

    Republican leaders, who are fighting against raising taxes on the rich, fail to separate income from labor and income from profit on sales. They purposely seem to try to hide this distinction. And they have not convinced me that progressive taxation on high salaries and bonuses will be used to create jobs more than if it were left in the corporation directly for productive purposes. Obviously, there will be some jobs created in building mansions and yachts, but there would be more jobs if the corporations had a climate of pure competition, reinvested any profit into more production, and corporations didn’t move jobs overseas. This high CEO pay is a reward not unlike high salaries of football and movie stars. This money is a result of reaching a type of superstar status in which you have millions of consumers excited by your product, not as a result of labor for hours you put in the office. This is therefore not wage labor, but a form of superstar bonus.

    I believe that a moral case can be made that one is entitled to the fruits of one’s labor, and that money made off of other people’s labor is a better thing to tax. It might be hard to draw a line, so I would simply exempt anyone earning less than $250,000 in income from filing taxes, and consider the amount over that as some form of bonus income.

    Now to return to your points: The repeal of federal income tax as you advocate would fit nicely in this system from that standpoint that you ought not tax wage labor, and that is where most of the income tax revenue comes from anyway. And of course, the federal income tax is an unconstitutional non-apportioned tax anyway.

    Secondly, the idea of taxing income from profit should not ideally be done by the federal government anyway because corporations are incorporated by states, not the federal government. Thus the bonus income should be paid to the state in which the corporation is incorporated. This would accord to your theory that government creates corporations and has the right to tax them. Where I would differ is that I would not tax them if they do something productive with the income, but I would tax the cash people take out.

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