I received a comment on my previous post concerning G.E. paying no corporate income taxes in 2010. I thought it contained the misconception held by many, including conservatives, that forcing companies like G.E. to pay more in corporate taxes is a good thing. Obviously, I failed in that post to clearly explain why this is, so we’ll try again. First, the comment.

Do you own a corporation? J/k… sort of. I might agree with you if it has not been pointed out time and time again that corporations constantly take advantage of any loophole to maximum effect and consequently continue to abuse not only the working class of the USA, but world wide. I know, that’s a pretty far out liberal opinion, but for the same fact that you pointed out, “Corporations will exploit every loophole possible to protect their profits,” I don’t trust corporations.

It does not benefit the American people if a corporation makes billions of profits, so why not tax their profits to benefit my great country? It might not benefit me personally, but when their prices go up I can make the decision to purchase their products based on my budge instead of being forced to pay higher taxes because the corporations are abusing loop holes that I don’t have an army of accountants and lawyers to help me do.

Sorry, I’m not trying to start an argument, I just care about people, and the treatment the common people (i.e. not shareholders) get from corporations is very frustrating. I don’t know what the answers is, but I’m so tired of reading about the next crisis we are facing largely because of the “exploit every loophole possible to protect their profits” mindset, which, if I understand correctly, has your wholehearted support.

So yes, to answer your question, I’m mad at G.E. because the people running it don’t feel they should support American when they have an abundance of profit. Let’s be clear, it’s not like they are paying no taxes, they are getting a $3.2 billion dollar tax credit. 3.2 billion. When you are counting in the billions, is one little measly million going to matter? I’m not saying a million dollars is inconsequential, but how many individuals income tax does it take to add up to a million dollars? I honestly have no idea no idea, but I’m sure it’s quite a few.

This is wrong on many levels, so we’ll take them one at a time. It is a fact that corporations don’t pay income taxes. The consumer does. Those taxes are a cost of doing business and are passed along to the end consumer through higher prices. So when you support the idea of forcing a corporation to pay more in income taxes, you then support the idea of paying higher prices yourself. You can’t penalize a corporation through higher income tax rates, you only end up punishing the consumer.

This is the type of sales pitch Obama used on the campaign trail. He would ask a partisan crowd if they were tired of paying high gasoline prices. They would gleefully scream yes! What did he propose to do about it? Impose a windfall profits tax on those evil, greedy oil corporations. Doesn’t that sound great? Stick it to ’em! Wrong! It’s the same reasoning. Slap a windfall profits tax on an industry and those corporations will just as gleefully pass along those costs to the consumer. So you end up with even higher gas prices!

Take his energy policy. When he did a radio interview in San Fransisco, he made this statement. I’m paraphrasing. He said that under his plan of a cap-and-trade system, electricity prices would necessarily skyrocket. Why is that? Because whatever punitive measures he employs against the energy companies, those costs will be passed along to the consumer. Obama knows this, that’s why he made the statement. He knows that in order to force Americans to change their way of life and drive them into more green energy policies, he needs prohibitive costs to accomplish it. So you simply apply higher costs to industry to pass along to the consumer.

This isn’t theory or opinion. It’s a fact. Just as it’s a fact that the United States has the second highest corporate tax structure in the free world. So what will happen if those of you who support attempting to punish corporations through higher corporate income tax rates? They will simply relocate their corporate headquarters offshore in order to avoid the higher rates if they become too prohibitive so they can’t pass along the costs to the consumer. The very thing those in opposition are crying foul about.

The commenter makes the assertion that there is no benefit to the American people if a corporation makes billions in profits. Really? I have a couple. How about jobs? Or dividends for shareholders? This idea that Obama has been peddling that at some point you’ve made enough money is straight out the statist’s handbook. If you support profit caps, you cannot support the free market. Why this concept gets lost on so many people is very unsettling. It’s just fact that any private enterprise is in business for one reason, and one reason only. To make profits. Sorry, if you don’t like the idea, than you don’t support capitalism.

Let me be clear on my position. I am not a shill for corporate America. I have no financial interest in taking my position. In fact, I take the opposing stance. I support seeing the consumer pay less. The corporate income tax is nothing more than a hidden tax on Americans. It is you that are being screwed, not the corporation.

Now, on to loopholes. They should be completely eliminated. The only thing worse than an unfair system of taxation is one filled with loopholes for the well-connected to be able to navigate around. No way should G.E. have received a tax credit of over $3 billion dollars. But they did it with-in the confines of the system. Yes , it’s a crony-capitalism system. But you’ll never fix it through an income tax the corporations don’t pay anyway.

The taxation system as a whole is set-up to benefit the well-heeled, not the individual. This is where the fix that will result in satisfying those who dislike the current system must begin. This is where you take on crony-capitalism. This is where you eliminate loopholes and even the playing field. Remember, it’s a proven fact that lower tax rates increase overall tax revenue. Corporate tax rates, if we’re going to have one at all, should be substantially lowered. That’s a most difficult concept for many to absorb, including most of the economists out there today. Raise the rates, particularly in an effort to punish, will result in one thing. Corporations leaving our shores in droves.

My point overall is that you will never succeed in punishing through taxation. Not in corporate America. You want to get mad, get mad at the enablers. Government. Yes, the usual. They set the rules. They create the loopholes. They pick the winners and losers. Corporate America merely takes advantage of what is available to them. That includes lobbyists. Change the laws if you don’t like it. Support candidates who aren’t paid off hacks for these corporations.

I’ll never get on-board with those who believe a corporation should exist with some sort of moral conscience. Sorry, but a corporation will always be an inanimate object that exists only to maximize profits and shareholder returns. Whenever government attempts to legislate morality, it’s an abject failure. Comprehensive tax reform can also include incorporation laws. We must remember that our beloved politicians are amongst the primary beneficiaries of the system in place. They are not inclined to change it voluntarily. Attacking corporate America also harms the other side of the crony-capitalist arrangements – the politicians.

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11 thoughts on “Like to pay more taxes? It’s easy, just punish the corporations

  1. Agreed. IMO this is what should be done to fix the economy:

    1.Get rid of all loopholes. Once and for all. This should easily get bipartisan support, and I’m wondering why they aren’t doing anything about this yet.
    2.Cut spending considerably, but increase spending a little in areas where the US is falling behind (e.g. alternate energy (to move away from oil dependence, not because of the global warming BS, infrastructure etc.). The US may be in a crysis, but China ain’t, and you can’t let THEM, of all countries, get the edge.
    3.Add more income tax brackets for the very wealthy (the ones that make up 5% of the country, with incomes starting at something like 1 million dollars, far beyond Obama’s “rich” 250k bracket). This is in line with the Laffer Curve, because the ideal top income bracket tax rate (including state taxes, Medicare etc.) is in the high 60s. I think raising the top federal income tax to something in the 40-50% range makes sense and won’t really affect the economy.
    4.LOWER corporate tax rates to something along the lines of 20-30% to fight off outsourcing.

  2. I enjoyed reading your response, but we have different viewpoints and opinions and ultimately will probably have to agree to disagree, but I would like to share some more thoughts with you.

    You mention the oil companies, in the last 3 years, Exxon only paid 2% in taxes, Chevron 5% ( http://www.commondreams.org/view/2011/03/31-6 ), so they didn’t pay the 35% Corporate taxes either and that didn’t stop them from continuing to raise the price of fuel and make record profits.

    Workers wages in America have barely risen since the 70’s while CEO’s have doubled a hundredfold. My point is, only a select few are benefiting from the huge profits. And corporations are not moving their jobs over seas because of high taxes, they are moving them away from American soil because they can pay the workers terribly low wages. G.E. made 14 billion dollars in profit last year and got a 3.2 billion dollar tax benefit and yet in September, they still closed their last light bulb factory in America, sending more jobs over seas. How can you say lowering their taxes will convince them to stay? Tax or not, it’s still cheaper for the corporations to move jobs over seas. That factory only had 200 employees, but instead of refitting the company to make compact fluorescent light bulbs (which would have cost 40 million, less then 1% of their 14 Billion dollar profit of the year) they eliminated the jobs.

    I put forth a greatly simplified scenario. Government taxes corporations, corporations are forced to dip into their exorbitant profits to cover taxes or raise prices. Since it’s a free market, if the corporation raises its prices, I’ll just go with another company who decides not to raise their prices. It gives me some choice. Of course now, since corporations have gotten so huge and gone global, choices on the market are getting more and more limited and it’s more likely that both products would go up in price because they are so intertwined that they don’t care which brand you buy this week, as long as you buy.

    You said, “a corporation will always be an inanimate object that exists only to maximize profits and shareholder returns,” but I think this statement needs to be altered slightly. A corporation is an inanimate object that today exists only to maximize profits at the given moment. The corporation maximizes profits today, not in the long run or over time or even by considering what is best for the corporation, much less the employs or the economy, but corporations grew and evolved to get to this point, they have not always been this way.

    You support the consumer paying less and so do I, but corporations are moving overseas to achieve this goal through lower wages and cheaper resources, not because of taxes.

    If corporations stayed in America and their prices were forced to be higher, wouldn’t it be better to have all those hundreds of thousands of people working again? And with those people working again, wouldn’t they be able to buy more products? And if more people have more money to buy more products, doesn’t the price of the product even out a little? Products would not be super cheap, but it’s easier to deal with cutting back your spending when you have a job.

    I feel like I’m straying off topic, and greatly simplifying the issues, but my main point is that your argument seems to be that taxes are preventing job growth and development in America, but even when companies like GE are not paying taxes, they are not reinvesting that money in America, they are still doing whatever it takes to make more profit and that includes moving jobs overseas despite taxes. Lately, I believe this has more to do with NAFTA and WTO and good old fashion Corporate Greed (and human greed too;). You put a lot of the blame for this on the government and I agree, the government has lots of problems. You ask earlier if I’m mad and I reply with a wholehearted hell yeah and that’s a good thing. If people are mad at GE, then hopefully they will look at the system. The system needs to change and that will only happen if people are not happy with it.

  3. Thanks again for commenting. Let me start by stating that the reason I hold the opinion I do is the simple fact that no one has ever convinced me that corporate taxes are going to accomplish what you hope they would do. You have pointed out several instances of corporate greed that in my opinon, reinforce my stance.

    For example, the list of corporations that pay little or no corporate taxes. Some, such as G.E., even profited from gaming the system. But what does this illustrate? That corporations always keep the main goal of profitability at the top of the list. They avoid paying taxes in any manner possible. If they are unable to avoid them, they then pass them on to the consumer. They mitigate labor costs by sending jobs overseas. They outsource. They lie, cheat and steal. Anyway they can to retain profits. Again I ask, why would you believe that they would simply stand by passively and just agree to relinquish their profits through taxation? We both agree that all loopholes need to be eliminated. That will result in a massive tax increase for a company such as Exxon. You quoted a 2% real tax rate paid by Exxon. If you increase their taxes by 33%, would you expect them to just pay it?

    I’m sorry, but I won’t take the road of George Bush and “abandon my free market principles” in order to save the economy. I also wouldn’t sign off on a bill and declare it unconstitutional and leave it to the judicial system to sort out later. I bring up these examples as an analogy for doing what you stated “If corporations stayed in America and their prices were forced to be higher”. I could never support forced price controls. The slope of facist type policy making is a slippery one. If only it were so easy as to pick your spots in which to enforce compliance. It always leads to a full-blown state run economy, or facist state.

    On the positive side, we aren’t as far apart on many issues as you may think. We agree on job creation, consumer choice, a fair playing field amongst corporations, encouraging companies to stay in America and employ Americans at a fair wage. We differ on how to do it. We also agree on the human greed angle. A corporation may be an abstract entity, but the people running it are all endowed with human traits and greed is certainly one of them.

    You contend that I believe taxes prevent job growth and development. I would say it’s part of the puzzle. No one would deny that a tax is a cost of doing business and detracts from the bottom line. Taken in context with the myriad of other factors that go into a business choosing where to locate and conduct business, it is unquestionably a factor.

    At the end of the day, I wish to see massive reform to our system. The tax system needs a complete overhaul. It needs to be simplified greatly and all loopholes eliminated. This is a huge task and maybe impossible. Simply far too many people with skin in the game that would stand to lose out to allow it to happen.

    As I have stated in the past on this blog and a previous one, I believe we need to make the cost of not doing business in America far too expensive so that corporations, small companies, entire industries, whatever, would have no choice but to locate here and employ here. Otherwise, they will be at a competitive disadvantage to their competition. We must make it so that when a company sits down to make that all important decision on where to locate, the choice of America will be crystal clear. Low tax rates and as unrestrictive a regulatory climate as possible are the two places to start.

    When we employ a strategy designed to be punitive and rely on enforcement and compliance, we will lose. Take away the loopholes. Take away the options basically. Simplify everything. Far, far, easier said than done. The establishment rules. There is way too much money to be made through a complex system with armies of middlemen that can profit. We have very similar end goals in this discussion. How to get there? Not a clue. Way too many Americans who are passive to the issues.

    Your simplified scenario says that forcing a corporation to choose between profit and price increases will result in a clear choice for you. The market is never that simple. Take Wal-Mart. We all know they dictate what they will pay to a supplier for their product, not the other way around. Their sheer size and buying power gives them options a smaller company could never enjoy. In other words, they have options to keep their price competitive even if faced with a forced tax compliance. So you could still end up with the same selling price with very different profit margins.

    I would also ask you what Obama has never answered. How much is too much for a company to make? Who decides this number? Is it in the spirit of America to tell someone, whether it be a private individual or a corporation, that there is a limit to your success? Milton Friedman has his very famous response to the question of greed. How do we say that America is truly a free country in which you can go as far as your hard work can take you if we put limits on it?

    Me personally, I couldn’t care less what anybody else makes. I don’t have envy or jealousy. I’ve had this discussion with co-workers from time to time. I’ve always said I never begrudge someone above me in position from making more money. Many do. I want those people making more money because I want to know that it’s out there for me as well if I want to go get it. The entire issue of wealth strikes at the heart of this country. How we view it dictates much of our views on other issues such as the one we’re discussing today. So we disagree. Won’t be the last time.

  4. The rise in the income gap you mention did indeed begin in the 1970s as you mention, just as we started running a trade deficit – and it coincides with going off the gold standard. Monetary policy has had an enormously destructive impact on the poor and working class since the 1970s.

  5. “Sorry, but a corporation will always be an inanimate object that exists only to maximize profits and shareholder returns.”

    Some corporations (particularly smaller businesses) often focus on creating long-term value over profits. Indeed, I wish more companies worried about their price-to-value ratio as much as their price-to-earnings.

  6. I’ll give you that, although I would add that the same value you mention will generally equate to profits as well. Building a brand is still a means to an end. I don’t wish to make my comment sound as if all people are robotic and are only driven by greed, rather that a healthy, profitable company is a must for long-term survival.

  7. Hi. I saw your links over at the Mind Numbed Bot’s blog. You have some really good posts here. You’re so close, but close isn’t quite good enough to convince people who have been told that corporations are these evil entities all their lives. The tax ‘loopholes’ that many of these corporations take advantage of are not really loopholes and they’re not exactly always crony capitalism, it’s more often government laws and regulations dictating where the corporations spend their capital. It’s like them telling you that you’ll get a rebate off your taxes to buy a Prius rather than a F150, but you live in the country and have to haul wood long distances with it vs your suburban neighbor corporation who only runs down to the Walmart to buy wood pellets for his stove. So you buy the Prius or a fleet of them to haul your wood and get a little money off your taxes and you spend many times more making more trips to haul your wood. Poor example I know, but the ludicrous exaggeration helps make the underlying concept clearer.

    I see people say corporations are not living things, but they are. Just look at a website of any corporation and all those smiling faces are an integral part of the corporation and they’re us or our neighbors. All corporations are made up of people and the corporate entity is really nothing more than a legal shield to protect those people from losing all their worldly personal possessions should the corporation fail or get hit with a liability lawsuit in excess of their net worth. And even people not that close to the company for their weekly salary, most workers in the US with retirement accounts have their savings intrinsically tied up in the health of corporations. Look what Calpers owns just for one example.

    Other issues are that these a fair amount of ‘profits’ are needed to expand companies and update technologies and sometimes it costs more than they budget for or things break and need to be replaced. Nice to have healthy profits to dig into to pay for these instead of borrowing money by issuing bonds that have to eventually be paid back. This year we will bring on line 11 new coal fired power plants totalling about 6700 MW capacity, the largest amount amount in 25 years since 1985.

    http://www.netl.doe.gov/coal/refshelf/ncp.pdf

    If the EPA tweaks a regulation, that can eat up those profits pretty quickly as the companies have to decide whether they can afford to build new facilities with newer technologies to meet compliance or attempt to get by with retrofitting older, less efficient plants or just go out of business, reallocating what capital they have left after shuttering operations to other business sectors or liquidating assets.

    And then of course we always have the broken window fallacy. Obama shoots missiles into Libya and it supposedly spurs the economy, just like goofballs say the earthquake and tsunami will spur Japan out of their economic doldrums to fix all that was broken. Replacing those missiles will keep people at work, sure… but it doesn’t make anyone in the country any wealthier.

    I’m not wealthy by any means, but whenever I hear anyone say tax the rich as if that’s the end all of our problems, I cringe. Just how much blood do these people think we can get from this stone and what will government do with it that is any better than what the corporations would do if they had it? Bill Whittle did a video called “Eat the Rich” based on the following post and it’s a worthy read:

    http://www.iowahawk.typepad.com/iowahawk/page/2/

    Oversimplified, but just a few quick thoughts that I hope will help get your point across or stir some brains to start thinking outside the rhetoric and campaign slogans. Take care.

  8. Thanks Frank. Good stuff. I was brought up in a family business that incorporated so I’ve got a little experience there. I think it all just boils down to standard class envy. Attacking an “inanimate” object like a corporation is easy, there isn’t anything personal to it. People don’t understand a large corporation also has a large amount of stakeholders to satisfy so when a big profit number is diluted accordingly, it isn’t so impressive.

    Funny how people’s logic works. They buy into this “shared sacrifice” ideology Obama spews out. They want successful companies to suffer along with them not realizing that works in reverse. Eliminate success and you also eliminate opportunity. How do people think they will ever get out of a bad time if there are no successful businesses to hire them?

    Thanks for stopping by. I appreciate the comment and I’ll check out those links.

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