The Objectivist Sales Tax

Ryan,

We are in agreement on the main principles (streamline government and reasonable taxes can be levied for the defense of individual rights to raise what is needed after all voluntary methods have been exhausted)

But I wanted to point out that taxing a corporate entity is really just taxing either the owners (stock holders) or the customers (higher prices to pay for the taxes). In either case you have taxed people, not some nonhuman entity. And worse, it is a hidden tax. People don't feel the pinch directly, and it distorts the price/supply/demand signals in the economy.

Civil courts are easy to finance. You put a 1/10th of a percent insurance fee on all contracts. It is optional, so all parties to the contract can sign up or not. If they choose not to, they have no right to bring issues regarding that contract before the court. I think this idea was Rands.

The cost of supporting a minarchist government would be very, very small and the huge, explosive economic boom that come from a real Capitalist system in place would make that amount feel paltry - not like a burden.

Post 41

Sunday, December 21, 2008 - 9:37am

I would agree with you that corporations can choose to pass gov't induced cost on to the consumer, but there is a limit to this as customers are only willing to pay so much. Some of any additional burden would fall on the corporation in question. I guess my point is that I understand the argument for different, possibly higher, taxation on corporations as the point of a corp is that it is legally distinct from its owners, and their rights and liabilities. If a group of businessmen desire the protection of incorporation for their enterprise, I understand why they should be expected to pay a bit more to support the system that allows those protections. That being said, great care would need to be taken to prevent abuse of corporate taxation. I could easily see a gov't getting out of control with something like that.
I don't feel that the cost of supporting a minarchist gov't would be as small as you think, although it would certainly be much cheaper than current systems. Defense is an expensive commodity.

Post 42

Sunday, December 21, 2008 - 11:37am

Ryan,

You are not seeing the entire point I was making.

Corporations NEVER pay taxes - they always just collect the taxes from people. Sometimes the people are the customers, and sometimes the people are the stockholders. And stockholders includes most adults in our country (and a number of foreign investors). People with pension plans, people with IRA accounts, people trying to invest to beat inflationary damage that would be done to money left in a savings accounts.

Because people pay the taxes, but don't feel it or see it as clearly as direct personal taxes, it is a hidden tax. And it has a very distorting effect on the economy.

Also hidden are the taxes corporations paid as a customer of other businesses. When you buy a MacDonald's Quarter Pounder, your price includes a portion of MacDonald's tax burden, but also a portion of the price MacDonald's paid to trucking companies, lettuce growers, ranchers, milk producers, cheese makers, etc. All goods and services that one business sells to another are priced to cover the selling businesses taxes. A long chain of taxes in most cases. Think about the fact that the farmer growing lettuce is taxed, but he also buys fertilizer and equipment which is taxes, and the fertilizer dealer buys from a wholesaler who is taxed, the wholesaler bought from a manufacturer that was taxed, the manufacturer bought raw chemicals from suppliers.... you get the idea.

It isn't that corporations "choose" to pass on these costs - they MUST. If they don't bring in revenues that exceed their costs, they will go out of business. They have to pass along all of their costs - rent, interest, salary, inventory, taxes, etc. The total amount of corporate taxes paid in a year, if divided by the number of households would give a rough estimation of the hidden tax burden we carry.

There is a hidden subtext in much of what is taught today that is tainted with a 'class-based' view of society. We are encouraged to see business as separate from us, the individuals to degree, and in a way, that is inappropriate. It motivates us to be adversarial which works well for those who want to increase regulation. But the fact is that business is just the name for the way we structure our economic activities of producing and distributing all of our goods and services. I say "our" because we are the workers and owners and the electorate and the consumers and the governors. Both businesses and governments are structures we humans have evolved to suit or survival - like a beaver builds damns.

Post 43

Sunday, December 21, 2008 - 6:31pm

I see your point, and it certainly applies to some sort of taxation that is industry wide. Some taxes, I'm thinking punitive stuff here, has to come from profit, and can't be passed on to the consumer. If a company did consumers would just go with a competitor that didn't incur those punitive costs, and therefore could provide lower prices. I certainly agree that industry wide taxation can only lead to the costs being passed on, screwing everyone.

Post 44

Sunday, December 21, 2008 - 7:38pm

Ryan, competition goes both ways. If a business had some wealth taken from them by the government and if they could not pass the cost on to the consumers because of competition from businesses that had lower costs, it would have no choice but to provide less to the owners/investors. But each business is also in competition for the funds to continue. If it is not as profitable as other businesses the investors will turn away from them. The business will have to pay much more for funds and since they were already working a slim margin, they won't be in business for long.

The owners and managers of a business will change what they make or sell if they can't compete, or go out of business. So, when government places a burden on a business, it causes either higher prices or a shortage of the goods or services that business was providing - and resulting in further costs to the economy - unemployment, lowered stock prices, defaults on debt and general disruptions.
------------

BUSINESS TAXES = HIDDEN TAXES TO THE CONSUMER
-----------------------------------------------
Income taxes - Industry wide (Federal, State, City) - 2nd highest rate in the world
Capital gains taxes - - Industry wide
Sales taxes - Industry wide (where applicable)
Social Security (FICA) (employer's contribution) - Industry wide
Import duties - tariffs - Industry wide (where industry is all importing same stuff)
Gasoline and Excise taxes - Industry wide (where appropriate)
Property taxes - Industry wide (or built into rent amounts) - varies by state
Unemployment taxes (FUTA) - Industry wide (varies by state)
Medicare taxes - Industry wide
State medical taxes - Industry wide (varies by state)
Telephone fees and taxes - Industry wide
etc.
(And the costs of collection, accounting and paying)
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And that portion of every single dollar paid by a business to a supplier that represents the supplier's taxes, and the supplier's supplier's taxes,...
---------

And we haven't even considered all of the costs incurred by regulations (city, state, county and federal)

Post 45

Sunday, December 21, 2008 - 8:58pm

Well, of course the taxes will be passed on to the consumer, up to the point where they make the price non-competitive. Then the tax will come out of profits, and eventually, the corporation will not be able to do business.

But I think Ryan has hit on something very interesting. Corporations are indeed a creature, as Phil would complain, of the state. The limited liability and "personhood" of a corporation is not a natural thing, is it? Corporations inherently rely on not only private contract, but also on civil corporate law.

you as a person do not rely on the state for your mere existence, you are a natural entity. Under a voluntary tax system, you could opt out. But how can we call corporations natural entities? Corporations are inherently government sanctioned entities. Corporations don't have a right to demand government protection for free at the sacrifice of other taxpayers.

Indded, could not the corporate tax be the magical tax that we have always assumed we would find to fund the voluntary state? All corporations are voluntarily incorporated.

I think Ryan is on to something here.

Post 46

Sunday, December 21, 2008 - 9:07pm

I think that you see what I'm getting at. I wouldn't argue that overly taxing corporations is not stupid. It clearly is a very bad idea. I've just noticed that a lot of Objectivist apply the same morality and ethics of taxation to corporations as they do to private individuals. However, a corporation is legally distinct from its owners, thats the whole point. You, in most cases, don't have the legal liabilities of the corporation you own. Doesn't it follow that the corporation you own doesn't have your rights as an individual? It is a legal fiction.

Post 47

Sunday, December 21, 2008 - 9:24pm

The question is then, do corporations inherently violate the rights of others?

I want comment from the non-anarchist fringe.

Post 48

Sunday, December 21, 2008 - 9:28pm

Ted,

Referring to post 45. It would be a really grave error to go down that path for many reasons. First, morally you are taxing people, not an entity. So it isn't a magical fountain of free money. Taxes are confiscation and they are a barrier to liberty.

It isn't really like a person, it is like a contract of a specific nature. Like an business partnership, like a marriage, like a employment contract. It isn't a creature of the state, so much as a kind of contract that is recognized by law. The contract is between investors and the managers - and common law would have been enough to recognize that law suits against a corporation can't reach into the pockets of the stockholders.

It just shields investors from liability and in this context they can be thought of as lenders. And like a lender, they can loose what they have out (their investment being like a loan) - it just says that their homes and personal salaries and such can't be taken to pay the corporate debt. Should a bank or banker have his property taken away because of a law suit against someone he loaned money to?

And in a global economy the only practical approach is to compete by eliminating all business taxes and all unnecessary regulations to permit our nation's businesses to compete with those in other nations. That competition encourages other governments to follow suit.

Another great hidden tax is in the jobs that are lost through outsourcing where the reason for outsourcing is that the greedy government has taken so much out of an industry's corporations in taxes that they can't compete. Then the dollars that would have gone to a local corporation go overseas and there are many losses that arise from that.

I suspect that in the distant future historians will look back at this age as one characterized by massive destruction of wealth and massive forms of theft - taking place on scales never before contemplated. The transfer to the former goat herders of trillions of dollars as the reward for nationalizing western civilization's oil properties, the massive destruction of wealth by the blunders that led to depressions and recessions one after another, and the transfers of wealth from the productive to the parasites done by congress with subsidies, entitlements and foreign aid. And the transfer of wealth invented by the tort law industry. If you add it all up, it comes out a pretty fair chunk of change.

(Edited by Steve Wolfer on 12/21, 9:31pm)

Post 49

Sunday, December 21, 2008 - 9:38pm

Ted,

"non-anarchist fringe" - I had never really thought of myself as a "fringe" to say nothing of setting myself apart with an adjective like "non-anarchist" - yuck.

It would be incumbent upon a complaining party to explain what right they thought was being violated by having corporate business structures. I'm reasonably familiar with them, having formed a 'C' corp for a number of years in the past. What rights do you feel are being violated?

Post 50

Sunday, December 21, 2008 - 9:54pm

It's too late at night for me to answer 48 but I have marked it unread and do have an answer.

As for 49, that's non-(anarchist fringe) not (non-anarchist) fringe. And I don't necessarily think corporations inherently violate rights. I believe Phil Osborne would say they do.

In fact, I don't think their existence is at all problematic, except for one possibility, which I want to see if someone else will bring up before I mention it.

Post 51

Sunday, December 21, 2008 - 10:01pm

My understanding is that a corporation is a little bit like a person in the eyes of the law. I think your contract analogy falls a little flat here. How can you and I sign a contract that if we owe someone money as a team, we don't owe it to them personally, regardless of their thoughts in the matter.

I wouldn't make the statement that corporations are a violation of other's rights. Although following the train of thought I just made, I can now see how such an argument might be made.

A shareholder isn't the same as a lender, if it were we wouldn't have distinct terms for shareholder and lender, with differing legal protections for each.

Again, I do agree that to overly tax corporations is an incredibly destructive practice.
(Edited by Ryan Keith Roper on 12/21, 10:04pm)

(Edited by Ryan Keith Roper on 12/21, 10:06pm)

(Edited by Ryan Keith Roper on 12/21, 10:07pm)

Post 52

Monday, December 22, 2008 - 5:40pm