Tuesday, April 22, 2008
Corporate Welfare
Did you pay taxes last week? Most of us did. And while our income tax code usually ensures that the poorest among us don't pay anything, or even sometimes get money back from the government (unless you're considered self-employed, as pastors are, in which case you get taxed twice on the same income and usually end up paying a pretty big chunk even if your adjusted income falls well below the poverty line) and the rest of us pay on an increasing scale according to our income, there are enough loopholes and technicalities that the wealthiest members of our society often find ways to avoid paying anything either.

For instance, a recent article in Parade Magazine (yes, that cheezy little magazine that comes with your Sunday newspaper) reported that 61% of U.S. corporations paid no taxes at all, including 39% of large companies. Sixty-one percent! These are corporations that are earning millions of dollars of profits, and yet they contribute absolutely 0% of their fair share. Since under U.S. law corporations have the same legal status and rights as individual citizens, they ought to have the same responsibilities to give back to the system too. Did they use our roads to transport their goods? Did they rely on our police and armed forces to keep their businesses secure? Do they often benefit from federal subsidies of their products or international trade agreements negotiated by our government officials? Then why aren't they expected to help pay for these benefits like everyone else?

According to the article, while the tax burden on individuals is expected to climb from $1.16 trillion in 2007 to $1.21 trillion this year, corporate taxes are expected to actually decline from $370 billion to $364 billion! I don't know about you, but that makes me really angry. Forget about those who complain that it's not fair that the rich have to pay a higher percentage of income tax than those less well off, according to these stats, most of them (at least most wealthy corporations) aren't paying them at all anyway.

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posted by Mike Clawson at 10:28 PM | Permalink |


7 Comments:


At 4/23/2008 08:25:00 AM, Blogger Pollux

The only consolation/defense of these corporations and the whole system, in this case, is that (usually) the stockholders who own shares of these companies do pay income taxes on the profits shown. In fact, the corporate income tax is sort of a double tax in that stockholders pay on the profits they get, and the piece of paper that is a corporation also pays on recorded profits (unless they have accounting firms that get them out of paying altogether). Don't even get me started on the lying and misrepresentation (a la Enron) that skews the system, at its worst.

 

At 4/23/2008 10:37:00 AM, Blogger Mike Clawson

I admittedly don't know much about the details of all this stuff. However, is it really the case that dividends paid to stockholders are also taxed as income to the corporations? I would think that if profit is being paid out to stockholders then it is no longer considered a "profit" for the corporation for tax purposes.

Besides which, I've heard (though don't have any stats right at hand to back it up) that many wealthy individuals also do the same thing as the corporations, sheltering much of their income through loopholes and such, so that they too end up paying a very small percentage of income tax compared to ordinary folks.

 

At 4/24/2008 08:15:00 AM, Blogger Pollux

It probably depends on the type of corporation we are talking about. I manage a small business that is organized as an S-Corporation; the stockholders and the company pay taxes on our profits (of the seven stockholders, six are relatives of mine!). I know for certain that wealthy/powerful people and corporations know more about tax shelters and avoiding aspects of the tax burden than we "commoners." However, as I am an English teacher disguised as a businessman, I can't testify with authority about how these large corps. work.

I did hear an argument on NPR by a liberal who argued against the corporate income tax because it is often double taxation, arguing that a corporation cannot make money; only the stockholders (real people) can make money. His comments led me to think that all companies are like the little one I deal with, but that is not exactly authority on my part...

 

At 4/24/2008 08:20:00 AM, Anonymous Kullervo

Since under U.S. law corporations have the same legal status and rights as individual citizens

This is absolutely not true.

And to be fair, corporations aren't really people; they're legal fictions that serve a useful economic purpose. Eventually, the money comes out of the corporation and goes into someone's pocket, at which point it does in fact get taxed.

And that assumes that corporations are able to totally avoid taxes, which usually they aren't, especially now that some significant tax loopholes have been closed.

Otherwise, the money often gets taxed twice.

Dividends that get paid to stockholders get deducted from corporate taxable income, but the stockholders get taxed on the money as income.

Also keep in mind that tax deductions are meant to be taken--often they are used to incentivize socially desired behavior.

I'm not trying to argue with you or put you down, but the admission that you "don't know much about the details of this stuff" is significant. To be perfectly honest, there is some legitimate criticism to be made, but if you want to make it, and make sense making it, you're going to need to read up on corporate and tax law.

Going to law school has completely changed the way I think about a lot of these things.

 

At 4/24/2008 12:06:00 PM, Blogger Mike Clawson

Kullervo,

You claim that it is "absolutely not true" that corporations have the same legal status and rights as individual citizens. And yet according to Wikipedia:

"A corporation is a legal entity (technically, a juristic person) which has a legal personality distinct from those of its members."

They are not "natural persons" but they are "legal persons", and increasingly have been claiming he same Constitutional rights as natural persons.

I wonder, have you seen the recent documentary on this very topic?

You also say:

"And that assumes that corporations are able to totally avoid taxes, which usually they aren't"

But according to the article 61% of corporations pay no income taxes. Sounds to me like quite a few of them are doing a pretty good job of avoiding taxes.

You also said,

"Otherwise, the money often gets taxed twice."

But then your next comment refutes that. You said:

"Dividends that get paid to stockholders get deducted from corporate taxable income, but the stockholders get taxed on the money as income."

That's not double taxation. That actually supports what I was saying.

And your next comment makes me wonder if you even read the article or just my post about it:

"Also keep in mind that tax deductions are meant to be taken--often they are used to incentivize socially desired behavior."

According to the article, corporations aren't primarily avoiding taxes through legitimate deductions (though I have heard of quite a few companies that will put a few cows or corn rows out on their front lawns so they can take an agricultural deduction... you tell me if that's "legitimate"). Rather, many of them are avoiding taxation by setting up "shell companies" in the Caribbean - the proverbial "offshore accounts in the Caymans".

And of course, many of their deductions are nothing but government subsidies to big money interests. For instance the article cites subsidies to the oil and pharmaceutical industries written by lawmakers specifically for them. (Even as these industries turn record profits.) This is the definition of corporate welfare.

But regardless of the details, if the bottom line is that a large number of legal entities that benefit from the services of our society are doing whatever they can to avoid paying for those benefits, and instead are passing on the costs to the rest of us, then that's not right.

 

At 4/24/2008 10:44:00 PM, Blogger D

See, I think this is what's wrong with both Democratic candidates for president. Both are beholden to corporatocracy.

Do you ever get the feeling that capitalism has cannibalized the country that launched it so successfully?

Great post. Also, I can't help but think about the welfare doled out to all the banks who were folding up on top of themselves. Whatever happened to the free market?

 

At 4/25/2008 11:16:00 AM, Blogger Mike Clawson

I agree D. Both major parties are largely beholden to big corporate interests. Though I am somewhat encouraged that so far Obama has raised nearly all of his campaign funds from small individual donors and not from lobbyists and big money interests. That's definitely a step in the right direction.

 

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