Thursday, August 25, 2011

Corporations are People

As reported in The Fix, Mitt Romney has 'doubled down' on his "corporations are people" blurtation*. The Fix quotes:
In a campaign stop Wednesday in New Hampshire, Romney brought up the remark — which some have portrayed as a gaffe — unprompted.

"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."
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".

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?


Chops said...

P.S. This doesn't mean we shouldn't get rid of loopholes that benefit specific corporations (and their workers, customers, and shareholders) over and against the rest of America.

A level playing field in business is a fundamental tenet of American competitivism*, and is more efficient in allocating resources than patronage.

* more on this neologism soon.

Matthew Baddorf said...

I regard this post as a model of how I should write blog posts-clear, controversial, educational, short.
And it was good to hear about the subject, thanks.

Chops said...

Aw shucks.

Mr. Dough said...

Dr. Chops,

When I hear people talk about how bad it is when corporations make money, I am fond of pointing out that these corporations (such as my employer) provide the jobs that keep middle class people in the middle (as opposed to lower). Sure there are some fat cats at the top, but for every one of those there are probably a thousand schmoes like me who earn a decent living and whose livelyhood is tied to the fortunes of the corporation. And frankly I'm grateful to be blessed with an opportunity to provide for my family in this manner.
This perspective is completely missed by many of our left-leaning brothers and sisters.