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Disempowering the individual

September 1, 2011

A friend of mine was talking to me earlier today about how his rent is increasing lately without a corresponding increase in his pay.  In the course of the conversation, he remarked, “I swear corporations and big business are killing the working class.”  This attitude, in fact, is fairly typical in today’s America.  Instead of capitalism being treated as the cornerstone of freedom and the source of everything good in American life, as it formerly was, it is increasingly considered a public enemy by Americans.

However, this overlooks the true source of the problem, which stems not from anything inherently wrong with corporate enterprise, but from the vastly different attitudes of the United States government towards organizations and individuals.  Perhaps, as a nation-state, which is an abstract entity, the government feels more comfortable dealing with other abstract entities and privileges them accordingly.  Perhaps it simply views private citizens as less of a threat to itself if they become disgruntled and thus considers them easy targets.  Perhaps the perception that big business was the foundation for American greatness still lingers in the halls of the mighty.  Or perhaps corporate lobbyists are just very persuasive.  The cause is largely irrelevant in practical terms.  Organizations get preferential treatment from the American government.  Individuals are not considered worth respecting.

Let us consider a typical case of government favoritism as evidenced in the US tax system.  I recall reading that the average hourly wage in the United States is currently around $17.  Assuming that applies to a full-time job with 40 hours a week and 50 weeks of employment per year, that works out to an annual income of $34,000.  A single American would pay federal income tax on those earnings of 13.8% and would lose another 15.3% to Social Security withholdings, for a total tax rate of 29.1% even before state income tax.  A worker with double that amount of income would pay federal income tax at 19.4% for a combined tax rate of 34.7%.  A worker with half that amount of income would have tax rates of 12.6% and 27.9% respectively.  These are broad income gaps, but they make surprisingly little difference to the IRS, which generally seems to want a third of everything.  It makes church tithes look moderate and restrained by comparison.

Now let us turn to the case of a corporation.  Finding a corporation’s tax liability is difficult to begin with because corporations are now treated as privileged entities that are deliberately excused from taxes.  For small and medium-sized corporations, closely held by small groups of investors, the IRS offers S corporation status, which exempts the corporation entirely from federal income tax on its earnings.  Several states also offer corporations registered within their borders an exemption from state income tax as well.  Or, for a more complete tax solution, corporations can organize or operate in a foreign jurisdiction that does not impose corporate taxes at all, thereby taking their income right out of the US tax system.  Naturally, there are many other creative financing options available as well to those who have the manpower to pursue them.  The statutory rate of corporate income tax is set at 35%, comparable to the rates paid by individuals.  Nonetheless, many large corporations are able to avoid this entirely.  General Electric paid a rate of 15% in 2007, 5.3% in 2008, and nothing at all in 2009 and 2010.  Complete exemption from taxes appears to be common, in fact, among major American corporations.  While the protections of incorporation are available to individuals as well, only a very few ever bother to take advantage of them due to costs and lack of awareness.  And so they pay while businesses do not.  Non-humans apparently warrant more consideration from the US government than humans do.

But what about the wealthy, who are often said to be under-taxed?  The truth is, the so-called rich aren’t really that rich.  Wealth in the modern world is built and calculated in terms of stock ownership.  This not only makes their wealth precarious – it can vanish anytime the stock market declines – but it also makes it inaccessible.  Members of the Forbes 400 cannot just draw on their bank accounts for billions at will.  Their income is usually restricted to dividends and interest on the large sums they nominally own.  And whatever they do receive as personal income outside of their businesses is subject to the same system of taxation as it would be in the case of a union worker, only at one of the higher tax rates.  The American tax system discriminates against both rich and poor – because they are both people.

No, the trouble is not with corporations or business, but with a society that values organizations over individuals and has empowered its government to abuse the latter.

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