Corporate Tax Trickery

This post first appeared at Speak Out California.
Here we go again with the “corporate taxes are passed along to the consumer” lie. Instead of telling the public about harm to the public interest from budget cuts, teacher layoffs, privatizing public resources, police cutbacks, etc., instead we hear about how taxing the rich is a terrible thing.
What am I talking about? See The Tax Foundation – Tax Foundation TV, Radio Ads Show That Corporate Income Taxes Cost the Average American Household $3,190. They have a couple of ads their corporate funders are paying them to run.
And of course there is the usual scholarly proof that we should all give ever more money to the corporate rich,

“Research from the Congressional Budget Office shows that in a global economy where capital is highly mobile but workers can’t easily move abroad, workers end up bearing the brunt of corporate taxes. In 2007, Economist William Randolph found that 70 percent of corporate tax burdens fall on employees through lower wages and productivity, while the remaining 30 percent fall on company shareholders.”

Taxes are not a cost that can be “passed on to the customer.” Taxes are calculated as a percentage of profits, after all costs are figured in. A well-run business charges the most it can get for its product or service. If the business has competitors it has to price its product or service in some relationship to competing products or services. Were a business to add to to prices to cover taxes this would increase the price above what had been determined to be the optimal price! If a company were able to raise prices to cover taxes the it would mean the company was previously negligent in not pricing as high as the market would bear.
And if the company was negligent, then increasing prices to cover taxes would increase profits, which would increase taxes, which would require an additional price increase, which would increase profits which would increase taxes. Etc. – you get the picture. It’s a silly idea.
In the same way, a properly-run business has as many employees as it needs. When profitability caused them to apy taxes, it means they employed the correct number of people to realize that profit, and certainly are not going to lay someone off because they made a profit that was taxed.
But one step further on this. A corporation itself is neutral on taxes. After all, a corporation is just a bundle of contracts, and doesn’t really have interests any more than a chair has interests. It is the owners who have interests and it is a good idea to think about any “passing on” involving corporate taxes is that it can lower the amount of money that is “passed on” to those people at the top of the economic ladder. Realizing this changes the way the brain understands the problem here. The fundamental question then becomes WHO is benefiting from our economy, and our legal infrastructure that creates and protects corporations. It really is about which people are getting the cash, and seen in this light, this idea of lowering or elimminating corporate taxes takes on a new meaning.
This ad plays on public misunderstanding of taxes – a misunderstanding previously created by the same crowd. (Similar to the idea that if you earn a penny over $250K all of your earnings are taxed at the higher rate.) So it is like a further step in a strategy of creating increasing ignorance, so that you can further harvest the public… (Why can’t WE think in terms of multi-stage strategies, but to instead increase public understanding and appreciation of democracy?)
So, when will we start hearing about the harm caused to the public interest by reduced taxes on corporations and the rich causing us to lay off teachers, cut police and firefighters, defer infrastructure maintenance, etc.? When do we hear about how this hurts, instead of always about how taxes hurt the rich?
Click through to Speak Out California

2 thoughts on “Corporate Tax Trickery

  1. So I was thinking about Rahm Emmanuel and his impact on corporate tax structure. He was paid 16.2 million dollars for his two years work at Dresdner. His salary, charged against Revenue, reduced profits by the same amount. So we know he saved Dresdner (his Investment bank) at least $4.8 million in taxes(assuming low 30% tax rate)…that did not trickle down to the little people via the cleansing filter of the government.
    Dresdner made a brilliant LONG term investment. I certainly think well of the last company that paid me $8 million per year. Makes you feel all chummy.
    I’m confident that Rahm will pull the President aside and advise on the market, drawing on his experience seeing values at Freddie and Dresdner collapse. “Well Mr President, we know this doesn’t work. Let’s throw this against the wall…’
    –Wikiped Emmanuel—
    After serving as an advisor to Bill Clinton, in 1998 Emanuel resigned from his position in the Clinton administration. He then became an investment banker at Wasserstein Perella (now Dresdner Kleinwort), where he worked until 2002.[27] In 1999, he became a managing director at the firm’s Chicago office. Emanuel made $16.2 million in his two-and-a-half-year stint as a banker, according to Congressional disclosures.[27][28] At Wasserstein Perella, he worked on eight deals, including the acquisition by Commonwealth Edison of Peco Energy and the purchase by GTCR Golder Rauner of the SecurityLink home security unit from SBC Communications.[27]
    Emanuel was named to the Board of Directors for the Federal Home Loan Mortgage Corporation (“Freddie Mac”) by then President Bill Clinton in 2000. His position paid him $31,060 in 2000 and $231,655 in 2001.[29] During the time Emanuel spent on the board, Freddie Mac was plagued with scandals involving campaign contributions and accounting irregularities.[30] The Office of Federal Housing Enterprise Oversight (OFHEO) later accused the board of having “failed in its duty to follow up on matters brought to its attention.” Emanuel resigned from the board in 2001 when he ran for congress.
    –wiki Dresdner —
    2008 was a year of losses however, culminating in the disposal of the Dresdner Bank group by Allianz. The new parent, Commerzbank, is known to be planning to scale back the investment banking operations of Dresdner Kleinwort significantly – an outcome that is, most likely, going to result in the loss of another venerable City name.
    –wiki Dresdner–

  2. The curmudgeon Alan Abelson, the crazy uncle market basher at Barron’s, referring to David Rosenberg at Merril L.
    Unemployment at 14.5, effective now!
    accelerating negative feedback loop
    Don’t buy the rental house or Berkshire Hathaway yet.
    For some time now, our favorite measure of unemployment has been U-6, which takes in everyone, including the increasingly large cadre of folks who are earnestly seeking work but have to settle for part-time jobs.
    The ratio for that unenviable category at the end of last month stood at 14.8%, the highest since the BLS started to keep tabs back in 1994, and encompassed a scarcely inconsequential one in seven workers. Not the least of reasons, we infer, why one in 11 homeowners, to use David’s estimate, are either delinquent on their mortgages or in foreclosure.
    He confesses that “The extensive deleveraging, as the credit excess and asset bubble of the last cycle continues to unwind, is exerting a powerful negative influence on the real economy that is far beyond our collective professional or personal experience.” And he exclaims that, strain as he might to find “something — anything” positive to say about it, the February employment report was devoid of even a hint of good news.
    Which has prompted David to advise caution to any of Merrill’s clients tempted to believe that, with the stock market down 56% from the peak, the all-clear has been sounded. For he’s firmly convinced that “the worst” has yet to be priced into this market.
    David explains that we’re currently in the grip of what practitioners of the dismal science refer to as a “negative-feedback loop,” in which the slide in asset values takes a painfully big bite out of household net worth, consumer confidence, spending and, finally, employment. The vicious process then feeds right back into more asset and credit defaults.
    Or, as he puts it, we’re caught in a trap — and, 18 months into the credit collapse, there’s no sign that we have adopted the policies that might stabilize things, much less turn them around.
    And while in any case he has doubts about the effectiveness of the administration’s proposals to rescue housing, David makes an impassioned plea that the nation turn its focus and its energy to the seriously ailing labor market. All the more so, because he sees this final leg down in housing as being driven by mounting joblessness.

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