A Philosopher's Blog

Some Truths About Taxes

Posted in Business, Ethics, Law, Politics by Michael LaBossiere on December 19, 2011
Tax

Image by 401K via Flickr

One of the talking points for the Tea Party and many Republicans is that business is being taxed too much. Another talking point is that businesses are not creating jobs because they are either 1) taxed too  much or 2) afraid they will be taxed too much in the future. While these make good talking points for the talking point parrots to repeat, it is well worth considering facts about taxes and corporations.

A recent study of thirty large American corporations reveals some interesting facts.  First, all of these companies spent more lobbying the government ($476 million) than they spent on taxes. Second, 29 of the corporations paid no taxes and, in fact, received tax rebates ($11 billion combined). One company, FedEx paid taxes at a 1% rate. Third, the firms donated $22 million combined to federal election campaigns. Third, while all these corporations are profitable, many of them have laid off significant numbers of employees (perhaps explaining the profits). Finally, most of the companies have increased the compensation for their top executives (a few have decreased such compensation).

In the case of these corporations, it seems rather clear that they are not over taxed. After all, 29 of them got rebates and only one paid taxes at a 1% rate. It could, of course, be argued that these corporations are exceptions and that less connected businesses pay significant (or even unfair) taxes. If this is the case, this would suggest that the tax remedy does not lie in simply lowering taxes but addressing the aspects of the system that allow these thirty corporations to gain what would seem to be a rather unfair advantage over most Americans and perhaps other businesses as well.

It also seems clear that high taxes or fear of taxes is causing these business to not create jobs. After all, 29 of them paid no taxes and one paid at the 1% rate. However, rather than creating jobs some of these companies cut jobs. As noted above, cutting employees is a way of creating profits. In the face of this evidence, it seems rather difficult to blame Obama for the failure of these companies to create jobs: they have no (or little) tax burden and are profitable. So profitable, in fact, that they can spend generously in buying access and in providing sweet compensation to the top executives. In this system, the top executives and the folks in Washington are the clear winners while the American people (especially the people who were laid off by some of these companies) are the clear losers.

This situation indicates one harm of the current lobbying system-it enables certain corporations to be able to acquire unfair advantages. This is hardly creating the free market that ends up in so many talking points. It also indicates another harm-companies need to lobby to gain these advantages that are given by politicians. That is, these politicians seem to either be blackmailing corporations (“don’t want to pay at the 35% tax rate? Just donate. And lobby. Otherwise…”) or in cahoots with them (“you scratch our backs with millions of dollars and we will scratch you back with some major tax breaks…hey, it is just the citizens’ money!”).

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51 Responses

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  1. FRE said, on December 19, 2011 at 3:43 am

    Dr. LaBossiere,

    There is one factor, and a very important one at that, that you overlooked.

    Businesses WILL NOT hire more employees as long as they can meet the demand for their products and services without hiring more employees. The only reason for them to hire more employees would be to increase their profits and, unless they are unable to meet the demand for their products and services with the present number of employees, it would make no sense to hire more employees. Although Obama’s recent speech was a step in the right direction, he failed to point out that unless there is an increase in aggregate demand, companies have no reason to hire more employees and will not do so.

    This is basic economics. A recent survey of employers confirmed it. It needs to be explained to the American people, perhaps over and over. Although I have the equivalent of a minor in economics, that would not be necessary to understand the present situation.

    Except for the unfortunate omission of the importance of aggregate demand, your blog was fine.

    • magus71 said, on December 20, 2011 at 5:41 pm

      Many businesses say they are not hiring because they cannot find qualified people, especially in the IT industry. America has fallen behind the East quite badly in that realm. High-schoolers in China and North Korea are better with computers than many of our so called experts.

      • Michael LaBossiere said, on December 20, 2011 at 8:43 pm

        There are plenty of IT people here in Tallahassee that are underemployed or unemployed-but perhaps they are in the wrong part of America.

        • magus71 said, on December 20, 2011 at 9:44 pm

          I wonder if big college towns are tougher to find jobs in? I know I had a tough time there. Maybe the availability of so many college grads and people in college fills a lot of job slots.

          • Michael LaBossiere said, on December 21, 2011 at 2:21 pm

            It could be-they do have a huge pool of recent graduates to pick from. Also, college towns often only have the college as the big industry.

        • wtp said, on December 20, 2011 at 10:32 pm

          If so, they need to move. There are plenty of IT jobs from what I have seen. I don’t think Tallahassee is much of an IT hot spot, from what little I know of it. If people want to stay in FL, Tampa, Orlando, Jax, and even Ft. Laud. would be much better options.

          • Michael LaBossiere said, on December 21, 2011 at 2:31 pm

            What often holds people here is a spouse or gf/bf in school. Our big employers are the state (which is getting cut), FAMU (also getting cut), FSU (also getting cut), and TCC.

            I’m on the technology committee for FAMU starting this spring, so I’ll get more of an inside look at IT in the city.

  2. WTP said, on December 19, 2011 at 1:39 pm

    “The only reason for them to hire more employees would be to increase their profits and, unless they are unable to meet the demand for their products and services with the present number of employees, it would make no sense to hire more employees.”

    This is typical left-wing economic steady-state thinking. One big thing you are missing is that businesses also hire people to create products for which there is, as yet, no demand. The money to pay for these new products comes out of reasearch and development which can only arise from surplus income, be it in the business itself or via outside investors with available capital. It needs to be explained to the American people, perhaps over and over…Businesses do not exist to provide people with jobs. This is basic economics.

    • FRE said, on December 19, 2011 at 2:15 pm

      Your statement, “This is typical left-wing economic steady-state thinking,” indicates a lack of objective thinking. Using terms such as “liberal” and “left-wing” impedes the ability to think objectively. So do terms such as “right-wing” and “neo-con.” It certainly does not add to our understanding of the problem. We need to think clearly and objectively rather than engaging in thinly disguised name calling to obfuscate issues.

      Suppose that you owned a restaurant with a seating capacity of 50 people but that it was almost never filled to capacity. Let us further suppose that the staff was already sufficient to serve the customers promptly. Why would you even think of hiring more employees? On the other hand, if the restaurant were often filled to capacity and customers too often had to wait to be served, then you would think of expanding the size of the restaurant and adding more employees. A large percentage of people work for small businesses in which R & D are not factors. It is these small businesses which can expand most quickly to increase the number of employees, but without adequate demand for their goods and services, they have no reason to expand.

      Of course R & D are important, but not in the short run. R & D has resulted in such products as high definition television, I-pods, etc., but such things to not account for a high percentage of employment in the U.S.

      • WTP said, on December 19, 2011 at 2:46 pm

        OK, so there is no thinking that is typical of people with a certain veiw point. Didn’t say you were a typical left-winger, just that such a narrow-view of certain aspects of economics were typical of left-wing perspectives.

        OK, suppose I do own such a restaurant. Where do you suppose the excess wealth comes from that enables people to have sufficient disposable income to dine out? You are mistaking money for wealth. You can fool people into believing they have more wealth by issuing more debt but at some point that money either needs to be paid back, which reduces future economic activity, or print more money which leads to inflation and thus complicating the future confidence of people in their percieved wealth. The latter is generally the easier path for governments to take, thus the worsening of the economic conditions. To make matters worse for demand-side thinking is that with the faster information flows, the harder it is to fool people into believing they are better off than they actually are.

        A large percedntage of people who work depend on the R&D products and profits from such which create the excess wealth that allows for conspicuous consumption by others. The problem with your example is you simply invented your increase in demand. You didn’t give consideration as to where that increase in demand actually comes from. Sustainable demand is a product of increased wealth in the economy. This is typical of …well, whatever.

        • WTP said, on December 19, 2011 at 3:44 pm

          Another point I forgot to make is that it is not as if all R&D starts at the exact same time, nor does all of it in the long run.

  3. T. J. Babson said, on December 19, 2011 at 3:43 pm

    There is so much sloppy thinking in this post it is difficult to know where to begin.

    Let’s take one point at a time.

    1) There are roughly 28 million business in the US. http://www.census.gov/econ/smallbus.html A study of 30 large corporations is absolutely not representative of the average American business.

    2) The reason those big companies are able to pay such low taxes is that the cost of lobbying for loopholes is cheaper than paying the high corporate tax rates. Most Republicans support lowering the tax rate but closing the loopholes. This would actually increase revenue to the Treasury. Again, no effort is made to try to understand the opposing view in a sympathetic way.

    3) An honest look at the policies of both parties would find that the Democrats are much more willing to play the crony capitalist game than the Republicans, although the GOP is guilty, too.

    4) Uncertainty of all types is discouraging business expansion. How will Obamacare affect small businesses? Nobody knows, and that is the problem.

    • anon said, on December 20, 2011 at 9:33 am

      1) The point is that not all business pay a lot in taxes
      2) They pay more in lobbying than they do in taxes
      3) LOL @ “Must more willing”. Sounds like you’ve never met a Republican before.
      4) Reality is uncertainty, are you saying that reality discourages business expansion?

      • T. J. Babson said, on December 20, 2011 at 10:46 am

        This is the kind of uncertainty that is hurting business:

        From the Washington Post:

        With many states unwilling or unable to get insurance exchanges operational by the health-care law’s deadline of Jan. 1, 2014, pressure is growing on the federal government to do the job for them.

        But health-care experts are starting to ask whether the fallback federal exchange called for in the 2010 law will be operational by the deadline in states that will not have their exchanges ready.

        http://www.wpost.com/politics/concern-growing-over-deadlines-for-health–care-exchanges/2011/12/16/gIQA51cX3O_story.html

        • Michael LaBossiere said, on December 20, 2011 at 1:55 pm

          It would make sense to decouple health care from businesses. As people have argued, this does provide a burden on businesses. It seems more sensible to look at something more like the car insurance model-I can but whatever insurance I like, I can shop around, and my rates are not based on whether I am in a group or not.

          Of course, we would also need to act to curb health care costs. As I have mentioned before, there is a lot of low hanging fruit that some smart folks have already started grabbing, such as having health care professionals follow basic procedures for avoiding contamination (that is, wash their damn hands).

  4. magus71 said, on December 19, 2011 at 10:58 pm

    Let’s raise taxes and give the money to…whom?

    • FRE said, on December 20, 2011 at 4:45 am

      Raise taxes and use a substantial part of the money to reduce deficit spending.

      Although deficit spending is not an immediate problem, it will become a serious problem if there is excessive delay in greatly reducing the deficit. But if attempts to reduce the deficit are not carefully crafted, they can have exactly the opposite effect by reducing economic growth.

      Also, there are ways in which governments can spend money to encourage economic growth. We now have a unique opportunity to develop a nuclear energy technology that will be more economical and safer. If we don’t do it, the Chinese will do so and we will pay dearly. The U.S. government did the initial work to develop our present nuclear technology which, unfortunately, started us in the wrong direction by developing the wrong technology for civilian power. We should lose no time in correcting that mistake.

      http://thoriumremix.com/2011/

      • Michael LaBossiere said, on December 20, 2011 at 1:37 pm

        If thorium reactors have the benefits alleged of them, then they would certainly be a viable and desirable source of energy.

  5. wtp said, on December 19, 2011 at 11:06 pm

    Well, while we’re hopping the pond…

    • FRE said, on December 20, 2011 at 4:49 am

      At one time, England was a socialist country. The English government owned major businesses and the resulting inefficiency created a disaster. However, we have not made that mistake and are unlikely to do so. For well over 100 years, we have had a mixed economy and, in general, it is served us well. There is good reason to think that it will continue to serve us well.

      • WTP said, on December 20, 2011 at 9:43 am

        “At one time, England was a socialist country.” – I agree. But I’m willing to bet that there are quite a few on the left who would argue that it was never socialist or never socialist enough, and thus the problem. Even Mike often makes such references to the failures of socialism in general. Don’t recall if he’s ever been specific about the UK, but close enough.

        Disagree on the history of this country. Government spending is, by its very nature, extremely wasteful. I’ve seen it with my own eyes, lived it, in the great government “success” story of NASA’s manned space flight. Even a large swath of Republicans are fooled by what a waste that program was. Only now, as the government moves out of the space biz are people with genuinely innovative and financially responsible approaches to the problem, is it becoming apparent to the public that we’ve been wandering in the desert for the last 40 years.

        • Michael LaBossiere said, on December 20, 2011 at 1:50 pm

          I’m wary of socialism for some of the reasons WTP gives. While my experience is in the academic field, it does match what we see in the state and in business: the people who actually perform the alleged mission generally have low salaries and limited resources, while the upper administrators and management absorb a disproportionate amount of resources and tend to act in ways that are wasteful-either knowingly or though ignorance. It might be simply a fact that most people use upper level positions to self-enrich and this approach leads to what people who do things would regard as waste.

          • FRE said, on December 20, 2011 at 4:50 pm

            Dr. LaBossiere,I agree with what you have said.

            C. Northcote Parkinson wrote several laws that shed light on the situation (I’ve paraphrased; I don’t remember the exact wording):

            1. Work expands to fill the time available for its completion.

            2. Bureaucracies tend to expand for no valid reason, partly because the administrators are often paid based on the number of subordinates.

            3. Expenditure rises to meet income. When a government has unlimited income, its expenditures tend to keep rising.

            In spite of the above, government does have its place. Even though it is all too often inefficient and even though corruption can never be completely eliminated, there are still some things that governments can do better than individual people and private entities. And, private entities are not completely corruption free, can be just as over-bearing as governments, and are also sometimes very inefficient and wasteful. Having had the misfortune of working for A T & T for one year (1962 – 1963), I could give excellent examples of bungling, inefficiency, waste, stupidity, duplicity, and over-bearing behavior. Governments by no means have a monopoly on these problems.

            Instead of blindly opposing government regulation and action, we have to examine it very carefully and often select among the lesser of evils.

      • Michael LaBossiere said, on December 20, 2011 at 1:45 pm

        One recurring theme is that dictatorships typically attempt to manufacture a make-believe world. When dictatorships have centralized economies, they extend this to the economy and this tends to result in problems.

        A centralized economy could work, provided that it is not part of a delusional political system and it had competent people running things from top to bottom. In reality, however, what seems to happen is the usually bloating at the top that occurs in all institutions. In a centralized economy the bloated system has no competition except other countries (which can explain why centralized economies often try to be isolated or use political means of self-protection). Of course, even our system allows corporations to bloat up at the top-they can compete in the political sphere rather than the economic sphere. Thus, in a sense, we have a heavily state influenced system in which the state creates situations that are ideal for certain businesses (but also create rules to extort money from such businesses).

        • FRE said, on December 20, 2011 at 4:58 pm

          Very good.

          Another problem with dictatorships is that the dictator constantly has to reward people very lavishly so that they will help him retain his power. One can see that by reading how the former “president” of Egypt, who was actually a dictator, maintained his power. The king of Tonga used similar methods, i.e., enabling his relatives to own very lucrative monopolistic businesses to the detriment of the people.

          I lived in Fiji during the year 2000 coup and had a full-page article published in the “Fiji Times” about dictatorships. The following is a link to the article; a few minor errors have crept into it:

          http://www.fijihosting.com/pcgov/docs_o/eggers_democracy.htm

          • magus71 said, on December 20, 2011 at 5:37 pm

            I completely disagree that democracy is for everyone. My conservative brethren would cast me out for such a sentiment, but I believe it’s true.

            An enlightened people deserve a democracy. An unenlightened people require otherwise.

            A democracy of unenlightened people looks like a nation of Lord of the Flies.

            • Michael LaBossiere said, on December 20, 2011 at 8:42 pm

              Well, you do agree with Mill:

              For the same reason, we may leave out of consideration those backward states of society in which the race itself may be considered as in its nonage. The early difficulties in the way of spontaneous progress are so great, that there is seldom any choice of means for overcoming them; and a ruler full of the spirit of improvement is warranted in the use of any expedients that will attain an end, perhaps otherwise unattainable. Despotism is a legitimate mode of government in dealing with barbarians, provided the end be their improvement, and the means justified by actually effecting that end. Liberty, as a principle, has no application to any state of things anterior to the time when mankind have become capable of being improved by free and equal discussion. Until then, there is nothing for them but implicit obedience to an Akbar or a Charlemagne, if they are so fortunate as to find one. But as soon as mankind have attained the capacity of being guided to their own improvement by conviction or persuasion (a period long since reached in all nations with whom we need here concern ourselves), compulsion, either in the direct form or in that of pains and penalties for non-compliance, is no longer admissible as a means to their own good, and justifiable only for the security of others.

            • FRE said, on December 21, 2011 at 3:38 pm

              It’s probably true that democracy is not for everyone. However, that should be considered to be a temporary situation. For a democratic government to function even passably well, the people have to be sufficiently educated to understand how democratic governments are supposed to function and, in addition, have to agree on some basic principals. They also have to have at least a passable concern for people whose situations, ideas, and needs are somewhat different from their own. This could easily be expanded upon, but I think that I have covered the basics.

              One could argue that even in the U.S., too many people are not sufficiently well informed and educated for a democratic to function optimally.

            • Michael LaBossiere said, on December 22, 2011 at 3:05 pm

              Interestingly, the push in American education is away from creating citizens and towards creating job fillers for the job creators. Being prepared for a career and being prepared to be a citizen are not mutually exclusive, but the qualities that make an informed and capable citizen of a democracy are not the same that prepares a person for the 9-5 job filling being pushed these days.

              Ideally, education would produce people who can be competent in a career but also a competent citizen (and human being).

          • Michael LaBossiere said, on December 20, 2011 at 8:40 pm

            Quite right-he who would be a dictator must also be a paymaster.

    • magus71 said, on December 21, 2011 at 3:07 pm

      Sounds familiar and her argument is perfect and applies today. She was a great leader. Exactly right; liberals are more worried about the gap in income than they are in how much more people are earning relative to what they earned before.

      • FRE said, on December 21, 2011 at 7:35 pm

        I don’t believe that; both are important considerations. In real terms, the incomes of many people have declined over the last decade. And, the gap between rich and poor has grown astronomically over the last decade.

        It would be reasonable to say that there should be no gap between rich and poor. But surely it is possible for the gap to be unreasonably great. It’s especially grating when many people get their high incomes not from performing useful services, but rather, from financial manipulations.

  6. wtp said, on December 20, 2011 at 10:28 pm

    While I agree that private companies can be bungling and inefficient, etc. etc. I have found that these problems increase with the size of the organization. That, combined with the level of competition the company has in its market. Governments are by nature both big and monopolies in their markets. I find it interesting that you mention AT&T and in the early 1960′s. AT&T was a very large corporation with a monopoly. A government-regulated monopoly. I recall in the 1980′s when AT&T was broken up and competition returned to the market place, innovation in the telephone business took off. That was a fine example of the evils of crony capitalism.

    • magus71 said, on December 21, 2011 at 6:29 am

      Good point about government monopoly. That’s a big issue rarely talked about. By definition there can be only one government. Which creates defacto government monopolies.

      • Michael LaBossiere said, on December 21, 2011 at 2:32 pm

        True, but a lack of government monopoly would seem to lead to civil war. However, perhaps many services could be spun off from the state.

        • magus71 said, on December 21, 2011 at 3:10 pm

          Government monopolies should be minimized. The government should have a monopoly on violence in order to maintain peace.

    • anon said, on December 21, 2011 at 9:13 am

      Governments are not by big by nature but they are natural monopolies like how parents have monopolies over their children.

    • Michael LaBossiere said, on December 21, 2011 at 2:29 pm

      Size does seem to be a factor in efficiency. Before modern communication technology a big organization faced the slowness imposed by distance which caused the obvious problems. Even today big organizations have communication distance between the various levels. Usually communication up the chain is rather slow and sometimes simply ignored.

      There is also the fact that the bigger the organization, the more parasites it attracts (and can support). Big organizations also provide a place for such people to hide.

      • magus71 said, on December 21, 2011 at 3:00 pm

        Mike,

        I’m sure you’re familiar with Edmund Burke’s arguments as to why governments don’t do well when trying to act as the parent to individuals, as anon seems to imply they should (or do).

        To summarize, Burke states that life is far too complicated to entrust to distant and detached central planners. FA Hayek makes a similar argument.

        The more distant a government, the more inefficient it becomes. The founders understood this, and thus entrusted the states to pass “granular” laws that fit the needs of the local populace. The federal government is charged with maintaining the Constitution and defending the nation from external threats; it can be considered a “generalist”. The more specialized we try to make the federal government, the bigger a monster it will become. We are seeing the results of this now.

        • Michael LaBossiere said, on December 22, 2011 at 3:02 pm

          In general, that is a sensible approach. Historically, micromanaging from a distance (either spatial or “bureaucratical”) has often proven to be problematic. A classic example would be the micromanaging attempts in the Vietnam War.

          I also agree with Mill’s moral argument that the society only has a right to interfere with the liberty of people to prevent harm to others (that is, what is just my business is just that).

          The state should mainly focus on laws to prevent harm, defense, and projects that serve the general welfare (such as keeping the highways operational).

      • FRE said, on December 21, 2011 at 3:59 pm

        By the late 1850s, communication was adequate to circumvent the technical limitations of communication within big organizations; the invention of the telegraph, which was largely a mature technology by 1860, greatly reduced communications limitations. It also enabled newspapers to print news from around the country in a timely manner. Also by then, railroad technology, although primitive by modern standards, made it practical to ship goods around the country and greatly expedited travel, even though it was not exactly safe at that time.

        After the Civil War, Jay Gould, a railroad tycoon, had a telegraph in his mansion and had a resident telegraph operator. His sons also learned how to operate a telegraph. The teletype and stock ticker were also invented in the late 1800s, further expediting communication.

        However, communication within large organizations often fails to produce the desired results. Often there are rivalries within companies which greatly impede efficiency. Executives often ignore good ideas from lower level employees which is such a widely recognized problem that there are even procedures designed to address it. That problem also occurs in small companies.

        The well-known problems within private companies are even greater in governments which is a good reason to keep things private except in those situations where it has been amply demonstrated that governments can do a better job.

  7. magus71 said, on December 21, 2011 at 3:31 pm

    • magus71 said, on December 21, 2011 at 3:40 pm

      Stupid Copy HTML function doesn’t work half the time….

      • Michael LaBossiere said, on December 22, 2011 at 3:06 pm

        WordPress does get a bit flaky with videos from time to time. I’ve pasted some in that worked in the preview, but did not show up at all in the actual post. But since it is free…

  8. magus71 said, on December 21, 2011 at 3:41 pm

    • magus71 said, on December 21, 2011 at 3:43 pm

      I’m about to smash my keyboard….

    • dhammett said, on December 21, 2011 at 4:43 pm

      “a scapegoat minority” Who would that be? It wouldn’t be, say, the Muslims? Or the Hispanics?

      “Posters, radio, press, all tell you the same lies.”
      In this country? The radio? Seriously? The press? Washington Times? The National Review? The WSJ ? Or the New York Times? The Washington Post?

      “The least educated. . .” Now here’s a steep and winding road to serfdom, if that’s a good word choice here. As the gap between the wealthy and the poor widens, the distance between the educational opportunities available to each also widens. The poor are swirling down the drain and the climb back would seem to be getting more and more difficult. And before anyone brings it up, all problems with education simply cannot be placed at the feet of educators. One cannot ignore parents. Or taxpayers who say they expect good education then grab for their wallets when expected to pay for it. Or lack of a serious effort on everyone’s part to define how a good educator should teach in real-life situations (crowded classrooms, outdated textbooks, etc.).

      “there is no room for differences of opinion. . .” Hmm. Are you ******** me?

      Seems the cartoonist somehow set one ideological foot onto a slippery slope and lost control here. This is no more than an animated bumper sticker.

      • dhammett said, on December 21, 2011 at 4:45 pm

        Now you won’t have to read my post in reply to your War on Religion posting of the Hayek cartoon. :)

  9. Taxing Truths - Christian Forums said, on January 5, 2012 at 8:26 am

    [...] Truths From Mike LaBossiere: A recent study of thirty large American corporations reveals some interesting facts. First, all [...]

  10. [...] able to hire as many workers. Big government has worked NO WHERE SUCCESSFULLY ON EARTH.. From Mike LaBossiere: A recent study of thirty large American corporations reveals some interesting facts. First, all [...]

  11. Mia Miln k said, on January 10, 2012 at 7:11 pm

    During my first year of college, I worked in the admissions office as a work study student to make more money.


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