Ask Auntie Pinko
October 9, 2003

Dear Auntie Pinko,

A lot has been discussed lately about corporate tax. Corporations seem to find loopholes, like moving offshore, etc., in order to avoid paying the tax they should.

My question is this - isn't a corporation merely a tax collector as opposed to a tax payer? It seems to me that all they do is collect money from their working class consumers and transfer it over to the government. Is that really fair?

Gary,
Chicago, IL

Dear Gary

Auntie Pinko isn't quite catching your drift about 'fair.' Are you worried that corporate tax is unfair to corporations? To other taxpayers? Or that corporate tax evasion is unfair to the citizens whose public services are curtailed because of inadequate tax revenue due to corporate loopholes?

I have heard a lot about the 'tax twice' concept. It sounds unfair on the face of it, until you analyze the issue further and realize that every dollar in the economy is taxed not just once, not twice, but many times over as it passes through the cycle of employers, employees, consumers, producers (who are employers) over and over again. That's sort of the point to basing our public expenditures on a tax system - it's like a renewable energy resource.

In a healthy economic cycle, no matter how many times it is taxed, the dollar continues to circulate and grow to be taxed again, producing yet more public benefit that leads to even broader-based economic stability, that makes still more dollars available to continue the cycle. This cycle is a delicate balance, though, and can be thrown off by dozens (maybe hundreds!) of factors. Economic debate ultimately devolves to a discussion of what factors are causing trouble and how to adjust them to get the engine firing smoothly on all cylinders again.

Money I earn is taxed once when I earn it. Depending on what I choose to do with it, it will be taxed again any number of times. If I choose to spend it, it will be taxed again as part of a sales tax, or perhaps a property tax (if I use it to pay my mortgage) or possibly it will be taxed several times in that transaction, if I choose to spend it (for example) on something that has paid import duties which are passed along to me, the consumer, as well as sales taxes for the state in which I purchased it.

If I choose to invest my money, it will be taxed again when the investment produces a yield. It may be taxed several times in that transaction as well, if I choose to invest it in something that produces both a growth in capital value and a tangible product which I then re-sell at a profit, and pay tax on that profit.

At any point in the cycle a dollar travels through the economy, you can make a case for 'unfairness' in repeated taxation. You comment "It seems to me that all they (corporations) do is collect money from their working class consumers and transfer it over to the government." But the same thing could equally be said of Auntie Pinko when I earn a paycheck. All I am doing is collecting money from my employer and turning it over to the government.

But in addition to 'collecting taxes for the government' from the consumer, the corporation is also collecting a profit from the consumer, that enables it to grow many more dollars, to be distributed to investors, or suppliers of equipment and materials, etc., and be taxed yet again. And in addition to 'collecting taxes for the government' from my employer, I am also collecting money that I will spend or invest, and those dollars, too, will be taxed again and again, in their turn.

Taxes are the price we pay for having an economy that offers us opportunities to produce and spend wealth. When complaining about paying taxes (and we all do, even Auntie Pinko!) we sometimes use the old analogy about the taxpayers being the goose that laid the golden egg - and taxes that are too great will sicken or kill off the goose and end the supply of eggs.

But the same thing works from the other way around, too. Our economy, constructed from tax-funded materials and operated using tax-lubricated services (infrastructure, laws and their enforcement, education and other services that ensure both a quality work force and a broad base of people able to afford goods and services) is the goose that produces a generous supply of eggs, but if we starve it of taxes, there go the eggs.

Corporations that use the American economy to grow their money need to feed taxes back into that economy, so that the economy will remain robust enough to grow other peoples' money (which will probably come around through the cycle to help the corporations grow their money again, too.)

The government can spend money in ways no private sector business can, and can accomplish things that I will not entrust to those whose decisions must be governed by a 'bottom line.' I may quarrel with exactly how that money is spent, and whether it is good public policy for other reasons, but the basic principle of government spending keeps our economy strong.

It's still painful to write out a check for taxes and reduce the number of dollars I have to spend at my discretion. And no, I certainly don't always trust the government's discretion in spending my money the way I'd like to see it spent. But the fact that I have a home to live in (because my property investment is guaranteed by laws, and my safe enjoyment of that investment is enforced by tax-funded servants) a computer to write this on (because a tax-funded government operates a patent system that promotes the invention and marketing of new technology, and tax-supported infrastructure enables the manufacturing companies to deliver the computer on public roads, and a dozen other reasons) and the freedom to express my opinion (because the judicial system supported by my taxes safeguards my right to do so) is a powerful return on that investment, nonetheless.

I hope this gives you another perspective on the 'fairness' issue, Gary, and thanks for asking Auntie Pinko!

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