By Simon Grey, on November 10th, 2011
The largest burden of corporate taxes is borne by workers.We discover that by asking a simple question, such as: Which workers on a road construction project earn the higher pay, those employed moving dirt with shovels and wheelbarrows or those doing the same atop giant earth movers? You’d guess the guys operating the earth movers, but why? It’s not because they’re unionized or because construction contractors have a fondness for earth mover operators. It’s because those workers have more capital (tools) to work with and are thereby more productive. Higher productivity translates into higher wages.
Tax policies that raise the cost of capital formation –such as capital gains taxes, low depreciation allowances and corporate taxes –reduce capital formation. As a result, workers have less capital, lower productivity and lower wage growth. In 1980, Joseph Stiglitz, now a Nobel laureate, said that workers share the highest corporate tax burden in the form of lower wages. A number of economic studies, including that of the Congressional Budget Office, show that workers bear anywhere from 45 to 75percent of the corporate tax burden. Adding to the burden is the fact that capital has the kind of mobility that labor doesn’t. Corporate capital can flee to other countries easily, but workers cannot.
I’ve hammered on this before, but it bears repeating: Only people pay taxes. Corporations are nothing more than legal fiction and, at the end of the day, an actual human being has to pay taxes.
What’s intriguing is how workers end up paying more in taxes than consumers. It does make sense, though, since the current legal and political system in the United States encourages consumption and discourages capital accumulation. At any rate, it should be clear that it takes a significant amount of ignorance to talk about taxing corporations. This cannot, and will not ever be done; only people can be taxed, and so it would be more constructive talk about how best to go about taxing people.
By Simon Grey, on July 12th, 2011
Sarah Palin has trademarked her name. The former Alaskan governor turned Fox News commentator, Going Rogue author, TLC reality star and SarahPAC founder – wait, do I really have to tell you who Sarah Palin is? – submitted an application to the U.S. Patent and Trademark Office that is due to be approved within the next few weeks. When it is, Palin’s name will be trademarked for “educational and entertainment services” as well as “motivational speaking services in the field of politics, culture, business and values,” according to her patent applications. Her daughter Bristol, 20, has also trademarked her name for motivational speaking, but in the field of “life choices.”
“Essentially what they are doing is trying to commercialize themselves,” says Neil Friedman, a New York trademark attorney. It’s rare for politicians to trademark their names, but Palin left office in 2009 and has since become a successful media and entertainment figure. She has trademarked her name the way someone like Calvin Klein might trademark his.
Though trademark is part of IP, I generally tend to ignore it because it has very little in common with patent and copyright. Patent and trademark are concerned with ideas while trademark is primarily concerned with identification.
Incidentally, trademark is more useful for corporations than individuals because a corporate entity is abstract and contextual whereas an individual entity is concrete and absolute. As such, the need for trademark is mostly due to the market distortion of the corporate entity, which occurs because corporations are not generally identified with specific individuals. The theory behind trademark is that brands need to be able to distinguish themselves from their rivals, and their ability to distinguish themselves is essential to ensuring the market performs efficiently. This sounds good, but it is predicated on a fallacy: namely, it is assumed that people “own” their reputation. The idea is that businesses must be able to protect their reputation in order to serve consumers properly. Businesses must, then, be able to prevent others from claiming to be them when they really aren’t, especially when fakers are offering shoddy products.
But this assumption is false because one’s reputation consists of what other people think. To own one’s reputation requires one to police other people’s thoughts and/or actions. This presents a conflict of rights that cannot be resolved. This, in turn, indicates that one cannot own one’s reputation, and cannot therefore use the law to force others to think a certain way.
This further means, getting back to the topic at hand, that Sarah Palin’s attempt to trademark her name is nothing short of ludicrous. In the first place, the trademark system as a whole is predicated on a fallacy, and so any action attempting to make use of the system is likewise predicated on the same fallacy. (And isn’t it interesting that Sarah Palin is attempting to make use of a system that allows her to exercise some measure of control over what people say about her?)
In the second place, Sarah doesn’t really need to trademark her name. Unlike a corporation, she is a concrete entity, which means that consumers will be able to tell quite easily whether it is, in fact, Sarah Palin that is speaking at a conference (this is the relevant metric since her trademark is to be used in the context of public speaking and appearances). As such, she really has no need to trademark herself since she is already easily and unmistakably identifiable.
By Thomas Knapp, on July 7th, 2011
This is intended as a brief response to Tibor R. Machan’s latest piece:
It has always been my view that corporations are groups of people united for various purposes, often to benefit from a business venture guided by competent management. Initially I worried little about the legal details, nor even about the legal history. A bunch of people incorporate or form a company to achieve certain perfectly acceptable, even admirable goals. Sometimes this can be done via a partnership, sometimes by incorporating, sometimes for profit, sometimes not.
Then I started to get involved in political philosophy and found that there is a whole lot of hostility toward these outfits, mainly from Leftists but also from some so called left-libertarians. I am not sure why from the latter.
First, let’s narrow this down to corporations specifically (as opposed to other types of partnerships).
The corporation as such is not just a large partnership — a joint stock company, or something of the sort.
Rather, the corporation is a creature of the state from beginning (its claim to legitimacy is based on state charter) to end (it receives “artificial personhood” and “limited liability” by state edict).
These state-bestowed privileges result in state-imposed injury on others. For example, a person injured by someone acting on behalf of a corporation is limited as to the damages he can seek to recover.
These state-bestowed privileges also distort the market by making the corporation artificially competitive/profitable. The single proprietor or partners in a non-corporate business must either carry liability insurance that corporate owners get automatically from the state (in the form of that “limited liability”), or else run a perpetual risk of personal financial ruin that corporate “shareholders” don’t run. This raises their costs, and therefore their prices, but not the corporation’s.
The corporation’s artificially inflated profits produce additional distorting ripples in the market. Corporations grow faster than they could in a free market because they have more capital to invest in that growth. And the bigger they get, the more effectively they lobby government for additional privileges, subsidies and “protections.”
It’s a snowball effect that starts with that one little thing — “here’s a corporate charter — you aren’t bound by the same rules as other market actors, the state will protect you from risk.”
Corporations are not pure market actors. They are part-market, part-state actors. The “market” part is privatized profits. The “state” part is socialized risk. Aside from the obvious prima facie unfairness of that kind of setup, it has consequences. Negative consequences. Sort of like Gresham’s Law — bad business drives out good.
By Simon Grey, on June 17th, 2011
I’ve been meaning to write this post for nearly a month, but I didn’t feel like getting around to it until I saw this post by OneSTDV: In general, the mainstream Right views corporations as unassailable edifices of the free market. They triumphantly brag about shopping at big chain stores and express indifference towards corporate influence. Yet, the reactionary Right doesn’t quite share this position or at least shares a tempered optimism towards the benefits of corporate dominance. In my opinion, the mainstream’s defiance regarding criticism of big corporations is part of their frustrating adherence to the proposition nation. Instead of espousing a straightforward nationalistic and traditionalist conception of America, mainstream conservatives use proxy indicators, such as guns, religion, libertarianism, and corporatism, to illustrate their right-wing bona fides.
I used to defend corporations as the cornerstone of the free market until I was introduced to the reality of corporations by the Austrian school of economics. Wikipedia provides an excellent summary of why corporations are ill-equipped to serve as the bastions of the free market: A corporation is a legal entity that is created under the laws of a state designed to establish the entity as a separate legal entity having its own privileges and liabilities distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter (i.e. by an ad hoc act passed by a parliament or legislature). Most jurisdictions now allow the creation of new corporations through registration.
An important (but not universal) contemporary feature of a corporation is limited liability. If a corporation fails, shareholders normally only stand to lose their investment and employees will lose their jobs, but neither will be further liable for debts that remain owing to the corporation’s creditors.
The important thing to take away from this is that corporations are government-defined entities. The only reason corporations exist is because businessmen decided to cozy up to the government, which is not exactly the free market in action. As such, corporations serve as a market distortion in a variety of ways.
In the first place, the existence of the corporation shifts moral hazard from business owners to consumers, which effectively means that consumers bear the market risk that rightly belongs to corporations. This can be seen in the area of business contracts, most notably sales contracts. Without going into highly technical details, English common law dictated that consumers have the right to expect explicit and implicit guarantees of performance and safety for whatever product they bought. If a consumer buys a product that doesn’t perform, or a product that causes injury during intended use, the producer would be liable to the consumer for failure to perform or for incurring damage. If a producer made an incredibly shoddy product, he could go completely bankrupt.
The possibility of personal bankruptcy helped to ensure that producers manufactured products that met a basic level of quality. The formation of the corporation limited this incentive in that business owners no longer bore unlimited liability for their products. This shift, then, meant that business owners could make products that were “riskier,” in the sense that they could manufacture products that were more dangerous or liable to underperform without having to face the risk of personal bankruptcy. As such, the invention of the corporation has had the effect of shifting moral hazard from businesses to consumers, which is effectively a type of subsidy and a virtual tax.
A second effect of the abstract legal entity of the corporation is that it created a paradigm wherein people began to think that corporations pay taxes. In fact, there has never been a point in history where abstract legal entities have paid taxes. Only people can pay taxes, but there are some who think that corporations can pay taxes simply because those in the legal system have at one point argued that a corporation is a type of person. This has led to incredibly muddled tax policy, which has been discussed in detail prior on this blog.
In the third place, corporations require increasing government intervention into the market. This is due to the inherent subsidy of corporate status. All subsidies impose some sort of negative externality, which leads to negative market distortions. In this case, the status of corporation does not discourage risky production as much as it should, which leads to corporations making either shoddier or more dangerous products.
Consumers demand, quite legitimately, that the government fix this problem. Since governments are generally allergic to owning their mistakes, and are generally desirous of increasing their power, they seize this opportunity to regulate businesses in order to ensure that they meet production quality and safety standards.
Incidentally, the worker side of the equation deserves discussion as well. Not only does corporate status limit a producer’s liability to consumers, it also limits its liability to workers as well. Corporations can, to a limited extent, ignore the safety of their workers because they do not bear personal liability for whatever harm befalls them in the course of normal work. The poor working conditions of the industrial revolution can therefore, to a very limited extent, be blamed on the corporate status of businesses.
Anyway, the history of the corporate entity has shown that the original distortion has led to many, many more distortions, always in the name of correcting some “market” flaw.
Finally, note that corporations have had the effect of transferring power and wealth to those who are already wealthy. There is no debating the fact that many corporations suckle at the government’s teat. This should not be surprising, given that the only reason corporations exist is because businessmen went to the government to ask for special market privileges. As such, those who own corporations have been seeking, since day one, to use the government to make them wealthier, and to help them beat the market.
At this point, then, it should be obvious that corporations are not, and indeed have never been, the free market’s friend. In fact, corporations are as free market as the government that grants and defines their continued existence. Corporations are an inherent market distortion, and should be recognized as such.
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