If Corporations are People…

After a spell of travel-induced inactivity, I return with some more half-baked musings loosely inspired by Nicholas Shaxson’s Treasure Islands.

If corporations are people, then shouldn’t they pay the same taxes as everyone else?  Why should corporate tax rates generally be lower than personal income tax (the US is an exception here, though exemptions and loopholes mean that many companies pay far less than the 35% rate)?  If corporations are people, then why can they relocate from one jurisdiction with relative ease, without having to go through immigration and naturalization?  Why, for that matter, can they split themselves into pieces and be in several countries at once?  I certainly can’t do that.  If corporations are people, then why can they live forever?  And why shouldn’t they be beholden to those who brought them into being (viz., the government—”The state is the only institution in the world that can bring a corporation to life.  It alone grants corporations their essential rights, such as legal personhood and limited liability….Without the state, the corporation is nothing.  Literally nothing.”—Joel Bakan, The Corporation)?  My parents had enormous authority over me through my first eighteen years, but corporations, we are told, should be free from regulation by the legal regime that brought them into being.  

If we’re going to push the concept of corporate personhood to insist on “human rights” like “free speech” for corporations, then perhaps we should be consistent.  As it is, corporations are not simply persons, but highly privileged persons provided by law with opportunities and powers unavailable to most people.  

 

On a related note—

If competition is the essence of a free market, then why should the market be exempt from the constraints we apply to other forms of competition?  If I wanted to participate in the Olympics, then I would have to go through a rigorous selection procedure to ensure that I was a legitimate participant and would have to meet relevant national and international codes and standards merely for the opportunity to compete.  Once I was in, I would be subject to general rules established to minimize opportunities for cheating, bribery, etc., and to extensive tests to prove that I was not using performance-enhancing drugs.  To comply with regulations against such drugs, I would have to avoid even a number of perfectly legitimate drugs that contained restricted substances (as Andreaa Rudican so tragically learned at the 2000 Olympics).  In addition, my particular sport would be governed by a lengthy list of rules that established the manner in which I was to compete and restricted me from taking any unfair shortcuts or conduct that would unfairly sabotage my rivals.  These rules would be enforced by referees who would closely oversee the whole event and would be authorized to nullify my results or eject me from the competition if necessary.   

Of course, no doubt we could complain in some cases about bureaucratic overkill, obsessive and demeaning drug-testing, and hyperactive refereeing.  But surely we would all admit that without extensive rules setting both the terms of participation, the nature of the game, and the legitimate means that could be employed in competition, most of the organized sports that we love would be impossible.  If sprinters could dope as much as possible, they might be incredibly fast, but no one would bother to watch—the races would no longer be athletic competitions, so much as medical experiments in responsiveness to drugs.  If football players could do whatever they wanted to get the ball to the end zone, then football would degenerate into rugby.  Ok, just kidding—even rugby has rules, and plenty of them.  Football would degenerate into a brawl.  

To be sure, in an amateur pick-up game, referees will probably be unnecessary, and even rules can be somewhat loose and flexible; general goodwill and commitment to gentlemanliness may ensure that competitiveness does not get out of hand.  But the higher the level and the higher the stakes, the more precise rules are necessary—exactly when does the race start? exactly what comprises the strike zone? when is a foul a flagrant foul?—and the less one can rely on the participants to self-regulate.  Indeed, the employment of outside referees should not be seen as an insult to the integrity of the players, but as doing them a favor—with an outsider charged with making sure the rules are followed, the players can focus on playing the game, rather than always watching the other players out of the corner of their eye for violations.  They can rest assured that, even if they get carried away by emotions in the heat of competition, there’s a reasonably objective third party who will still judge clearly.

 

Free marketeers love to invoke the idea of competition.  Competition is what makes capitalism work.  But then they are prone to turn around and deny that this competition needs the kind of rules and refereeing that any other competition needs.  And yet, if anything, in business, the stakes are far higher than in football or gymnastics.  A trophy or a gold medal might be exciting, but in the end, how much depends on it?  But businesses are engaged in creating and destroying people’s livelihoods; indeed, in developing countries, business competition can be a matter of life and death for some people.  And yet, we are assured, even if football players shouldn’t be allowed to regulate themselves, corporations should.  Again, if markets are all about competition, then let’s get real and start treating them like one.

25 thoughts on “If Corporations are People…

  1. Jess R. Monnette

    Brad, Much to say, but soon I will have to get back to work. So I will limit this comment. First,what do you mean when you say "corporation?" The reason that I ask is that in the realm of taxation, the treatment of "corporations" and other businesses are very different. Pass through business entities have their net income taxed at the rate of each individual partner (or member as the case may be). Therefore, they pay the exact same rate as individuals. Corporations pay corporate income tax (here you use the 35% rate) and then if they want any of that income to actually get spent by the owners of the Corporation (Shareholders) they distribute it in the form of dividends and second level of taxation is applied. Therefore, income taxed to corporations is actually taxed at a greater rate than that which is taxed to individuals (the dividend rate plus the corporate rate). I point these distinctions out because they are vital in all discussion about applicable tax rates and I find that most commenters don't make them. Without making these distinctions most all analysis becomes meaningless. I can't comment on the tax treatment of businesses in other countries. Also, it seems to me that in all discussions about the "rights" of "corporations" (hardly ever defined), people don't ask the fundamental question, do individuals have the right to freely associate? If individuals have rights, and individuals (with rights) have the right to freely associate, can't that association of individuals excercise the rights of the individuals that make it up? I realize that this comment may or may not directly contradict anything you have said in your post, but these are the distinctions that I have not seen in others make that pose the same questions and I believe that they are fundamental to the discussion. But now I must get back to work for the Corporation that feeds my family. ha! Cheers, JRM

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  2. Brad Littlejohn

    Jess,Thanks again. Yes, I was talking quite specifically about corporations, not other business structures (though it would be interesting to talk about LLPs, which Shaxson considers to be a particularly insidious legal form that invites abuse). You do have a point about the dividend tax, though there are good arguments on both sides of that issue. It may be that with dividend tax included, most countries do not in fact have lower corporate tax rates than personal tax rates. Of course, if a corporation manages to book most of their income in a very low-tax jurisdiction, then this becomes somewhat irrelevant, and this is Shaxson's main concern. So my emphasis in the post was certainly on the latter questions, not the first.As for your second paragraph, sure, people should have rights to associate, but it doesn't thereby follow that the resulting associations should have all the same rights belonging to a natural person. An obvious reason why is that, when we speak of "rights" we are granting individuals powers over against one another, and these rights must be roughly balanced, or else we are giving people rights to run roughshod over other people, we are giving some people rights at the expense of others. Now, individual citizens, while differently gifted, are on an equal enough playing field that we can get by with giving them all basically the same rights. But, an entity formed of 1000 individuals has far more power than a single individual, and hence could easily run roughshod over an individual's rights. So it makes sense to allow citizens to associate, but not to grant the resulting association, acting as a body, liberties as extensive as the individuals have in themselves. However, you will notice that in this post, I suggest that in many respects, we have actually given associations—specifically corporations—not merely the same rights as individuals, but considerably more extensive rights and powers, and free-marketeers want to argue that we haven't gone nearly far enough, and should continue to increase corporate liberties. While the Right sees this as a defense of individual freedom, it seems to me to be the opposite, since, as I have said, giving rights and powers to an entity of 1,000 people, or 100,000 people, ensures that private individuals will be hopelessly overmatched.

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  3. Bradley

    I just want everybody to know, I posted a really good comment here yesterday that perfectly addressed everything. And then I was shocked to not see it here this morning. (I must have accidentally pushed "preview post" instead of "create post.") I even had it saved in a Word document, just in case, but I deleted the Word document after posting the comment! Sigh. So depressing.

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  4. Bradley

    And Bradford, I disagree with your second point. I think corporations should be given the same rights as individuals…they just shouldn't be given any extra privileges or perks. If we take away those extra perks, most of the advantages to being a huge corporation disappear. It's also important that corporations be given the same responsibilities as individuals. (So if we follow this line of thought, S Corporations are pretty good, but there are huge problems with multi-national companies possessing limited liability.) But I'm too depressed right now to elaborate.

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  5. Jess R. Monnette

    Brad, I think I follow your argument. But I am curious what you mean specifically about giving corporations "considerably more extensive rights and powers" than individuals. I see reference to limited liability but this is present in all entity forms except the general partnership. What other rights are you specifically speaking of? I guess I take the position that associations of individuals should be able to exercise the rights of the individual owners that underly them. If the government shows up and demands that Covenant Investment Advisors, LLC turn over all of its business records, the LLC should be able to defend on the basis of the 4th amendment's prohibition against unlawful searches and seizures. This is constitutional right of each of the owners, and can therefore be exercised by the association. I guess I would like further explanation of the additional rights and powers (bestowed by the Government on the corporate form) that you are speaking of, and how that "overmatches" the private individual.

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  6. Brad Littlejohn

    Bradley,I am deeply sorry for your loss. I think I've experienced that once or twice myself, and it is a truly devastating experience. I don't know that we disagree all that much—my main stress all along was on corporations having *more* rights than individuals; I merely said that it would make sense to argue for them to have less in certain respects, given the greater power they have by sheer force of numbers.Jess,Sure I don't disagree with that second paragraph. As far as elaborating what privileges corporations have that individuals don't, I'll invite Bradley to have first opportunity at answering that, if he can recover from the grief of his loss, since he's obviously given more thought to the matter than I have (these being, as I said, mere half-baked musings).

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  7. Kent Will

    I think R. L. Dabney hit on the essential reason a corporation shouldn't be a legal person: "Corporations have no soul to damn or backside to kick."

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  8. Brad Littlejohn

    Suspicious…Squarespace is deleting the comments of anyone who agrees with me in criticizing corporations. No doubt some kind of heavy-handed corporate censorship is at work. I'd better start backing up my posts. :-pSeriously, though, my apologies to you as well, Kent, for my blog's bad behavior. Do let me know if it happens again in the future, and I may email Squarespace to complain.Jess, Bradley assured me that he would reconstruct his comment, thus answering somewhat your question for further clarification about the corporate privileges to which we object. So I will be saved, for now, the task of having to BS my way through an intelligent-sounding answer. My concern was largely with the privileges that come with multinationality, and thus being able to take advantage of loopholes in different jurisdictions simultaneously, in a way that few individual persons have the power to do, as Shaxson particularly discusses in Treasure Islands (and this is particularly a problem because in many cases, the laxity of the laws in other jurisdictions is the result of corporate influence on the law-making process, which is very easy to do in a small, minimally-populated jurisdiction like the Caymans or jersey). You, however, are no doubt particularly interested in hearing about the objectionable privileges of corporations in standard Western law, not in dubious "jurisdictions for sale," as I think Shaxson at one point refers to them. On this, I hope for illumination from Bradley as well, not feeling myself at all up to scratch on the issue.

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  9. Bradley

    Jess, we're not really talking about pass-through entities like S Corporations when we make these critiques. In my opinion (speaking as the owner of one!), I'd say the S Corporation is one of the best corporate structures out there, because it's basically treated as a simple extensions of the individual/s. And I believe that, in essence, that's what a corporation should be.No, I have in mind other types of corporations. Obviously there are many types, and they receive different treatment depending on what country or state we're talking about. Nevertheless, I think we can make a few generalizations. Corporations are given special privileges and perks, above and beyond what ordinary individuals receive. Here are some of those unfair advantages:1. Limited liability. Gosh, they don't even try to make this one sound good! You might as well call it “codified irresponsibility.” The argument is that we should let businessmen and investors be irresponsible in order to encourage investment and growth. Hogwash.2. Lower domestic taxes. In most places the tax rates for corporations are lower than those for individuals. As noted earlier, the USA is an exception in this regard (…for the time being! Obama has expressed his desire to lower corporate taxes). It's not like this is a secret plot either; usually it's a conscious and explicit attempt to “promote business.” So even if a corporation never left its home country and straightforwardly paid all its taxes without trying anything clever, they would usually have an unfair tax advantage compared to ordinary citizens. (Note: double taxation of dividends is only partially relevant here, because some jurisdictions already have laws that take double taxation into consideration and prevent it, some countries have non-existent or ridiculously lower taxes on dividends, and anyways, plenty of companies don't even pay out dividends. The main point still stands: tax codes commonly favour corporations.) 3. Paying lower taxes due to international size. Tax by its very nature is a national phenomenon, and so are individuals (have you ever been in two countries simultaneously? …Native American Indian reservations don't count!). But huge corporations are often super-national. This gives huge corporations a huge advantage: they can pick and choose and strategize with different tax codes. Sometimes they succeed in paying effectively NO tax in any jurisdiction! The bigger the company, the easier this is. International corporations will always have this unfair advantage over individuals (and smaller businesses) until we implement some type of radical tax reform to prevent it (perhaps a Land Value Tax?) 4. Subsidies, both direct and indirect. This isn't technically an aspect of being a corporation, but it's a direct result of the previous items. Once a corporation has become big and influential, it can more easily lobby and get subsidies. (Now, I'm not one to say all taxes are theft, but if stupid subsidies like that don't qualify as public theft, then I don't know what does.) There are also plenty of indirect subsidies our society gives big corporations. For example, taxpayers build and maintain the USA's freeway system, and it benefits large corporate chains more than anybody else (they literally get a 'free ride' on it). 5. “Too Big to Fail.” This isn't necessarily part of being a corporation either, but it's a consequence of all the other unfair advantages above. Because we've created an environment that promotes huge business, that's exactly what we get: huge, obese, unhealthy businesses. Nobody in their right minds would want these businesses to collapse, because their economic clout is too large. Our economy would plummet into depression if we just let them have heart attacks and die. And so, we revive them, performing CPR with corporate bailouts and government cash. In a free market we should want inefficient businesses to die out and be replaced by something better; it's a natural process. But when corporations become this big, they obtain the most unfair advantage of all: they become too big to fail.Etc. There's plenty more we could discuss (like the fact that corporations lobby for extensive regulation to hinder new competitors from entering the market, or how all these perks make it easier for corporations to form oligopolies, monopolies, or my personal favourite, monoscopies). Suffice it to say: corporations today receive special perks, and the bigger they are, the more perks they get. I think that's wrong, and corporations should be treated simply as groups of individuals.

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  10. Bradley

    Jess and Bradford, I think you agree with each other in principle, but there are some issues on the surface causing disagreement. Bradford, you said,

    an entity formed of 1000 individuals has far more power than a single individual, and hence could easily run roughshod over an individual's rights. So it makes sense to allow citizens to associate, but not to grant the resulting association, acting as a body, liberties as extensive as the individuals have in themselves.”

    But I disagree. I think you overestimate the power of large groups. In a free market, a group of 1,000,000 people would experience both advantages and disadvantages. Likewise, a sole proprietor would experience advantages and disadvantages. Organizing 1,000,000 people is incredibly difficult, and would probably require a large and inefficient bureaucracy. Smaller is sometimes easier. The oil company I work for has better profit margins than large oil companies precisely because we're not large: we're relatively small, nimble, and quick. Since our company is privately owned by 2 people, we can get great deals buying tiny oil fields that aren't economical for BP or Exxon to drill. On the other hand, manufacturing a Boeing 767 is probably best done by a very large group of people. I say, treat corporations exactly like the individual members thereof: no extra perks, and no “handicaps” either. Whenever it's efficient to be a big group, let them be big, and whenever it's efficient to be small, let them be small.One last note: Injustice and oppression will always arise when sinners are involved, when it does it should be corrected as soon as possible. That oppression might take the form of a sole proprietor ripping off his clients (a deceitful auto mechanic?), or it might take the form of a large group of people colluding together to raise prices (farmers teaming up and agreeing not to sell their grain until the nation is starving?). Either way, injustice and oppression should be addressed wherever they occur, and it shouldn't make any difference whether individuals or groups are doing the oppression. It might end up happening more often with groups than with individuals, but I don't see how that should change our fundamental principles.

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  11. Jess R. Monnette

    Bradley, Thanks for the clarification. I will respond briefly. In my response I am referring to American laws/tax rules as those are what most people refer to in these discussions. You make the distinction between “pass through” taxed entities and “non-pass through” entities. “Pass through” are “basically treated as simple extensions of the individual/s” whereas non-pass throughs are not. This distinction is one of taxation category, i.e. whether or not income automatically passes through to the owner or whether it is taxed at the corporate level and then taxed again when it is distributed as a dividend to the owner. 1. Limited Liability: You argue that this is bad. Limited liability generally applies to all corporations (including S-Corps) and limited liability entities (e.g. LLCs, LPs, LLPs etc.). Most business owners I work with have “limited liability” as a chief incentive to form an entity. I presume that this was one of your incentives in forming an S-Corp. You term this “codified irresponsibility.” Limited liability simply means that all entity liabilities remain obligations of the entities and do not get enforced against individual investors in the venture. Obviously, if an investor’s own negligence caused a liability, or there was a default on a contract which had personally guaranteed, then he will be held personally liable. Although I believe that it is proper to limit a venture’s liability to the venture itself and the investment that the investors have made in it, I know that some argue against this. At the very simplistic level, it seems proper to me that liabilities of an entity should be borne by the entity that creates those liabilities, not the person that simply invested money and has no control over the creation of the liabilities. Take this simple example. It is reasonable that a retiree that owns $1,000 of UPS stock should not be potentially personally charged for any/all of UPS’s liabilities. If the retiree loses his investment because GE goes under, he is out $1,000. The retiree should not be at risk of being personally sued on every contract and employment dispute claim of UPS. Likewise, he should not be personally sued for every negligent car wreck claim of every UPS driver on the road. All he did, after all, was invest $1,000. The individuals that should be sued are 1. the driver (personally negligent) and 2. His employer (UPS) because it hired him. The incentive to invest (via limited liability) that you call “hogwash” I call a foundational keystone of American business and investment as we know it today. Brad (Littlejohn), would you as an investment advisor, ever advise a person to invest in the stock equity of a company if you knew that they could be held personally responsible for every negligent act of that company? Doing away with “limited liability” would dry up the vast majority of the investment dollars in America (i.e. all investment in which the investor does not have day to day control over the decisions and potential liabilities of the firm). 2. Lower Domestic Taxes: You claim that tax codes commonly favors corporations because in many instances the Corporate tax rate is lower than the individual tax rate. As you state, the American corporate tax rate is currently high. In America, the effective rate to take money out of a C-Corporation and distribute it by to its investors is approximately 44.75% (assuming 35% corporate tax rate and 15% dividend rate.) Contrast this with an S-Corp. which pays only 35% (assuming a high 35% personal rate). Therefore, in America C-Corporations actually pay more in tax than pass-through entities and the tax code currently disfavors them. Again, I can’t comment on international treatment since each country is different. 3. Paying lower taxes due to international size: I agree generally with your argument in so far as you are saying that “huge corporations” have an advantage to “tax jurisdiction” shop by picking and choosing what country they go to. Sure they do. They have the money and freedom to do it. I will note, however, that this is true of not only corporations, but also any business entity/venture and to a lesser extent individuals (e.g. last year 1,800 Americans renounced their citizenship) that have the capital and ability to do so. To me this seems like a simple reality of having multiple nations on the earth. Also, companies are acting in their own best interest just like individuals do. If you had the option between a tropical vacation in two different countries that was identical in all aspects except that the cost for the vacation in Country A was 15% less than Country B, you could naturally go to Country A. This is just what Corporations do when they forum shop. This is just reality of having more than one government in the world. You hint that perhaps we “might implement some type of radical tax reform to prevent it” but I cannot conceive of such an endeavor ever being successful this side of a single worldwide government. As long as there are more than one government, they will always compete for business. 4. Subsidies, both direct and indirect. I agree that this isn’t an aspect of being a corporation and has everything to do with size/influence of a firm. I would caveat, though, that individuals (e.g. George Soros, Bill Gates) can wield much more power individually (because of their wealth and power) than the vast majority of businesses in America. Likewise, because of their power they can wield vastly more influence and control than you or I. In fact, the only chance we have to fight against rich individuals is by banding together to form an entity through which we can pool our resources and jointly speak. On the point of indirect subsidies flowing to corporate entities in the form of the highway system, agreed. And, those same subsidies run to every other individual person that uses those highways as well, albeit to a lesser extent. WalMart is the poster boy here, and although it is no doubt true that WalMart’s business model could not exist without the Federal Freeway system, it is also true that the reduced prices that the poor pay for goods at WalMart could also not exist without the Federal Freeway system. 5. “Too big to Fail.” I agree with you on this. Provided, that even if we had no “huge businesses”, at some level “big” individuals would still be able to manipulate the system to their own benefit. No individual, group of individuals, corporation, or anybody for that matter should get any special treatment by the government. In the end, it seems to me that the legitimate problems that you propose are merely an extension of power and corruption and will exist (as you state in your subsequent comment) with both sinners and non-sinners. I make these comments only to point out that these are problems of power, control and improper influence. The problems don’t have anything to do with the corporate form of business. I believe that this is an important distinction because the vast majority of discussion I see on this topic (the “evil of corporations”) fails to make these key distinctions and therefore the analysis fails. I realize that we probably agree on most of this, just thought I would throw in my two cents. Again, thanks for the clarification.

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  12. Brad Littlejohn

    Thanks Bradley. Great observations all. Thanks for taking the time to re-type your lost material. I have little to add (except to say that I accept your qualifications/corrections on my point about large and small; or at least, I can't think of a good reason to object to them at the moment), so I won't, unless Jess wants to discuss it more.

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  13. Brad Littlejohn

    Oh wow, weird. Jess commented at almost exactly the same time as me. Obviously, there will be more to discuss; in particular, the issue of limited liability. The very briefest remark on that—to be sure, it would seem ridiculous to hold a UPS stockholder potentially responsible for a UPS driver's negligent driving. But should we hold a UPS stockholder responsible in anyway for an ongoing pattern of company-wide negligence? Again, we would tend to say no, because the stockholder is so far removed from any actual control in most cases. But this simply raises the question of the wisdom (and ethical status) of a form of "ownership" that is so far removed from any involvement that it cannot take any genuine responsibility for how the entity it partially owns behaves. So you are begging the question. Yes, in the large corporation model, it is hard to imagine how we could *not* grant stockholders limited liability. But the question is whether it is prudent to develop such a form of ownership in the first place. Certainly this issue of stock ownership and responsibility is one I have been thinking about a good deal, since even if my clients are protected by US law from liability for their companies' negligence, they are not necessarily protected by God's law from any ethical liability for their companies' wrongful behavior. Or are they? And to what extent? Hard questions that need pondering. So I hope to return to this at a bit more length when time permits.

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  14. Bradley

    1. What Bradford said. I realize it's an integral part of our existing financial system. And I strongly believe we should change it.You can't just say, “I don't like Proverbs 11:15, let's change the rules so nobody gets in trouble…” Well, I suppose you can say that, but it's a terrible idea. If you protect people from consequences, then what motivation do they have to think through their actions and decisions carefully? If you protect people from liability, then you get more liabilities! And somebody else has to pay the cost. There's always a cost. Irresponsibility is not the price of progress. When it comes to big companies, I like what I've read about employee-owned cooperatives (companies in which, to use your words, the investors “have day to day control over the decisions and potential liabilities of the firm”)….oh, and I didn't know my S-Corporation gave me limited liability. That wasn't one of my motivations; I just make lots of money selling this oil investment and wanted to avoid payroll tax. For some reason I assumed the liability would “pass through” to me just like the income tax (hence my statements in praise of S Corporations). Hmm. Weird. Thanks for letting me know.For what it's worth, the oil investment that I sell (among other investments) is NOT an equity share in the business. We want to avoid that sort of business structure, and so we sell shares in the underlying asset, i.e., the oil field itself. I realize this investment model couldn't apply to all businesses, but hey, it's pretty nifty, don't you agree? :-)2. Yeah, America is an exception at the moment. The income tax rates are roughly similar for both individuals and corporations: an income of $10 million would be taxed at 34% for a corporation and 35% for an individual. And in this country we do have double-taxation on dividends (although as you point out, it's only 15%). Bear in mind that 25-30% of the corporations on the S&P500 don't even pay dividends, a trend that has been slowly increasing since ~1980. 3. Sure, individuals can shop around and get lower taxes, although it's really difficult. You could move to some offshore tax haven if you wanted (although most tax havens have radically different rules for individual taxation, now that I think of it. The Island of Jersey got in trouble for that recently). But as I said above, “the bigger the company, the easier it is.” The problem is a quantitative one.But I don't see the problem as insurmountable. Hypothetically, if we implemented a Land Value Tax, then it should go a long way towards eliminating huge corporations' international tax advantage, even if we only implemented it in our home country. Land Value Tax ensures that, if you operate in a country, you pay tax in that country (because operations always involve land to a greater or lesser extent).4. Maybe Bill Gates receives subsidies from the US Government, but I would highly doubt it. These days, he mostly seems to be giving it away. Overall, I'm dubious about the comparison you've drawn between powerful individuals and powerful corporations…but I don't know enough about it to argue one way or the other. Anyways, we agree; this particular reason has more to do with corporations abusing an already corrupt system. Sure, big corporations are skilled at that abuse, but the real probably is the underlying corruption of the system itself. “…the reduced prices that the poor pay for goods at WalMart could also not exist without the Federal Freeway system.” I think that's a bit of a Red Herring, and I'm not sure if I want to go fishing at the moment. Ironically I didn't have Wal-Mart in mind, since I haven't actually seen a Wal-Mart in 6 months.5. I should distinguish more carefully between this point and the previous one about subsidies. Whereas subsidies represent corporations abusing the system, I don't see corporate bailouts as abuse per se. We bail out these huge companies on a national scale because it's in our own desperate self interest (in the short-term, anyway…we all have to live in this economy). Subsidies point to a problem elsewhere in our environment, i.e., our government and politicians are easily corrupted or led astray. But bailouts are simply the natural result of this corporate climate our laws have created. Subsidies are extrinsic, whereas bailouts are an intrinsic result of this corporate policy. So it really is about the very nature of corporations themselves. Because we grant them (1) limited liability, (2-3) huge tax advantages internationally, and (4) easy ways for them to externalize their costs, etc., and because all these perks are amplified the bigger a corporation becomes, we shouldn't be surprised to see ourselves surrounded by huge corporations. They are the monsters our laws gave birth to. And those monsters genuinely need bailouts. Jess, if you were in charge a few years ago, would you have done the bailouts? I probably would have, although I would've liked to use it as an opportunity to reform the system (“Okay, I'll spare you the consequences just this one time, but now we're going to change the rules a bit…”). Otherwise, too many people would have needlessly suffered in our economy. I think the bailouts were probably good; what's bad is that they didn't change the system in the slightest.I appreciate your distinction between talk about 'evil corporations are taking over the world!' and discussions about how 'corporate law is harmful for society.' It's one thing to call Monsanto evil because they were convicted of routinely falsifying scientific data regarding the safety of their herbicide RoundUp (for which crime they were only given a slap on the wrist, by the way). It's quite another to say that our laws governing the formation and conduct of corporations are flawed. In this conversation, I'm saying the latter.

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  15. Jess R. Monnette

    Brad, Sure I am begging the question here. You state that the question “is whether it is prudent to develop such a form of ownership in the first place.” I would take it one step further to say, ok, even if it is definitively established that we have an imprudently developed “system,” what do you (or anyone critiquing the system) propose to replace it with, or how do you propose to modify it to make it better. Call me an overly practical working stiff practitioner, but I see little value in spending time and energy critiquing a system if there are not proposals put forth (simultaneously) to remedy the system’s supposed shortcomings. I began commenting on this thread because very few criticizers of the “American corporate model” that I have run into actually articulate what the problems with the system are and put forth viable alternative proposals. You and Bradley are a long way further than most on the critique side. Great stuff to be thinking about. Also, I realize that Bradley proposed a “land value tax” as one alternative to tax forum shopping. I won’t get into that here, it would take too much time!

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  16. Bradley

    Jess, you said, "I see little value in spending time and energy critiquing a system if there are not proposals put forth (simultaneously) to remedy the system’s supposed shortcomings." I would propose the following:

    1. Put liability back where it belongs, i.e. get rid of limited liability2. Make the taxes fairer, most especially by closing international loopholes (perhaps a Land Value Tax?)3. Get rid of silly subsidies and various easy ways for corporations to externalize their costs.

    If we took those three steps, we'd be miles closer to having a good system. Regarding the first two items, limited liability and major tax reform, it would probably be best to implement the changes gradually, transitioning over a couple decades. A slow transition would help protect people from being disenfranchised or caught off guard by the new changes, and it would give the system more time to adapt (we want to ensure a peaceful transition, and these are some radical changes we're talking about!). The third item, subsidies and externalities, should be implemented immediately.I would really love to talk more about Land Value Tax. I want to discuss the pros and cons of it with somebody, but it's difficult, because almost none of my friends have ever heard about the Land Value Tax! And those that have don't know anything more than I do. I haven't been able to find any worthwhile critiques. Personally, I struggle to think of any downsides to it (heck, even Milton Friedman spoke positively of it!), but I know there must be some. Please share your thoughts with me…I'm desperate!

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  17. Jess R. Monnette

    Bradley, As usual in such discussions, having adequately defined terms, it appears that on the essentials I agree with you. What a surprise!On the question “would Jess have done the bailouts” I would answer by saying “I don’t know enough to say.” The only one that I have thought about at all is the Chrysler bailout. In that bailout, my understanding is that the Executive branch came in and strong armed Chrysler’s creditors in the bankruptcy and dictated the reorganization plan. In the end certain preferred groups (e.g. UAW) got preference ahead of certain secured groups (e.g. bondholders which included Indiana pension plans). This is a blatant violation of long established bankruptcy priority scheme and constituted theft. In the end Fiat came out owning 20%, UAW retirement health care trust 55%, US and Canadian Gov. were minority owners. Secured bondholders (e.g. Indiana pensioners) received $0.29 on the dollar for their secured claims. Secured claims should have been paid at 100% before unsecured claims. I understand that UAW’s collective bargaining agreements were off limits in the reorganization. Also, the fed pumped in billions of dollars to keep the company solvent through the process. So, in the example of Chrysler, I would say that they should have been allowed to go through “real bankruptcy” (where normal bankruptcy rules apply) without any influence/money/subsidy from the government. I believe that the government’s actions in this instance were improper and constituted theft. On Land Value Tax, I don’t know much about it other than what I read in “Toward a Truly Free Market.” For sake of discussion, I will use the following Wikipedia definition of the Land Value Tax: “A land value tax (or site valuation tax) is a levy on the unimproved value of land. It is an ad valorem tax on land that disregards the value of buildings, personal property and other improvements.” My initial thoughts: 1. The rate will have to be very high to generate adequate income to run government. (Assuming here, of course, that “government” is actually paired down to commonly recognized “essential functions.”) 2. In America, 30% of all US territory is currently owned by the US government and wouldn’t be taxed at all. Likewise, state/locally owned land would not be taxed. This immediately reduces the tax base of and increases the tax due from the remaining tax base. 3. The price of food will skyrocket. If you think of the types of production that require lots of land, the largest land user is food production. Food production by its nature requires raw land (you can’t build up). This is the exact type of land which the LVT hits hardest. As a side note, current property taxes (not LVT) usually make exemption for farming. 4. Some of the largest and most lucrative companies in the world are tech companies. Companies like Google, Amazon etc. will pay very little in tax (they don’t really use that much land) while farmer John will pay a lot more in tax. I don’t think this is the result that most anticipate. 5. Valuation of any property is always difficult. The government will always have the incentive to inflate land value while the owner will have incentive to deflate value. This will add a lot more nuance and complexity to a LVT system, although undoubtedly there will be much less wiggle room than the current income tax code. Conclusion: having not really thought about it much, the fact that the LVT will in effect move the cost of government from those that make income (e.g. Google/Apple/other income producing companies) to those that just own land (viz. farmers) is not a good trade. It will raise the price of food/fuel/energy (costs detrimental to the poor) and lower the costs of tech (which the richer primarily benefit from). Also, I don’t think the counterargument that “you can just exempt farms” works very well because once you start down the road of making exemptions, you immediately end up with a pork laden tax code like we have now. An LVT may have made lots more sense in an agrarian society (where wealth followed land ownership) but I don’t really see it now. Just initial thoughts. Yours?

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  18. Bradley

    Jess, We agree about Chrysler. I should clarify: when I say that I would probably have done the bailouts, I was speaking more in the abstract, not referring to the specific details of what actually ended up happening. Even by amoral Keynesian standards, the recent bailout wasn't handled that well.

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  19. Bradley

    Jess, Regarding your 5 objections to Land Value Tax:1. Feasibility.Jess, you said: "The rate will have to be very high to generate adequate income to run government. (Assuming here, of course, that “government” is actually paired down to commonly recognized “essential functions.”)"To answer this objection, I need to unpack three different items below:

    a. How is LVT calculated? What is “the rate” of LVT?b. Is LVT really that high of a tax?c. How much revenue could LVT produce?

    a. Jess, you said: “The rate would have to be very high…” I think this statement betrays a slight misunderstanding as to how LVT is calculated. You're speaking of it as if it were an arbitrary income tax rate or something, but it's a bit more objective than that. A good discussion requires us to define our terms well. I appreciate your Wikipedia quote, but I think we need to be a bit more specific. Different people mean different things by a LVT. Personally, here's how I define LVT in everything I say below: Land Value Tax should be equal to a site's annual rent cost excluding any improvements. In other words, whatever it costs to rent a plot of land, that's what the tax should be. I suppose you could call that a “very high” rate of tax, but that's the way it's supposed to be regardless of how much revenue is produced—it's 100% of the land rent, period. So from my perspective, it's not a matter of the rate being high or low; the rate simply is what it is. b. Right now we all pay property tax (with a few exceptions, like farmers). Today's property tax is based on a combination of the land value and any improvements, so in a sense everybody already pays a low level of Land Value Tax. The percentage of property tax varies somewhat from state to state and county to county, but when you do the math, most folks in the USA currently pay roughly ~25% LVT on their property. So we're already a quarter of the way there. All I'm proposing is that we gradually raise it from 25% to 100% over a couple decades, and get rid of ALL other taxes (except taxes on externalities like pollution, which are very different because they're specific taxes used to clean up specific messes).c. Jess, you seemed to imply that LVT wouldn't raise much revenue, and said that government would have to be "paired down to commonly recognized 'essential functions.'" Why do you think this? What evidence do you have to backup this assumption? I know of at least three different studies estimate land rent to be about 20% of GDP. Granted, it's a difficult thing to estimate, but we might as well start with some official studies. If they're right about LVT being 20% of GDP (possibly more), then it could raise about $2.9 trillion annually. That's about 60% of public spending at all levels of government. So if we funded the entire government (local+state+federal) on LVT alone, it would involve cutting the budget a bit. But it wouldn't require anything drastic like “pairing down to essential functions.” 60% of current spending is still huge. We're talking about very realistic budget cuts here, like cutting half of the funding for Department of Transportation (not even abolishing it, just cutting it by half), cutting 40% of agricultural spending (if we got rid of subsidies we could save even more!), cutting 33% of military spending, etc. In short, LVT is a very realistic way of raising enough taxes. It also has the advantage of being predictable and stable. You can't just say, “let's raise taxes this year!” The rate of LVT stays the same. It is what it is. The only thing that might change over time is how we choose to distribute the revenue from LVT (how much to spend at the local level, how much at the state level, etc.)So in summary response to your first objection: Nuh-uh! 2. But lots of land is government-owned. See the previous point. LVT would produce plenty of revenue, regardless of government owned land (the calculations above take this fact into account). I should add: Dr Fred Foldvary thinks government owned land should still be taxed at the normal rate, even though it would be just on paper and wouldn't actually affect revenues. Why? He argues“this will improve government cost accounting and policy decisions. ” And I bet he's right! I wouldn't be surprised if the government decided to sell off a good chunk of land as a result, lol.3. Would food prices skyrocket? No offence Jess, but you're really not thinking like a farmer here. Speaking as one who intends to finance many farms across the nation and the world, I can tell you, the #1 cost in American farming these days is LAND. Due to land speculating and land banking practices, buying a normal piece of dirt is ridiculously expensive. In most places across the country, there is no longer any meaningful relationship between the price of land and its potential agricultural income. You could spend $1 million buying 400 acres in Georgia (which would be a pretty good deal!), and if you farm it you might make 1% or 2% of that each year. That's practically nothing! Folks artificially drive the price of that land up to $1 million not because of the tiny income it can produce; they do it because, hey, it's land, and land prices always go up in the long run, right? It's speculation, with no production or effort whatsoever. It's so stupid, it makes me angry. Here's the problem: most of the time, when speculation drives up prices the reaction in the market is to make more of that item to drive the price back down to a reasonable level. But obviously, you can't do that with land….so there's no advantage to driving up land prices unreasonably high, it only harms people and the economy. And so, the result is millions of acres of pasture currently sitting around idle in the USA. That's a crying shame. LVT would disincentive that sort of wasteful and pernicious land speculation. In terms of creating agricultural opportunities, I can't think of a single action that would be better than instituting a land value tax. Finally! Agricultural land would be valued reasonably again, by its potential for income. LVT would cause rural land prices to fall dramatically (whereas urban land prices would go up, as they should).So when it comes to farming, you need to realize two different things: (A.) From a business perspective the costs would be lower, and lower rural land prices would make it MUCH easier to enter the business or expand your existing operations—yippee! The biggest cost of doing business would flit away. (B.) From a tax perspective, it wouldn't be as huge as you seem to be envisioning, because remember, this farm real estate would be valued very low, and therefore the Land Value Tax paid each year would be rather low.4. Would tech companies like Amazon and Google pay less tax? Ha, this one is especially fun to respond to. The answer is, yes and no. It's somewhat complicated, and we need to unpack three different questions below:

    a. What tax do these companies currently pay?b. What tax is right and reasonable for them to pay, ideally?c. How much tax would these companies pay under LVT?

    a. It's especially ironic that you brought up Google and Amazon in particular. These two companies are especially notorious for their tax avoidance. Under the current system Google pays roughly 2.4% tax, and Amazon pays about 4.33% tax (Note: I can't remember which tax years those figures refer to, but that's not the point anyway. The point is that they pay barely any tax. Google it if you don't believe me, lol) So if your argument is, “LVT is unfair because companies like Google and Amazon will pay barely anything!” Well, then I hate to break it to you, but Google and Amazon already pay barely anything. b. What should a company like Google pay in tax? What's right and reasonable? The hidden assumption behind your critique is that, Google is being very productive, and production should be taxed, so Google should pay lots of tax. I disagree with your implicit argument. Why should production be taxed? Why should we tax somebody just because they worked hard and made money? I think it makes more sense for people to pay for what they use, and it's right for people to be rewarded for their labour. The justification for the Land Value Tax is twofold: (i) First, land isn't something that we can 'own' absolutely. You can own some grain that you harvest, and you can own some furniture that you made, but all you can do with land is stake a claim on it. God manufactured the land, and all of humanity owns it in a sense. If you're going to have taxes, it's not unreasonable to tax the one thing that you don't have an absolute claim on. (ii) Second, the VALUE of land derives not from your personal efforts, but from the efforts of the surrounding community/nation (any improvements to the land, i.e. your labour, is not taxed). Hence, the community makes your land valuable, and the community should reap the benefits. In a sense, you are “using” the community and nation that you live in, and you should pay for what you use. The local community gave you abundant access to utilities, beauty, safety, good employment options, pleasant amenities, and all the other things that make property valuable. Therefore, I propose that taxing production simply because it's production doesn't make very much sense. It makes much more sense to tax someone based upon their use of land. Tech companies don't use much land (compared to other businesses), so they shouldn't be charged much. In other words, Google's services aren't very “taxing” on the community, i.e., they don't require much financial support, so why should they pay tons of tax? Usage of land value is an excellent gauge for how 'taxing' a business is. The more land value a business eats up, the more the business should pay. (Google's army of employees, for example, would pay loads of LVT on the houses and apartments they live in, and like all people they would indirectly pay LVT by financially supporting stores, restaurants, etc.). You might say you object to this principle because it's a tax break for a huge corporation, but it has nothing to do with whether or not Google is a corporation or whether they're huge. Rather, think of this is a natural 'tax break' for an industry that's inherently efficient. If a business isn't very taxing on the community or nation, then we shouldn't tax them very highly. It only makes sense.c. What specifically would a company like Google or Amazon pay under a Land Value Tax code? Well, significantly more than they pay now. For all my talk about tech companies not using as much land, you'd be surprised how much land Google uses. They have an awful lot of internet servers. Dozens of servers in the USA, and dozens abroad. I don't know the exact figures, but it's thousands of acres (also don't know how much the land is worth…they might host their servers in remote locations, which would decrease LVT). Amazon, I assume, owns or leases warehouses and factories. So, if they continued with business as usual, they would almost certainly pay more tax than they do now. It still wouldn't be a very high rate of tax, but I'm guessing it would be higher than 2.4% and 4.33% So in summary response to your fourth objection: Google and Amazon would pay significantly more tax than they do now, but still probably not as much as normal businesses, because tech companies are inherently more efficient. 5. Determining land value would be difficult. I agree, valuing the land and distinguishing it from the improvements would require precise details and guidelines. But it can be done, and in fact, it already is being done by insurance companies and banks today (for the purpose of fire insurance and mortgages on buildings). So yes, the tax code for LVT would be simple, but that doesn't mean you could write everything down on a single piece of paper. I imagine it filling up a thin book (100 pages? who knows; I'm just randomly guessing). More to the point, it would be far, far simpler than our current tax code—what qualifies as “income”? And how do we keep track of income?–and far simpler than a national sales tax—what qualifies as a “sale”? What about stuff that gets sold twice? What about business purchases? And how do we keep track of every sale in the nation?—and simpler than any of the other commonly proposed alternatives. Compared to everything else, LVT is a really simple tax. It's also more objective, with much less room for fudging and politicking.In conclusion, LVT rocks. It's realistic, good for farmers, good for business, simple to implement, and above all, it's just. Your thoughts?

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  20. Brad Littlejohn

    Thanks gents for the engaging discussion; sorry I've had to just let Bradley serve as my mouthpiece for now (though I didn't know he had become the world expert on LVT…intriguing stuff!). Just to reply then, to two of Jess's points that Bradley didn't address:"I agree generally with your argument in so far as you are saying that “huge corporations” have an advantage to “tax jurisdiction” shop by picking and choosing what country they go to. Sure they do. They have the money and freedom to do it. I will note, however, that this is true of not only corporations, but also any business entity/venture and to a lesser extent individuals (e.g. last year 1,800 Americans renounced their citizenship) that have the capital and ability to do so. To me this seems like a simple reality of having multiple nations on the earth. Also, companies are acting in their own best interest just like individuals do. If you had the option between a tropical vacation in two different countries that was identical in all aspects except that the cost for the vacation in Country A was 15% less than Country B, you could naturally go to Country A. This is just what Corporations do when they forum shop. This is just reality of having more than one government in the world. You hint that perhaps we “might implement some type of radical tax reform to prevent it” but I cannot conceive of such an endeavor ever being successful this side of a single worldwide government. As long as there are more than one government, they will always compete for business."Well, not quite. First of all, it's not simply as if a bunch of free, democratic countries each sat down and said, "How shall we set our tax code?" and the Caymanians said, "Hm. Well, I think we should not tax corporations at all and make bank laws so lax than any kind of financial dirty business that wants to can set up shop here." Rather, as Shaxson shows in Treasure Islands, it is not a coincidence that so many of these permissive jurisdictions are tiny island nations, many governed colonially by a small council rather than democratically. In such situations, there is a lot of opportunity for powerful outside interests to essentially draft the laws they want passed and make sure they get passed. Shaxson documents several crucial episodes of this kind. So many of the tax havens are the result of corruption, not free and open international competition.Also, it doesn't do to say, "Well, these countries are just acting in their own best interests, like an individual does, so who's to stop them?" Believe it or not, we do often stop individuals from doing things in their own best interests—this is what laws are about. We judge that certain actions, in which I enrich my own interest at your expense, are harmful and unjust, and mustn't be tolerated. Nor is it true that we would need a one-world government to enforce this. To be sure, for perfect enforcement, you might. But we have many existing mechanisms to restrain unjust and harmful pursuits of national self-interest—treaties, international organizations and watchdog bodies. To some extent, of course, all of these are voluntary—a nation can choose to flaunt treaties and international organizations (think of Syria). But the sanctions that could be brought to bear as a result, and the loss of international standing, are very often persuasive enough to prevent them doing so. So, an international campaign to establish sensible treaties between nations about tax policy and transparency could go a long way. Again, Treasure Islands gives some helpful suggestions."Call me an overly practical working stiff practitioner, but I see little value in spending time and energy critiquing a system if there are not proposals put forth (simultaneously) to remedy the system’s supposed shortcomings." While I sympathize with you here, and certainly, as an admirer of Hooker, I recognize the problem with the human tendency to find fault with all existing orders, even when nothing better can be suggested. But I think this argument of yours (which one runs into all the time whenever some aspect of free market capitalism is criticized) is often overdone. Indeed, I don't think that most of those who invoke it in this context are very consistent about it. Consider, for instance, the Christian Right's unending chorus of criticism for the evils of godless secular government. Few of those making such criticisms have a viable proposal about what a Biblically-based government would look like, and in defense, they might well say that the problem is that it's been so long since we had one, that we can no longer remember or imagine what it might look like; but there's no reason that that should keep us from drawing attention to current evils. And, while lack of viable alternatives might perhaps call for a more restrained and polite tone in criticizing current evils than we often indulge, I don't think it follows that criticism is completely illegitimate until you have the solution. Indeed, if a current state of affairs is bad enough, it might be quite difficult to see clearly enough what the solution might be until the evil is out of the way. Consider Christians in the third century. They hardly had the first clue about what a Christian Rome might look like, or how they might go about achieving such institutional conversion (hence the difficulty in adjusting to the sudden conversion of Constantine), but that hardly meant that they could not justly criticize the evils of the current persecuting imperial order. That, of course, is not to say that Monsanto should be compared with Diocletian, or anything like that. But it does mean that there is a legitimate place for calling attention to present sins and corruptions, even when it might be difficult to determine what the best solutions are. But, that said, I do *generally* take your point, and think it is important for Christians to be thinking quite intelligently and seriously about practical ways to achieve a more just economic order (and indeed, let's not ignore the contributions that many are already making in that direction), and that is something I hope to spend much more time doing in the coming years.

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  21. Bradley

    Also, I wanted to add this earlier, but my comment was too long and I decided not to. But since Bradford brought it up again…Jess, you say that individuals have the same advantages as corporations when it comes to international tax avoidance and evasion (i.e., lowering your taxes by both legal and illegal means). The shortest response is the one I gave: Well, it's immensely easier for a corporation to do it compared to an individual doing it. But a more nuanced response would point out the following differences:(1) Immigration laws are usually pretty strict when it comes to moving to another country, especially these tax havens. You couldn't just move to the Island of Jersey if you wanted to. Border Control would deport you after six months.(2) Furthermore, immigration laws wouldn't be your biggest obstacle. As an individual, you would have to physically move to one of these jurisdictions and leave behind all your family and friends. That would be a huge lifestyle change. But for a corporation, it's easy, and there's essentially no change. They just fill out some paperwork, and it's done. (3) Even if you did have the appropriate immigration forms and were willing to make the radical lifestyle changes, these tax havens often have laws that punish individuals and exempt corporations, or they'll have taxes for domestic business but not international business, or some other unfair treatment designed to attract international corporations without eliminating their tax base completely. So even if you managed to become a citizen of one of these tax havens, there's still a distinct possibility that you wouldn't experience any tax benefits. (Thankfully, the OECD has worked a little to improve this situation; they "blacklist" a country if it's radically unfair like that. When Jersey got into trouble a while ago, that's what I was referring to; they were almost blacklisted by the OECD. The day before the ruling, if I recall, the council narrowly avoided being blacklisted by lowering the personal income tax rate to match their corporate rate: 0%)(4) Corporations can make their finances 100% anonymous by officially assigning layers of secret directors and representatives that don't know anything about the finances. Sounds absurd, but it's true. And it's so easy to do. I personally own a Seychelles corporation with one level of anonymity. Individuals usually can't get this kind of financial anonymity without using a corporate structure of some kind. You might be asking yourself, "Why the heck does Bradley own a Seychelles corporation if he's so against all this stuff?" Well, I wasn't always. Before I thought through these principles a year ago I had intended to utilize offshore tax havens like all the other rich people I knew. I even got so far as setting up the corporation, but in the end decided against it. So ironically, I have this secret corporation sitting out there, but it doesn't even have a bank account attached to it since I stopped halfway through the process, lolSo no Jess: individuals don't have the same tax advantages as corporations.

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  22. Jess R. Monnette

    Hey Gents – I'm back, Bradley – Are you saying that under the LVT you propose (i.e. 100% tax on a piece of land's value, charged and paid at 100% each year) that food prices won't significantly increase? Also, who would be in charge of setting the value of land? Would it be done by the government in a similar manner to the way it is now with property taxes? (I ask because I am currently looking at a real estate tax assessment where the value of the “land” (separate from improvement) rose by over 100% in a four year period.) Brad – Re: your comments/qualifications on critiquing a system and not giving helpful proposals. I agree. The trick is that those who critique must make legitimate critiques of real world realities, not assumptions. You and Bradley do a great job of addressing the realities. But many critiquers (is that a word?) in the “down with the evil corporations” vein don’t. Bradley – Re: individuals having the same advantages as corporations, sure I agree with you here. And if I absolutely equated them before, I didn’t mean to. My initial point was simply to say, as long as individuals (and the entities they make up) are sinful they will attempt to game the system, and even if you magically prohibited all entity formation the world over, sinful individuals would still attempt to game the system. Also, re your personal S-Corp having limited liability. I assume that this is correct if you actually formed a corporation under your own state’s statutes. This is of course different than “checking the box” for federal tax purposes only. I just wanted to clarify that. – JRM

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  23. Bradley

    Hey Jess,First of all, sorry for being so verbose in all this. It's just that the idea of a Land Value Tax really excites me, and I love talking about it! There's nothing I enjoy more than a good idea, and this idea seems really good to me.Regarding food prices. Man, this topic excites me even more! I take it back: there's nothing I enjoy talking about more than food and farming. And you can multiply that by 5x if we're talking about LVT and farming at the same time! 🙂 There's no doubt in my mind that, all else being equal, lower agricultural land value/rent would lower the cost of producing food. However, that's not quite the same as saying that food prices wouldn't increase. It's likely food prices would increase, although I expect it to be for different reasons. For instance: (1) Agricultural subsidies are a significant element in our food prices, and just getting rid of those subsidies alone would increase most food prices significantly (which would represent a rise in prices, but not a real rise in the cost of farming, if you see what I mean). (2) Furthermore, under LVT folks would have more money in their pocket to spend due to the absence of income tax, payroll tax, sales tax, excise tax, capital gains tax, estate tax, etc. and the predicted outcome is more capitalization throughout the economy, i.e., all else being equal ALL prices and wages would increase significantly due to the tax burden being shifted (which would represent a rise in food prices, but only a nominal rise since everything else would rise as well).(3) As population increases and the world's available farm land stays roughly the same, we should naturally expect food prices to rise. Smart people should be investing in farms in the long term, if you ask me!So basically, I do expect food prices to rise, but LVT wouldn't cause it. LVT would be the farmer's best friend. 🙂 Jess, you asked: Who would be in charge of setting the value of land?FIRST: we need to make a distinction here between the sale/market value of land and the rent value of land. When I defined LVT earlier, I said “Land Value Tax should be equal to a site's annual rent cost excluding any improvements.” So we're not talking about the overall value of the land if you sold it; we're talking about its rental value right now. Determining the potential sale value of land is a more difficult than determining it's potential rent value. The sale value or market value of a property has future expectations and hopes built into the price. The rent value only shows what somebody is willing to pay for the property right now during the current year. That might seem like a trivial distinction, but it's actually a big deal. Here are just a couple reasons:

    (i) It doesn't make sense to tax someone based upon hopes and expectations of future wealth. As mentioned earlier, when you look at the sale price for a piece of land, part of that price reflects hopes/expectations. It makes much more sense to tax someone based upon the land value they're actually using, which means using the rental value to calculate the LVT. If the community made your property worth X each year, then you have the community to thank, and you should pay X rent each year. It's not relevant what the community might or might not do for your land value in the future (i.e., future hopes and expectations).(ii) The market value of a piece of land can fluctuate quickly and widely (even a simple rumour about development might influence prices!). By comparison, land rent is more stable and reliable, because it's more likely to reflect the actual usefulness of the land. If we based LVT on the sale value of land, then taxes would be more difficult for the government to accurately levy, and more difficult for the taxpayer to predict for accounting purposes. By basing LVT on rent value, annual taxes are much easier to measure and much more predictable

    SECOND: There's another dimension to this question that you might be hinting at. Even if the entire country has the exact same LVT code, the question still remains: Which branch of government should do the actual levying and collecting of LVT? Should all the tax go to the local branch of government, with portions being passed up the chain to the state level and federal level? Or should the federal government collect the taxes, with portions being passed down to the state and local levels? I think you can guess which setup I prefer. Local is better. He who collects the taxes has the power! That's another great advantage to LVT, if you ask me. It's the only tax I can think of that can make the higher levels of government more accountable to the lower levels.

    Re: individuals having the same advantages as corporations, sure I agree with you here. And if I absolutely equated them before, I didn’t mean to. My initial point was simply to say, as long as individuals (and the entities they make up) are sinful they will attempt to game the system

    You didn't absolutely equate them before; sorry if I put words in your mouth. I think I get your main point. Yes, people will game the system no matter what, whether we're talking about individuals or corporations. MY main point is that we've designed a system that's ridiculously easy for big corporations to game. So let's redesign it to make the gaming very difficult instead of very easy. (And here's where we return to LVT. I can't think of a way to “game” out of paying LVT tax. Can you?)

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  24. Bradley

    Bradford and Jess: Here's an interesting article very relevant to our 'corporations' discussion. The Endangered Public Company (from the current issue of The Economist, May 19th) I disagree with the author's "Oh no! This is horrible!" take on the situation, but nevertheless, these are some interesting developments and observations.

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