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Some Justices on the Supreme Court still insist that corporations are "people". Pictured below is the Ugland House of Grand Cayman Island. Inside the building is the office of the law firm Maples and Calder, which is currently called "home" by over 18,000 people who reside there, all living blissfully together under the same roof as happy tax shelters --- unless that is, shell corporations are considered as only "half-people".

Corporations were never enslaved, persecuted, discriminated against, tortured or murdered. Corporations were never forced to sit in the back of a bus. Corporations were never sent to prison (although some of their CEOs did hard time).

Our Founding Fathers never stipulated that corporations had inalienable rights. A Catholic priest will tell you that corporations don't have souls that go to Heaven or Hell when they die (when they go out of business).

No one can clone a corporation with DNA.

Despite what the Supreme Court says, people know what people are --- and corporations are not people, at least, not according to the Merrian-Webster dictionary.

Legal scholars will tell you that corporations are just legal entities that exist only because governments (people) permit them to exist. Corporations are just artificial man-made vehicles through which sales, wages and profits flow.

And when governments impose corporate taxes, the actual burden of who pays the corporate tax may fall on any three groups of people that receive such flows: the customers, the workers and the shareholders --- who are the ultimate owners of the corporation.

Corporations cannot raise prices to compensate for the corporate income tax because they will be undercut by businesses to which those taxes don't apply --- such as sole proprietorships, partnerships and S-corporations --- those business owners who are taxed under the individual income tax.

That leaves two remaining groups that may bear the burden of the corporate tax --- workers and the business owners (the shareholders).

The notable Bruce Bartlett wrote an excellent piece for the New York Times, and points out that several economists have shown that usually the shareholders bears the brunt of the corporate tax. One study he cites shows that the shareholders bear ALL the tax burden.

But Treasury economists conclude that 82 percent of the corporate tax falls on capital and 18 percent on labor, just as the Tax Policy Center assumes that 20 percent of the burden is on labor, while 80 percent is on the shareholders.

Another study by Oxford University economist Li Liu and Rutgers economist Rosanne Altshuler concludes that it's labor who bears 60 percent of the corporate tax burden.

One might wish to compromise (for the sake of a convenient consensus) and say that employers and employees each bear 50 percent of the corporate income tax burden (individual income taxes are a separate issue).

So if the corporate tax rate is raised, customers won't pay part of the burden for corporate taxes with higher prices, but newly hired employees might be offered less in wages --- or current employees might be asked to forgo their benefits and/or take a pay cut --- or instead, a few workers could be laid off, with the remaining employees being forced to bear the extra work load. And in doing so, would be expected to be "more productive" (working harder and faster for less).

And the shareholders, which are also usually the company's board of directors, and many times, very large institutional investors (such as the big banks, hedge funds and private equity firms) --- pay part of the burden for corporate taxes by receiving lower quarterly dividends, or they might earn less in capital gains when they sell off their huge blocks of stock.

Also, the CEOs pay part of the burden for corporate taxes, and might earn less if the rate is raised --- they might only earn $12 million a year instead of $13 million a year --- but they will still pay a lower income tax rate on their stock options with a 20% capital gains tax rate, which is lower than what their secretaries might be taxed on their hourly wages --- not to mention, their secretaries will still be paying Social Security taxes on 100% of their income, whereas, stock options (capital gains) aren't taxed for Social Security; and even if they were, the CEOs would be protected by the $113,700 income "cap".

And if a corporation (the shareholders) don't not want to bear any burden at all for corporate taxes, they can always un-incorporate --- but then, they might not also enjoy the full protection of limited liability from lawsuits waged against them in response to bad behavior and poor corporate governance. Many could not avoid jail --- and their personal possessions, such as their homes, could be at risk in legal settlements.

So ultimately, in my opinion, the burden of the corporate tax falls, not on corporate shareholders or the customers, but mostly on workers in the form of lower wages and benefits (and because the major shareholders are in a much higher income bracket than most of the employees).

And this is another reason why labor unions are so vital to the health of the middle-class ---- because when fair wages are negotiated, it "redistributes" a fairer portion of the CEO's under-taxed and excessive compensation package into the empty pockets of their much harder working employees.

Even if the $9.00 minimum wage were in effect this year, the inflation-adjusted value would still be lower than it had been in the late 1960s --- and those workers would still be earning less than their counterparts did almost 50 years ago.

So if corporations refuse to pay better wages (which would also increase federal income tax revenues to the Treasury), then our only recourse would be in the form of a "claw back" --- by extracting more by way of corporate taxes.

We can accomplish this, NOT by raising corporate tax rates (keeping the current 35% "statutory" corporate tax rate as it is), but by eliminating all the tax loopholes that congress has endowed them with, because many of the largest corporations are allowed to pay an average "effective" corporate tax rate of only 14.1% --- while many more pay no
corporate taxes at all
.

The most recent (and best reason) for reforming the corporate tax code >>> Facebook is getting a multi-billion-dollar tax break on its corporate taxes because it paid its executives income in the form of stock options and dividends --- just like Facebook co-founder Eduardo Saverin, who renounced his U.S. citizenship to avoid paying income taxes on his capital gains.

We should either eliminate all the corporate loopholes (and subsidies), or end slave wages
completely by making the federal mandatory minimum wage at least $15.00 an hour...one or the other or both. (Voting for Democrats to do this would be very difficult, but voting for Republicans would make it virtually impossible)

If corporations are people, and people own corporations, and workers aren't owned by anyone, why is it that they are the ones being paid slave wages, rather than evicting the tax dodgers from that house in the Cayman Islands.


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Comment Preferences

  •  Corporations Virtually Always Paid Insufficient (1+ / 0-)
    Recommended by:
    Roger Fox

    wages until we imposed higher corporate taxes and compressive, progressive individual taxes on the top individual incomes.

    Then it made no sense to ask for 50 million in compensation when 40 of it had to be paid in tax. And it made no sense for businesses to pursue extreme profit since they'd have to pay so much of it taxes too. So there was more money spent on wages, benes, suppliers and such.

    You have to do both, tax the corporation but also tax the top incomes progressively enough that extreme compensation goes away.

    We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy.... --ML King "Beyond Vietnam"

    by Gooserock on Wed Feb 20, 2013 at 10:48:49 AM PST

  •  Bud - if there is a quote written by a SCOTUS (2+ / 0-)
    Recommended by:
    Roger Fox, nextstep

    Justice, in a majority opinion, that states that corporations are "people" I would love to see it.

    "let's talk about that"

    by VClib on Wed Feb 20, 2013 at 11:16:51 AM PST

  •  It is the low corporate tax rate (1+ / 0-)
    Recommended by:
    Roger Fox

    that encourages profit taking instead of reinvestment. Part of reinvestment is paying fair wages to reduce turnover and improve quality. In a tax avoidance environment wages are kept depressed so the cash cow can be milked. That's how the incentives are arranged.

    There are parts of this diary where the distinction between personal and corporate taxes are blurred. Corporations are taxed on profits, not income. When the corporation has to give up 35% of its profits for all of the legal protections corporate status provides, they are getting a great deal from society for a nominal cost. There was a time that corporations could only be chartered for endeavors that furthered public purpose or provided some social benefit. Once that was perverted there was a race to the bottom with the parasitic enterprises of today the result.

  •  Stock option income is taxed at 43.4% (2+ / 0-)
    Recommended by:
    MGross, nextstep

    There is no way to structure stock options for senior Fortune 1000 corporate executives in a way that qualifies that income for long term capital gains treatment. All stock option income is taxed at the top marginal rate, currently 39.6% plus 3.8% for Medicare for a total of 43.4%.

    There is this false notion, unfortunately frequently stated here at DKOS, that executive equity compensation for corporate executives qualify for long term capital gains. They have NEVER qualified for capital gains treatment.

    People seem to be confusing incentive compensation available to managers of investment partnerships, which can be structured as a carried interest, and qualify for capital gains treatment. Those compensation practices are limited to partnerships which have completely different tax regulations than corporations.

    "let's talk about that"

    by VClib on Wed Feb 20, 2013 at 11:25:30 AM PST

    •  Clarify please... (0+ / 0-)

      Not if the stock options have been vested after one year, then it's taxed as a long term capital gain. The tax rate was 15% since 2003, and went back to 20% this year. (It used to be as high as 49% at one time)

      The corporations sometimes buy back their own stocks to drive up the share prices (less outstanding shares) before selling their options. There have already been plenty of articles written on this subject, including the NYTimes and the WSJ.

      When I used to trade, I was taxed according to my annual adjusted gross income if I sold my shares within a year (short term gains), and I was also allowed to write off a portion of my losses and carry them over 3 years.

      So I'm not sure what argument you are making.

      •  There are two types of options (1+ / 0-)
        Recommended by:
        nextstep

        ISOs which are available to most employees, and can have some capital gains features depending on a lot of variables, and non-qualified options which are the kind that executives receive. As the Non-Quals vest the executive receives taxable phantom income at earned income rates based on the value of the option and the current price of the stock. Appreciation above the basis can qualify for capital gains if the option is exercised for cash, the stock purchased and held for at least a year. The difference between the basis and the market price is taxable at earned income rates at the time of the stock purchase, creating a new basis above which capital gains could be earned. This is no different from buying the stock on the open market, although at the lower option price. However, most options are exercised and sold on the same day and don't qualify for any long term capital gains treatment.

        I have retained the best tax lawyers in Silicon Valley and New York to see if there is any way to make senior executive equity awards qualify for capital gains treatment and so far the answer has been that you can't.

        "let's talk about that"

        by VClib on Wed Feb 20, 2013 at 05:45:40 PM PST

        [ Parent ]

  •  Corporations are not "people" (2+ / 0-)
    Recommended by:
    VClib, ggrzw

    They are "persons," and the difference is significant.

    "Well, I'm sure I'd feel much worse if I weren't under such heavy sedation..."--David St. Hubbins

    by Old Left Good Left on Wed Feb 20, 2013 at 11:27:26 AM PST

  •  That's why a financial transaction tax (0+ / 0-)

    seems like a good idea. Whenever money is moved from one place to another, it should pay a transfer tax based on the amount being moved. In a $10 trillion economy, a 0.1% transfer tax would yield a lot of revenue, and the advantage of it is that financial institutions would do the collecting. Since the wealthy move more money around more often, it would be a pretty progressive tax.

    For if there is a sin against life, it consists perhaps not so much in despairing of life as in hoping for another life and in eluding the implacable grandeur of this life. - Albert Camus

    by Anne Elk on Wed Feb 20, 2013 at 01:10:38 PM PST

    •  AE - I support a transaction tax (0+ / 0-)

      but the rates needs to be thoughtful and shouldn't be the same for all securities.

      "let's talk about that"

      by VClib on Wed Feb 20, 2013 at 01:47:38 PM PST

      [ Parent ]

    •  Pres Hoover instituted a transaction tax (0+ / 0-)

      with some economists attributing this for some of the decline in the velocity of money and a worsening economy.  Maybe it will work out differently this time.

      People are mistaken to think these transaction taxes are a tax on banks - they are just the collectors.  It is a tax on pensions (both private and public), retirement accounts, college endowments, etc..  In addition to making financial markets less liquid and less stable, investors will get inferior prices when they buy and sell far beyond just the tax costs.  Those investors who are most targeted by the tax will just take their business out of the US along with the many well paid middle class jobs.

      The most important way to protect the environment is not to have more than one child.

      by nextstep on Wed Feb 20, 2013 at 03:18:01 PM PST

      [ Parent ]

      •  Yeah, they will take their business out of the (0+ / 0-)

        biggest economy in the world. Sure they will. Look, I can't take my business out of the US; I live here. I don't know about you, but I think most people are in my situation.

        For if there is a sin against life, it consists perhaps not so much in despairing of life as in hoping for another life and in eluding the implacable grandeur of this life. - Albert Camus

        by Anne Elk on Wed Feb 20, 2013 at 09:19:51 PM PST

        [ Parent ]

    •  Agreed (0+ / 0-)

      When we day-trade at home from our computers, we're charged a commission by the brokers whenever we buy or sell our stocks -- so a financial transaction tax would be great, as billions of dollars are traded every day.

  •  Corporate Tax should be eliminated. (0+ / 0-)

    Tax competition is too severe.  Businesses don't gain much from being incorporated in the United States, so they have little incentive to incorporate here.

    Tax property and income.  To dodge those taxes, people have to actually leave the United States and thus not enjoy the services that they would be paying for.

    International tax competition is only going to get worse.

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