About those "corporate taxes"...

Well, it’s been all over the news lately: General Electric (or Verizon, or CitiBank, or [insert name of uber-large international corporation here]) paid zero dollars in U.S. corporate taxes last year! Nada! Zilch! Zero!

I am no tax attorney, nor am I an officer in any organization (except the Wisconsin Chapter of the Krispy Kreme Fan Club). Nonetheless, the world will be a better place if I just offer my opinion. So, buckle up.

First, allow me a peripheral observation (to serve primarily as a distraction while I formulate the thesis of my response): Whenever this sort of "news story" comes up, I am always interested in “timing”. Why now? Did GE invent this egregious tax-evasive behavior? Has it been going on for generations? Is President Obama to blame? Or can this be pinned on former-President Bush, and/or the Republican House majority (who took control just four months ago)?

Or, might the timing have something to do with our nation’s (apparent) burgeoning interest in seeing our lawmakers take an axe to our national budget. (“Oh, the mean people want to cut spending, do they? Why, look at all these rich companies who didn’t pay ANY taxes last year.”)

Anyway, I think that is interesting. Now... to the meat of the topic.

To be sure, on its face, it seems completely horrendous… indeed, an insult to my delicate human sensitivities to think that GE, or Verizon, or CitiBank could get away without paying any “corporate tax” while raking in billions and billions in profits. It just seems so wrong!

Wrong, that is, until I look more closely. As I consider, I am increasingly convinced that what I see here is yet one more manifestation of the ubiquitous “tax the rich” psychosis that has so afflicted the Left. (See previous blog here, and here.) For the people who get really incensed by this “zero corporate tax” issue… well… I think the real root of their discontent is the thought that “the rich are getting away Scot-free”. (I’m part Scotch, by decent, so I can say that.)

Unfortunately, the notion that rich people aren’t paying any taxes because a corporation didn’t pay any taxes… that notion is completely false. Those mega-rich business owners, and corporate CEOs, are already paying WHOPPING taxes on their incomes, to the tune of 35%. That is to say… they pay OVER ONE-THIRD of their income to Uncle Sam, off the top. Plus, they pay sales tax (just like you and I), and because they buy a lot of expense stuff, they pay a LOT of sales tax.

And, all they get in return is vile bile from the Left, insisting they should give even more. Whatever the corporate tax rate may be, that has absolutely no bearing on whether or how much the individual corporate leaders (i.e. the "rich" people) pay in taxes.

It appears that some members of our society have come to think of the “corporate tax” as yet another way to stick it to rich people: “Let’s tax their income at 35%… AND... since they are so evil... let’s tax this entity over here that they call their ‘Corporation’.”

Of course, a reasonable mind can see right through this “corporation = rich person” silliness. The Left thinks that a corporate tax will hurt the rich person, causing them to "pay their fair share". But, it won’t. The corporation, by definition, is NOT attached to the rich person (or rich people). In fact, that’s why one chooses to incorporate in the first place… to create a legal separation between the individual and the business. When we tax a corporation, instead of taxing the mean rich people who happen to be steering the ship, we’re actually taxing the business itself.

And, to bring the thought full-circle, what is a business if not an amalgam of all the employees, the payroll, the products, the stores, the assets, the goods and services of that business.

If Company XYZ pays an extra $1 million in corporate taxes, only a small percentage of that money will come out of the pockets of rich people. The lion’s share of that $1 million will come from the operational budget of the company. To compensate for that lost $1M, the company only has so many options. It may reduce wages or benefits. Maybe it won't expand the business, or purchase new property, or construct new facilities. Or, the company may choose to increase their prices.

Ugh… it is a classic example of short-sighted, well-intentioned-but-poorly-informed political do-gooders trying to exact fiscal injury on those mean rich people… while failing either to understand or to respect the delicate web of a free-market economy.

I'm not sure what the "right" amount for a corporate tax. But, it is important that we understand what a corporate tax does, and what it does not.