CORPORATE TAXATION

When conservatives start their usual whine about "double taxation" of corporations, that is, profit taxed at both the corporate level and again when it's paid to shareholders, try this on for size:

Limited liability means that the shareholders in a corporation cannot be personally held liable for the debts of a corporation. For example, if a factory blows up and destroys the surrounding neighborhood, the people in the area can seize any assets held by the corporation, but if these assets are not enough to compensate for the damage caused, they cannot collect any money from the individual shareholders.

In reality, the corporate income tax is a voluntary tax that is a payment to the government in exchange for the privileges granted by corporate status. If shareholders did not feel that the value of these privileges exceeded the tax, then they would restructure corporations as partnerships, which are not subject to a separate income tax.

And partnerships, depending on how they're structured, would put personal assets at risk in the above situation. So, which is it, conservatives? You can't have your cake and eat it, too.

In the neighborhod example above, guess who's on the hook to fix the damage to the neighborhood after the corporation defaults or goes bankrupt? The taxpayer. Superfund sites are only one example of the most horrific situations. The corporations that caused the massive environmental damage have no cause to complain that they're being taxed twice. The tax they paid doesn't begin to cover the damage they created. Once again, it's the wage-earning taxpayer who has to foot the bill.

When you hear Shawn Hannity and Rush Limbaugh whine about corporate taxation, listen carefully to the words they use. They never says that the U.S. has the highest corporate taxes in the world; they carefully says that the U.S. has the highest corporate tax "rates" in the world. The difference is the huge number of deductions, credits, and loopholes that make a farce of the tax rate. The dollar amount of tax paid by U.S. corporations is no higher (and, in many cases, much lower) than other industrialized countries. In fact, a report by the Government Accountability Office showed that two-thirds of U.S. corporations paid no federal income tax between 1998 and 2005, and about 68% of foreign corporations doing business in the U.S. paid no federal income tax in the same period.

Conservatives have often used the refrain "It's your money" in reference to the money that taxpayers owe to the government. This refrain is used to justify various tax dodges, including outright evasion. In fact, once the tax laws have been set, the money that people owe the government is not "their" money, it belongs to the government. In this way, tax liabilities are like the condominium fees that individual units are assessed. This is money owed to the condominium association, it does not belong to the owner of the individual condominium.

As federal taxes are reduced, who makes up the difference in the expenses required for roads, bridges, water and sewer projects, and other infrastructure? Wage-earning taxpayers, of course. What happens, as part of the conservative drumbeat for lower federal taxes, is that state and local taxes are increased to make up the difference. When conservatives whine about reducing your federal taxes, and the dimwit taxpayers who suport that specious reasoning go along with it, it simply means that our state taxes and personal property taxes rise instead. We pay the same tax; we just pay it locally instead of federally.

And the corporations ride along, essentially for free, on the backs of wage earners.
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TORT REFORM

In a market economy, people are supposed to be able to freely contract as they choose. This raises the question of why so many conservatives want the government to ban certain types of contracts. Specifically, “tort reform” laws at both the state and national level limit the type of contingency fees that clients could arrange to pay their attorneys. These laws restrict the percentage of a legal settlement that can be paid to a lawyer and impose other restrictions on the type of contracts that people can sign with lawyers, if they want to sue a corporation.

These restrictions can make a difference in the public’s ability to sue large
corporations, because many clients do not have money to pay a lawyer in
advance. They instead must pay them following any settlement, if they win one.
Since there is often a great deal of risk in legal suits (it is difficult to know how a
judge or jury will rule), and corporations can make suits extremely costly by
filing many motions, the contingent fee (which depends on winning the case)
that a lawyer requests may be fairly large.

Libertarians would not object to large contingent fees – if clients don’t
want to pay them, then they can look for another lawyer. However, the
conservatives have promoted caps on contingency fees ostensibly as a way of
protecting clients. In reality, such caps are an infringement on individuals’ right
to freely contract. In a market economy, the government should not be
determining which contracts are acceptable for people to sign. But
conservatives want the nanny state to make it more difficult to collect damages
from big corporations, so they have no problem with this form of governmental
intervention in the market.

And, if you want to shoot an arrow through the heart of one of the most infamous arguments that the right uses about tort reform--the McDonald's hot coffee case--here's the bow:

The legal horror stories from the nanny state conservatives make a compelling case, but the reality isn’t quite the same as the myth. A key fact in the McDonald’s coffee case is that McDonald’s served especially hot coffee because the heat concealed the taste. This allowed them to use a cheaper brand of coffee, thereby increasing profits. The elderly woman, who suffered third degree burns, was not the first person who had complained after being scalded by McDonald’s coffee. In fact, McDonald’s received hundreds of letters from people who had been burnt by their coffee. In addition, although the jury did award the woman $2.9 million, this sum was reduced by the trial judge, and then reduced further to $600,000 in a settlement as the case was being appealed.

One can disagree with these verdicts, but the actual cases are less
outrageous than the fables told by nanny state conservatives. The differences
are important. First, when juries do act unreasonably, presumably sane judges
(the vast majority of sitting judges in the United States were appointed by
Republicans) have the power to unilaterally reduce the verdict. And they often
use this power. Furthermore, excessive verdicts can be whittled down on
appeal, as happened in the McDonald’s case. The likelihood that 12 otherwise
normal people will issue a loony verdict and get it past a judge and through the
appellate process is very small, even when they act under the evil influence of
trial lawyers.

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SMALL BUSINESS BABIES (Dean Baker's Phrase)

The right loves to tout the myth of the glorious history of small business in the United States. The reality, just like in much of life, is much less glowing and noble.

Entrepreneurs do not have to pass competence tests or get government approval for their business plan before opening a small business. This is as it should be. However, it means that many people, who have no idea what they are doing, start businesses with business plans that cannot possibly succeed. It is, therefore, not surprising that most small businesses close after just a few years; that is the way a market economy works.

However, small businesses have a privileged place in conservative ideology.
Conservatives shower them with tax breaks, low interest loans, and exemptions
from a wide variety of regulations covering everything from workplace health
and safety to environmental concerns. As a practical matter, it is not always
clear what public interest is served by preferential treatment for small
businesses. For example, it is not clear why it would be desirable for workers at
small businesses to have weaker workplace safety protections than workers at
larger companies. It is also not clear why the public should subsidize small
businesses with special tax breaks, some of which may in fact just be subsidies
for the personal consumption of small business owners. (The tax deduction that
many small business owners take on company cars often are just subsidies for
their family car.)

Small businesses can provide a valuable service for larger corporations –
they can provide a pleasant face that advances their interests. Large
corporations will often make public arguments against rules that affect them
negatively by arguing that the rules will hurt small businesses. This argument has
been especially effective with minimum wage laws. While higher minimum
wages may hurt the profits of small businesses, the biggest losers are typically
large corporations, like McDonald’s, that employ many low-wage earners. It is
very helpful to these companies to hide behind the small businesses that could
get hurt by higher minimum wages.

Another example is the effort to abolish the estate tax. Proponents of
repeal have routinely argued that the tax causes many families to lose their
businesses. In reality, almost by definition, small business owners will not owe
any estate tax – their estate will be too small. Yet tens of millions of people
support repealing the estate tax because they are worried about the effect it has
on family businesses.

Because small businesses serve this important political purpose, and small
business owners are a largely conservative constituency, nanny state
conservatives will continue to shower government largesse on small businesses.
And then they will insist that we should leave everything to the market.

Dean Baker's book is also available as a free, downloadable PDF under the Creative Commons license (since he also takes on patent and copyright protectionism in his book) at his website.

Follow the money. Ask different questions.