« The Systemic Risk Industry | Main | Any Bright Ideas? »

Are Corporations People Too?

posted by Adam Levitin

The "corporations are people, my friend" line was quite the momement. But as bad as it sounded, Mitt had a theoretical point. People (as well as other corporations) own corporations and people work for corporations.  The problem isn't that there aren't people at the end of the line behind corporations. The problem is that it's a minority of (primarily wealthier)people.  

According to the Federal Reserve's 2007 Survey of Consumer Finances, only 17.9% of families held stocks, 11.4% hold mutual funds, and 52.6% hold retirement accounts that likely hold a lot of stocks and mutual fund assets.   

I haven't been able to find data on the percentage of people employed by corporations, but it's assuredly large. That said, it's hard to imagine that corporate tax breaks would generally result in higher salaries for most employees rather than higher dividends for shareholders. The competition to attract capital is likely fiercer than the competition to attract labor (and certainly for semi-skilled or unskilled labor), which would mean that corporate tax breaks would benefit shareholders (a minority of people) and highly skilled labor (again a minority that probably doesn't need a lot of help).  So maybe a more accurate phrase for Mitt is "corporations are wealthy people, my friend". 

Comments

Actually, shouldn't we take the point one step further and say, "Corporations are leveraged by wealthy people, my friend?" It is not merely that a minority of people own shares, but rather that a very, very small number of people own controlling shares or hold a CXO position at a corporation high enough to direct its actions to their tastes.

This was the same issue that didn't really get enough play during and after the Citizens United decision: The Supreme Court was permitting the controlling shareholders wield the considerably larger spending power of their corporations to political ends. The effect is to amplify the speech of the controlling shareholder/CEO, not to give voice to the employees of the corporation. To the contrary, their opinion remains unsolicited. The controlling shareholder can now use his/her own wealth and that of the corporation together to support a political cause.

To bring it back to this discussion, corporate tax breaks would first register as lower costs to the corporation, increasing profits. That would contribute to executive bonuses, but it would have little to any effect on salaries. It might permit hiring, but that, too, would lag as corporations are slow to start taking on employees.

Rightly and absolutely agree, however tax equality is key, a s-type corporation paying a tax rate of 39
should not have its taxes increased, while obama states that few small businesses are affected by a tax hike, he does not state how many work for them, although I largely agree that the tax breaks did not help, for 10 years we had the bush tax cuts, they don't seem to be working, under clinton we did have tax hikes but towards the latter part of 1990s we did have a tech bubble, so its not a complete wash.

There is a concept of personhood, but that does not seem to imply here, a tax break may or may not help, it does put money into the corporation but does it at the expense of others/public goods
high taxes can of course cause tax evasion, sophisticated audits, can help, as well as monitoring loopholes.

There seems to be a focus on politics rather than an in-dept discussion on which corporations and business we are talking about,productivity also causes employees not to be hired, taxes are also not the only reason even regulations for location,ireland with its famed low tax rate on corporations isn't doing well,which is a bit hard to believe given its commitment to austerity
however most know the causes which are the property bubble, youth exodus, poor management.

If corporations are people then we can put them in jail for breaking the law, right?

Corporations are liability-screened people, my friend.

I think you need to read up on the theory of the firm and further on financial intermediaries. All legal entities, including corporations, are fundamentally pass throughs, organizations of inputs (including capital, labor and raw material) and outputs (products, wages, profits, etc). There may be multiple organizations and that may obscure this fact, as when one corporation does business with another, or a pension fund owns the stock of a corporation, or a government collects a fee from the corporation. And of course, one may not like the way the inputs and outputs are allocated, in that one may believe too little is allocated to workers, too much to management, or whatever. But ultimately, every organization is a pass through and every aspect of economic activity can be allocated through them to the providers of inputs if one works at it hard enough.

In your figures, for example, you overlook the extent to which pension funds, and other intermediaries - for people - hold stock of the corporate sector to provide retirement funding to - people. One needs to look through the financial intermediaries; they are not monoliths made out of stone.

Come on, mt. I think my post makes pretty clear that I get the pass-thru point and that my gripe is about allocation.

But it's important not to overstate the pass-thru point. Lots of corporations are owned by other corporations (or other corporate entities), and they retain plenty of earnings--that is money not being passed through, at least immediately--and there are lots of managerial rents (yes, ultimately to people, but again allocation).

The comments to this entry are closed.

Contributors

Current Guests

Follow Us On Twitter

Like Us on Facebook

  • Like Us on Facebook

    By "Liking" us on Facebook, you will receive excerpts of our posts in your Facebook news feed. (If you change your mind, you can undo it later.) Note that this is different than "Liking" our Facebook page, although a "Like" in either place will get you Credit Slips post on your Facebook news feed.

News Feed

Categories

Bankr-L

  • As a public service, the University of Illinois College of Law operates Bankr-L, an e-mail list on which bankruptcy professionals can exchange information. Bankr-L is administered by one of the Credit Slips bloggers, Professor Robert M. Lawless of the University of Illinois. Although Bankr-L is a free service, membership is limited only to persons with a professional connection to the bankruptcy field (e.g., lawyer, accountant, academic, judge). To request a subscription on Bankr-L, click here to visit the page for the list and then click on the link for "Subscribe." After completing the information there, please also send an e-mail to Professor Lawless (rlawless@illinois.edu) with a short description of your professional connection to bankruptcy. A link to a URL with a professional bio or other identifying information would be great.

OTHER STUFF

Powered by TypePad