A Programmed Candidate’s Candid Clarity

December 08, 2011

The raucous race for the GOP’s 2012 presidential nomination could hold one or two more surprises, but at this moment, things look awfully grim for Mitt Romney.

Too rich. Too slick. Too many flip-flops. Too many establishment endorsements. Too perfect home life. And too damned good looking. Altogether, the objections presented an enormous opening for competitors. And after flirting with a handful of alternatives, Republican voters appear to favor a pudgy, rumpled, motor-mouthed, thrice-married ex-fedpol.

But win or lose, give the field’s most boring candidate credit. In 2011, of all the never-ins, dropped-outs, seldom-covereds, and heavy hitters, he made the most interesting comment.

You probably missed the observation, since it came in the dead of summer, when sane people don’t devote a single neuron’s attention to politics. In August, while speaking at the Iowa State Fair, protesters hammered the former governor of Massachusetts with predictable blather about taxing corporations.

“Corporations are people, my friend,” Romney replied.

Incredulous, the hecklers howled their disagreement.

“Of course they are,” Romney shot back. “Everything corporations earn ultimately goes to people. Where do you think it goes? Whose pockets? People’s pockets. Human beings, my friend.”

A frontrunner’s defense of corporations during a lengthy economic bust was enough of a jolt. The response by Romney’s handlers was even more shocking. They didn’t provide the requisite “what our candidate meant to say” clarification. The campaign’s chief flack tweeted, “Do folks think corporations are buildings? They’re people who incorporate to conduct business. They create jobs and hire more people.”

However heretical such thinking may be in Manhattan and Malibu, it’s not controversial among economists. In a 2001 analysis for the Tax Foundation, Michael L. Marlow, a professor at California Polytechnic State University, explained that corporations are merely a “nexus of workers, customers, and owners.”

So why, it’s worth asking, does the “hyper-capitalist” United States have one of the highest corporate-tax rates in the developed world?

No one disputes the numbers. According to the Organisation for Economic Co-operation and Development, only Japan grabs a greater share of corporate income. Combine states’ taxes with the federal government’s take, and the U.S. rate is just shy of 40 percent.

Who is kinder to corporations? The U.K., Denmark, Switzerland, Slovenia, and Poland. Ireland, Iceland, Estonia, and Austria. Turkey, Korea, Chile, and Israel. Closer to home, there’s Canada (27.6 percent) and Mexico (30 percent).

Statutory rates, it’s important to note, are not effective rates. Jump through politicians’ central-planning hoops, and your firm will benefit. For example, “tax expenditures” are available for biofuel producers, companies with big research and development costs, and investments made in low-income housing. The Tax Foundation estimates that in fiscal 2012, the value of all the tax perks available to corporations at the federal level will top $117 billion. Most-favored industries include mining, manufacturing, and accommodation/food services. Less politically juiced lines of work include education, healthcare, and wholesale/retail trade.

A final fact about the corporate tax. It’s a revenue force-multiplier. Marlow explains: “The federal government first collects taxes on corporate profits and then taxes shareholders through the personal income tax code on either their dividend income or their capital gain.” With so many American households owning stocks -- either directly or through retirement vehicles -- the “people” Romney mentioned probably include a fair amount of “Occupy” ne’er-do-wells.

In an issue brief for the Heritage Foundation, Karen A. Campbell argued that if the corporate tax were killed, “investments would flow into the country. Multinational and international companies would be encouraged to operate in the United States, bringing jobs and new technology to meet today’s economic challenges. Owners of corporations -- those who earn the profits -- would have more resources to invest in things that create value for others.”

Repeal, John Steele Gordon believes, can also serve as a powerful good-government tool. “The ability of Congress and the president to hand out quiet political favors to the rich and powerful,” the business historian wrote in a 1998 piece for The Wall Street Journal, “would be greatly circumscribed.” In addition, “tens of thousands of highly talented accountants and lawyers would have to go out and get wealth-creating jobs because the economically parasitic ones they have now would disappear.”

His quest for the presidency is battered, panicky, and perhaps headed for oblivion, but this summer, in an unscripted exchange amidst a tightly rehearsed campaign, Mitt Romney uttered the unspeakable. He unapologetically defied prevailing populist nonsense, and linked corporations’ fortunes to the well-being of regular folks.

Think Mitt might agree to be President Newt’s tax-policy czar?

D. Dowd Muska (www.dowdmuska.com) writes about government, economics, and technology. Follow him on Twitter @dowdmuska.

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