Mason Gaffney has written an interesting piece entitled Corporations, Democracy, and the U. S. Supreme Court at http://www.masongaffney.org/essays/Corporations_Democracy_and_the_US_Supreme_Court.pdf about the recent Supreme Court ruling which said that a corporation can contribute unlimited funds for promoting its views for and against candidates.
On Jan 21 2010 our High Court shocked Americans by ruling in Citizens United v. Federal Elections Commission that a corporation may contribute unlimited funds advertising its views for and against political candidates of its choice –- in practice, the choice of its CEO or Directors. The ideas behind this are that a corporation is a “legal person,” with all the rights (if not all the duties) of a human being; that as such it has a right of free speech; and that donating money is a form of speech. Already K&L Gates, a top Washington lobbying firm, is advising its clients how to funnel money through lobbying groups or “trade associations.” This culminates a long series of actions and reactions (decisions, legislative acts, and electoral results) that bit by bit have raised the power of corporations in American economic and public life. Herein I will take the fall of the corporate income tax as a simple metric of the power of corporations. Nothing about corporations is that simple, however, so I must also touch on other aspects of power.
This is not a paper on the theory of tax incidence. Such a paper is needed, but would take a heavy tome, most of it devoted to fine-spun and pretentious theories that appear in academic journals, and which fail to convince because the authors are weak on distinguishing land from capital. My own postulates here, in brief, are
2) much of that wealth is land;
3) taxes that do fall on capital are in part shifted to land;
4) pure land taxes would be better but are not the subject here; and
5) payroll taxes are worse and must bear most of the burdens that are shifted off corporations.
I'll skip over a lot of interesting and useful historical material -- which I commend to your attention -- and share the final section:
On top of that, personal income taxes on corporate dividends and capital gains have been singled out for preferentially low rates. In 2003 President Bush and his Congress lowered the tax rate on both dividends and capital gains to 15%, so that a smaller share of the personal income tax now comes from corporate shareholders. As late as in the Tax Reform Act of 1986, dividends were taxed like other “ordinary” income. So, briefly, were capital gains. President George H. W. Bush then devoted most of his presidency, and sacrificed a second term, to get a token cut in the capital gains rate. It was the thin end of a wedge, leading soon to the present cap of 15%. “Capital gains,” so-called by Congress, derive from many sources, but one of the biggest is sales of corporate stock.
And so things stood until January 21, 2010, when the High Court authorized corporate leaders to contribute unlimited amounts of their shareholders’ cash to political causes. This poses a challenge to our tabloid-and-TV-numbed generation. Will “ordinary” taxpayers rebel, as they did in the American Revolution, Emancipation, the Progressive Age of Reform, and the New Deal; or will corporate power wax unchecked until it replaces democracy altogether? Cyclical theory says we will have another anti-corporate reaction, but history also records tipping points in the decline of nations from which they do not recover for generations, if ever. This one may be a squeaker.
Here is a summary from that brief history of the problems with treating corporations as “legal persons.”
2. Besides not dying, corporations merge with or otherwise acquire other corporations, progressing, if unchecked, from competition to cartel to oligopoly to monopoly.
3. A corporation is by nature a combination in restraint of trade -– that is, a union of many individuals with their wealth to act as a unit, dealing with customers, suppliers, and workers. It took Thorstein Veblen, a thinking man, to bring out this fact that should be so obvious. The courts, historically, have borne down on labor unions as illegal combinations while, as a matter of course, treating this combination of lands and capitals as an individual.
4. Corporations enjoy the legal privilege of limited liability.
5. The ownership of corporations is, or may be made, secret. Many stocks are recorded in “street names” -– a favorite being “Cede and Co.” Hugo Chavez is one such owner whose name has been revealed: others might be Al Qaeda, the Nazi Party, the heirs of Mao tse-Tung, La Cosa Nostra, or anyone. No citizenship is required for a corporation to sway American government more than almost any citizen.
6. No person is easily held responsible for corporate acts. The first duty of CEO’s is to the shareholders, so they say, to dodge guilt for any outrage against others. Most shareholders, in turn, have little idea what their CEO’s are doing.
7. The internal governance of most corporations is intensely undemocratic
8. The corporation cannot be jailed, and its officers seldom are, as they have great opportunities to pass the buck
9. The corporation has no spiritual counselor or confessor to prick its conscience.
10. Before January 21 the attitude, as expressed by Justices White and Rehnquist in the 1970s, has been that corporations are “creatures of the law,” not equal to natural persons in their civil rights. Suddenly to reverse this now is to upset many expectations that relied on the previous rule.
Finally, what can we do about the High Court’s marriage to corporate power? I first list what I consider ineffective remedies, and then those that can work, and work quickly.
1. Ineffective remedies
b. Within a State a Justice may be recalled, as Rose Bird was. There is no such provision for Federal judges.
c. A President can appoint anti-corporate judges as vacancies occur. This will happen at best over a long time-span, but it needs to happen fast because with their newfound pecuniary “free speech” corporations will soon control both Congress and the Executive even more than they do now.
d. Congress can tighten restrictions on foreign corporations contributing through American subsidiaries. This is better than nothing, but does not affect American-chartered corporations, whoever actually owns them.
e. Congress might ban political advertising by any non-citizen, including any group that includes a non-citizen. This would entail forcing corporations to identify their shareholders. This proposal may entail too many steps to be implemented quickly, if at all. As a layperson I would refer that point to learned counsel.
2. Effective remedies
b. The Executive can introduce legislation modeled on the 1937 Reorganization of Judiciary Act. This act would have given the President power to appoint six new justices. It was a credible threat that worked by turning FDR’s 4-5 minority into a 5-4 majority, in spite of a great outcry against it. It is what we need today. It is radical, yes; but the Court’s ruling is radical, and calls for a remedy equally strong or stronger.
c. Could a simple act of Congress declare that a corporation is not a legal person? Perhaps so, perhaps no, we need learned counsel to tell the odds. However, a straight line is the shortest distance between two points, and this action would bring the issue quickly to a head.
In summary, we have seen that the United States was born in rebellion against corporations. The U. S. Supreme Court soon began restoring their power. When it overreached, strong executives and popular movements set it back: under Andrew Jackson, Abraham Lincoln, Teddy Roosevelt, and FDR. Today it has overreached again; it remains to see if a new movement or leader will arise to set it back again..
The only thing I can add to this is to provide the data on the concentration of wealth in America, specifically four items reported in the Survey of Consumer Finances:
- BUS (privately held businesses, including "small business;"
- NMMF (non-money market mutual funds) and
- RETQLIQ (retirement assets such as IRAs and 401(k)s).
(The latter two categories could include bonds as well as equities.) I'll also report "all other, net of debt." (For most of us, that's cars and houses.) The data is from the 2007 SCF, and somewhat understates the concentration, since the holdings of the Fortune 400 are omitted from both numerator and denominator. Quick and dirty, add 1% to numerator and denominator.
net of DEBT
|percentage of aggregate NETWORTH (row percent)
Distribution of Holdings: (column percent; sums to 100.0%)
|Top 1% of wealthholders
|source: 2007 Survey of Consumer Finances
So what SHOULD we tax? Urban land value, and the value of natural resources are a fine start. That is value which ought to be socialized, treated as our COMMON property, not as the private treasure and asset of rich individuals; of family trusts of people living -- or people dead 10, 20, 30, 50, 100 or more years for the benefit of their heirs or pet causes; of corporations of any kind (no matter how much free speech they are now entitled to); of foreign landholders; of private "equity" funds; of real estate investment trusts; of pension funds (public or private sector); of foreign or domestic churches; of insurance companies; of universities or other "philanthropic" entities; or anyone else. [See, for example, the blog posts below on Stuyvesant Town, on the NYC Roosevelt Hotel, including links to earlier related stories.]
The way to make that real is to place significant taxes on the annual rental value of the bare land, and the value of those natural resources, and other things the classical economists would recognize as "land" even if they never heard a radio or cell phone, saw an airplane, thought of a satellite, or imagined that fresh air or clean water could be scarce.
Treat that value as the revenue source for our common spending. Lighten up on taxes on wages, on sales, on buildings, on equipment.
Taxing urban land value will not cause a single acre to move offshore, or a single land speculator to "invest" in another property; rather it will encourage the better use of sites in choice locations, creating jobs and housing and venues for carrying on business where it is most efficient to do so: in the center of town, not at the fringe.
Doing this would reduce the tremendous wealth concentration in America. The economic value of certain kinds of assets which currently line the pockets of rich individuals as business owners or as holders of corporate stock or as salaries, bonuses and golden parachutes to top management, would be pre-distributed back to the commons, recycled locally or nationally, for public purposes. Those owners would still have the use of the assets each year, AFTER they had paid society for what they were privatizing that year.
If you've gotten this far, you might want to read Bob Andelson's fine essay, "Henry George and the Reconstruction of Capitalism, linked from the front page of Wealth and Want, as an "essential document."