Monday, August 15, 2011

Hunting the Boogeyman—“Wall Street Greed” and Taxing Corporations

“All of a sudden they start hearing . . . Pavarotti comin’ out of their asses.”
—Larry Ferguson as Chief Watson in The Hunt for Red October

At an event prior to last Thursday’s Republican debates in Iowa, Mitt Romney was accosted by hecklers chanting “Wall Street greed,” and urging him to increase taxes on corporations.  Somehow “Wall Street” and corporations have become common whipping boys as the economy continues to vascillate between plunging off the cliff and stabilizing in the flatline the Obama administration and Left media like to call “recovery.”  Apparently either or both are the cause or the cure for what’s ailing America.

This is what happens when people let their sphincters get ahead of their brains.

Let’s start with “Wall Street.” 

Does anyone have any idea what the hell these people are talking about?  Wall Street, at its literal and most basic, is just that:  a small street in lower Manhattan.  In that sense it’s not really any different than Pine Street to the north of it, or Maiden Lane to the south.  And as such, it’s an inanimate object and not capable of greed or any other emotion or vice.  Surely that’s not what they’re talking about.

As an institution, “Wall Street” refers to the financial and stock markets centered there.  These are made up of people who make their living trading in currencies, financial instruments, and in the stock of public corporations.  In essence, they are making educated bets on which companies and instruments will do well versus others; they buy those that appear undervalued relative to their potential, and sell when that potential is realized and their value increases.  That is where they generate their profit.  In that sense I suppose these people are “greedy.”    

What I can’t figure out is what that has to do with anybody else or anything.  That a trader makes a good play on the stock of XYZ corporation and is able to sell it at a profit does not impact anyone else in the least.  Even if you work for XYZ, that means essentially nothing to you.  If anything, the fact that the trader was able to sell it at a profit means the price of that stock has gone up, which means in all likelihood your employer is doing well, and that bodes well for you as an employee.  “Wall Street,” as an institution, doesn’t deal in fiction.  A corporation is either profitable or it isn’t, and the traders don’t have any impact on that.  Stock prices reflect the perception of the relative health of the companies those shares represent and of the economy in the aggregate, they don’t cause it.  So complaining about “Wall Street greed” is at best misguided, and at worst hopelessly ignorant.  Punishing those who profit from trading—presumably what people are implicitly suggesting when they complain about “Wall Street greed”—won’t do anything to improve the economy or the complainers’ individual situations.

Then there’s the cry to tax corporations, which was raised when Romney was trying to explain his pledge not to raise taxes on people.  Ah, don’t tax people, tax corporations.  How could I have been so blind to miss that?   Romney responded that corporations are people, a statement that DNC Chairman Debbie Wasserman-Schultz—and I think as we head into the election cycle her mouth is going to prove to be the gift that just keeps on giving—called a “shocking admission” that Republicans “have misplaced priorities.”  Well, Ms. Wasserman-Schultz and those who think taxing corporations is the alternative to taxing people, let me try to explain this.

Corporations are, in fact, people. 

These corporations you’re talking about are legal entities that cannot act other than through the actions of the people that make them up; i.e. their employees.  I am an employee of a corporation.  So is my wife.  Chances are, so are you.  And corporations are organized by their stockholders—the people who own them—in order to make profits for those shareholders.  So, a corporation’s existence, actions, and purpose are all undeniably and inextricably tied to people.

More to the point, taxes on corporations are taxes on people.  First, let’s dispel this idea that corporations pay income taxes.  They don’t.  Taxes levied on their profits simply get built into the price of the good or service they provide.  You want to tax Exxon?  Exxon ain’t gonna pay that tax; it’s going to pass it right on down into the price it charges for gasoline.  Not only are you going to pay that tax when you go to the pump, but you’re going to pay it again when you buy anything else that depends on gasoline for its transportation, because the higher price of gasoline is also going to be built into the price of everything else.  It’s the most insidious form of lie for the Left to continue to feed the poor and disadvantaged this pablum that “it’ll be OK, we’ll just tax corporations and use that money to pay for things we’re going to give to you.”  Corporations aren’t ultimately going to pay that tax.  All of us, including the poor supposedly being helped, are going to pay it.

But let’s indulge Ms. Wasserman-Schultz in the fantasy that corporations are actually going to pay these taxes.  They’re still a tax on people.  By taxing the corporation, you cut into the profits available to the corporation’s shareholders.  So you’re taxing them.  And by cutting into those profits, you are likely cutting into bonuses and hindering raises in the salaries paid to the corporation’s employees. So you’re taxing them, too.  Worse, you are reducing the likelihood that that corporation can expand its business and hire additional employees—that’s right, kids, you’re cutting back on the very job market that presumably those with the most strident cries of “tax corporations” are depending on getting back on track.

What these people are really saying when they complain about “Wall Street greed” and taxing corporations is, “Look at that profit.  There’s a big pile of money.  Let’s go take it.”  That, my friends, isn’t job creation, and it isn’t responsible fiscal policy.  It’s theft.

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