In a campaign stop Wednesday in New Hampshire, Romney brought up the remark — which some have portrayed as a gaffe — unprompted.Romney, of course, is dead right. This is a basic economic principle, which I'll be covering in my Intro to Econ class in a couple weeks. If a corporations profits are taxed, the corporation can respond in some combination of four ways: charge higher prices to consumers, pay lower wages to workers, compensate owners less, or go out of business altogether. Leaving aside the ultimate exigency, who pays the tax depends on "elasticity".
"Corporations — they're made up of people," Romney said. "They’re just groups of people that come together for work. When you say 'tax corporations' — the steel and the vinyl and the concrete, they don't pay taxes. Only people do."
Can consumers readily switch to a substitute? Then prices won't change much. Can workers easily get new jobs? Then wages can't be lowered. Can capitalists easily invest in higher-return options? Then profits won't fall much.
In the current economy, which option seems most likely? In the case of a nationwide tax increase, it's very difficult for workers to find jobs not subject to the new taxes and difficult for consumers to switch to untaxed substitutes. They have to way of avoiding the tax. Capitalists, meanwhile, can pull their money out of the U.S. and invest anywhere else in the world, particularly the many stockholders who aren't American anyway. Thus, it's likely that raising corporate taxes would harm consumers and private-sector workers, while scaring capital investment away from America. Why don't we drown some puppies while we're at it?
Here's hoping that Mitt Romney doesn't suffer for his willingness to be honest about Economics 101. That's up to the media, who can choose to report fairly (e.g. with a quote from an econ professor) or unfairly.
* If "blurtation" is not yet a word, it obviously should be. Is there an existing synonym I'm missing?