Economic logic implosion on the right
Published by punkass marc August 28th, 2006 in Big Business, MoolaLike anyone with right-leaning views, economic conservatives feign logical consistency but can’t seem to stop shooting themselves in the foot when presented with new information.
Let’s review the standard fiscal conservative story:
Competition brings out the best in business owners. Corporations have no incentive to overcharge customers because, if they do, those customers will buy from a cheaper competitor. Corporations have no incentive to underpay effective low- and mid-level employees because, if they do, those employees will be hired by a more ambitious competitor.
You’d be hard pressed to get a libertarian or wingnut to admit that corporations will molest consumers and employees to suck up every last dime and pass it to the top of the pyramid… unless it helps them argue for cutting taxes, it appears.
Jane Galt thinks she’s got this whole economy business figured out. Way back in 2002 she argued for the abolition of the corporate income tax, and now that the CBO claims 70% of that tax is shouldered by domestic labor, Jane’s busting out an enormous “I told you so.” She even quotes herself. Isn’t that adorable?
Of course, what she quotes from her 2002 piece is rather intriguing:
When you put a tax on wages, such as social security or the unemployment tax, the employer doesn’t say, “oh, well, profits dropped 15% this year; better tell Merrill Lynch to issue a ’sell’ rating” — they pay their employees less, both to lower the tax burden and to recover the lost profits. They hire fewer employees, because each employee is now more expensive. This costs real people money. When you up the corporate tax, either the employees pay, because the firm can’t afford as many of them; the customers pay, because the firms have to raise their prices to cover the taxes; or the shareholders pay because dividends are lower and the company is worth less.
But now I’m confused. Won’t paying people less cost them the best employees? Won’t hiring fewer people leave them at a competitive disadvantage? Won’t charging more for the product leave them behind hungrier competition? Why wouldn’t a corporation just reduce its executive bonus packages and the like?
For Jane’s tax arguments to make sense, she has to admit that executives and capital owners bleed everyone else dry before touching their own income. But that doesn’t jive with the fun stories they like to tell about competition enforcing customer and employee protection, does it?
After all, if a corporation’s profits rise, wouldn’t a conservative argue that, to stay competitive, that corporation would lower costs to consumers, pay their good employees more, or hire more good employees at a fair wage? Why, then, if profits are cut by a corporate income tax, would the first people to suffer be employees and consumers?
If Jane thinks about it, her arguments necessarily mean that abolishing the tax won’t do a damn thing for the employees currently shouldering the burden. She’s now admitted that the workforce and the consumer base are pawns of the corporate fatcats, and if those are the first people burdened by profit loss, then they’ll also be the last to be rewarded by profit gains.
Of course, liberals and progressives know full well the workforce and/or customer base will almost always suffer to keep capital owners in the lap of luxury. Just fire up a cigar at the country club with CEOs from Wal-Mart and Exxon-Mobil to learn a few lessons about working over the typical American.
The CBO numbers merely reflect the ugly nature of corporate business practices. I’m deeply amused that a conservative pointed them out and made my arguments about corporate behavior for me.
Sadly, we can’t rely on the conservative to draw the proper conclusion, but that’s nothing new, is it?
I love the idea that my actual wages should be reduced significantly by taxes to pay for mythical raises from the corporate structure that are sure to come…..after they finish finding ways to give the CEOs raises.
Jane Galt…ugh. I can already tell she’s an idiot just from her pseudonym.
Excellent post!
I have only one problem with it:
Of course, liberals and progressives know full well the workforce and/or customer base will almost always suffer to keep capital owners in the lap of luxury. Just fire up a cigar at the country club with CEOs from Wal-Mart and Exxon-Mobil to learn a few lessons about working over the typical American.
Who actually owns these corps vs. who controls them.
For good or ill, Maomart is an great example. When Sam still owned and ran that corp, it’s relationship to its employees was DRASTICALLY different than now. Now, I couldn’t tell you who owns it, but I can tell you who runs it.
Employees unders Sam had a tendency to benefit in a large number of ways, under its present management (based on conversations with analysts), I’m not sure anyone except the non-owning controllers benefit (well, and Sams lazy kids)
I know first hand that Sam based his salaries on the local prices of the hood of the store. So a store in a small town Nebraska paid enough to rent a house and feed your kids. A store in a larger town paid slightly different, based on local cost.
Many other issues here, but the one I found most interesting is what happens when a company moves from the control of those who own and run it, to those who only run it for themselves.
Oh, sorry, tried to block quote your words and it didn’t work, apologies.
Johnny,
A fair point, but Exxon-Mobil’s CEO pulled down like 400 mil last year. I’m just sayin’.
PA marc, so what? I guess Exxon-Mobil’s CEO doesn’t own the company, so in what way is his salary a counterpoint to what Johnny said?
Magnus,
I wasn’t arguing. He quoted my statement “Just fire up a cigar at the country club with CEOs from Wal-Mart and Exxon-Mobil to learn a few lessons about working over the typical American.” And I was simply pointing out that those dudes make out like bandits. He’s probably right that it isn’t the “capital owners” as much as the controllers of the company at fault.
In truth, I just
justlove pointing out how much that guy makes.Fair, I missed the “almost”-part and read it as he taking exception the the always bit.
For the record I think things go bad when the stock value becomes the first priority (next to the executive bonus package, of course). There are many ways to hike the share price, and few have much to do with running healthy companies.
PS should that be “… just love pointing out …” ? DS
You’re confusing local and general effects. When everyone’s taxes go up, there’s not that much competitive effect, since all your competitor’s taxes go up too. That’s very standard classical right wing economics theory. If you are going to make fun of somebody for not being consistent in their economic views, you should first familiarize yourself with what those views are. I presume you must be knowlegeable about something: has any ignorant person ever, in your experience, hit on some telling critique that the experts haven’t already thought of and dealt with?
More broadly, you’re completely missing the point of the article, which is that it doesn’t matter who pays what share of the corporate income tax, because the overriding fact is that corporations don’t pay it. All corporate income taxes are ultimately paid by either the owners, employees, or customers of the corporation. I made no claims about how those taxes should be, or are, distributed; I only claimed that it would be more efficient to tax the people directly, which would allow us to precisely target those we want to tax, rather than taxing the corporation and hoping that the taxes land on the people we want to fleece.
Jane,
1) The only thing that “corporations don’t pay it” proves is that the conservative model of competitive responsibility is a fallacy. That’s my entire point.
2) If you accept (as you do) that businesses screw the consumers and employees first, then lifting the tax won’t help consumers or employees. Corporations will simply redirect the savings to the top.
3) You say: When everyone’s taxes go up, there’s not that much competitive effect, since all your competitor’s taxes go up too. That’s very standard classical right wing economics theory. And that’s almost true, except _how you distribute the burden_ of those taxes could greatly impact your productivity.
If the people at the top suffer more of the burden, presumably you can charge less to customers and/ore pay more to better employees than your competitors who pass the tax down the line.
And yet that doesn’t happen. As you admit, companies screw customer and employees first. You sorta have to admit it b/c the CBO data backs up this very left wing idea. And that blows up a pillar of classical right wing economics theory. See point #1 again.
You’re confusing local and general effects. When everyone’s taxes go up, there’s not that much competitive effect, since all your competitor’s taxes go up too. That’s very standard classical right wing economics theory.
I assume that in classical right wing economics theory, the part of the world called “overseas” doesn’t exist?
When everybody’s taxes go up, the big outsource as much as possible to other countries and shelter their profits. The small are forced to suck it up and suffer.
One thing about paying a premium for workers: always remember that the Fed tries to keep unemployment high enough to avoid having to pay a premium for good workers. When businesses have to worry about paying workers enough, that’s called “wage inflation”, and it’s considered a bad, bad thing by the Fed.