Saturday, July 14, 2012

Corporations: People, Entities, or a Hybrid of Both?

Many liberals have made a lot out of the Citizens United decision by the Supreme Court, which they describe as saying "corporations are people." However, the Supreme Court ruling doesn't actually use this terminology, even if the spirit of the ruling does imply that .

Still, one of the major elements of the campaign is the degree to which corporations deserve special considerations and what types of considerations those are. While both political sides of the debate tackle this argument with a lot of preconceptions, I think it's possible to really look at the facts behind how corporations are formed to understand the degree to which a corporation, in general, can be viewed as equivalent to an individual.

Mitt Romney's Evolving View of Corporate Personhood

Mitt Romney did use these words on the campaign trail during the Republican primary, when he replied to a critic at an event, "Corporations are people, my friend." He has been very vocal about his strong beliefs regarding the importance of corporate rights. I'm in the process of reading Romney's jobs plan, Believe in America: Mitt Romney's Plan for Jobs and Economic Growth (available on the Kindle). In it, he (or his team, at least) says the following:
The truth is, as Mitt Romney likes to say, "corporations are people." They represent human beings acting cooperatively to be economically productive.
In the e-book, Scott McNealy, the founder and former CEO of Sun Microsystems, writes a piece about tax policy that delves even more deeply into the "corporations are people" narrative.
To the vast majority of Americans who have held real jobs in the real economy, often in corporations, the point made perfect sense. Indeed, it seemed a statement of the obvious. A corporation, after all, is nothing more than people who have joined together to work cooperatively. The word "corporation" itself means "body of people." And in fact, corporations consist of two groups of "people": employees and shareholders. The former work hard to make a profit and earn their salaries and benefits. The latter, now widely dispersed across the economy by means of mutual funds and retirement-plan investment portfolios, provide the capital and can reap the financial benefits while also assuming the financial risk.
However, today I was listening to the radio and heard an intriguing segment about the latest campaign kerfluffle. I've been busy with work (at a corporation) and haven't kept up with the news, so didn't know much about the outsourcing that Obama has been accusing Romney of. Apparently, Bain Capital is accused of outsourcing some jobs, and this seems to be during a nebulous time between 1999 (when Romney stepped aside at Bain to run the Salt Lake City Olympics) and 2002, when he was still listed as CEO, President, and sole owner of Bain Capital, but wasn't actively involved in the day-to-day operations. Apparently, in response, Romney said:
"Well, I was the owner of an entity that is filing that information, but I had no role whatsoever in the management of Bain Capital after February of 1999," he told CNN. "Not that that would have been a problem to have said that I was with the firm beyond that, but I simply wasn't."
Since I had just been reading the jobs plan, the use of the word "entity" struck me as odd. So which is it? Is a corporation a person or some other type of entity?

The Benefits of Incorporating

To really understand this question, we have to consider the reasons why people incorporate their businesses. For example, in addition to my day job, I am self-employed as a freelance writer. I am not incorporated, however, and file taxes on my business as a sole proprietor of a business, The Philosopher's Stone.

As a  sole proprietor, my business is treated as an extension of me as a person. Though I have an Employer Identification Number (EIN) to file payroll taxes (my wife is my salaried employee), I have not been able to us this EIN to gain business credit cards or financing. When I set up my business checking account, I tried to use my EIN and was told that since I wasn't incorporated, I needed to set it up with my Social Security Number. When I fill out W-9 forms, the documentation says that the IRS prefers sole proprietorships to use my Social Security Number instead of my EIN. Since I am not incorporated, the credit cards I use for business expenses are in my own name, not in the name of my business.

When you begin to investigate home-business tax savings, you do find that there are a number of reasons to incorporate.
  1. Credit Benefits:The first reason to incorporate, as hinted at above, is that you can now begin establishing lines of credit and bank accounts using your business' EIN instead of your personal Social Security Number. If your personal credit is poor - perhaps due to a failed business or personal bankruptcy in the past - this can be a crucial benefit to gain the necessary financing for your business venture.

  2. Liability Protection:Related to the access to credit, corporations also create a level of liability protection. If a sole proprietorship goes under, all of the debt is in your name, so your creditors are able to come after your individual assets. You could lose not only your business, but also your house, your savings, garnishments against future wages, and so on. When you incorporate, a very powerful legal wall is built between these two entities. This is how people like Donald Trump can have multiple major corporate bankruptcies while maintaining their personal wealth. Even if the corporation is sued for some sort of illegal business activity and loses, the fact that it's a corporation can sometimes still protect the individual from having their personal assets garnished ... or vice versa.

  3. Tax Benefits: And, of course, there are tax benefits to being a corporation. Even as a sole proprietorship, I'm in the advantageous situation where my business income is taxed after expenses, in contrast to my personal income, which is taxed before expenses. Corporations have all sorts of tax loopholes created (we hope) with the genuine desire to enhance the ability of these corporations to grow their business and become economically prosperous, thus generating overall more wealth (and, ultimately, tax revenue).
The exact nature and degree of the benefits change depending upon the type of incorporation, of course, and I'm sure that there are many other benefits beyond these. Still, one glance at these reasons makes it clear that the point of incorporating is to separate the business activity from the individual.

Are Corporations People?

Taking all of this into consideration really calls into question the "corporations are people" narrative, which Romney has chosen to officially embrace on the campaign trail and in his jobs plan. While it is certainly true to say that a corporation involves "human beings acting cooperatively to be economically productive," this description by itself isn't particularly helpful. For example, the mob, street gangs, and a team of bank robbers are all attempting to "act cooperatively to be economically productive" as well! Certainly corporations are something different.

No, saying that a corporation is " nothing more than people who have joined together to work cooperatively" (as Scott McNealy does) is a gross over-simplification. I think of it more like this:
A corporation is a group of people who have jointed together to work cooperatively for economic advantage and have then asked the government for special dispensation to treat their group activity as distinctly (and legally) different from their personal activity.
The whole point of incorporation is that it provides a powerful division between the business and the personal activities. Saying that "corporations are people" requires completely ignoring the legal meaning of a corporation ... and negating the validity of the legal protections that corporation-hood confers.

This is why as soon as Romney was called into question on the activity of his corporation, he fell back on the true definition of a corporation. A corporation was no longer a noble reflection of the people united for economic productivity, but instead just an "entity" that files paperwork. His name happened to be on the line that said he was CEO, but that doesn't mean anything at all.

Wednesday, July 04, 2012

The Mutual Pledge of the Declaration of Independence

The most often-quoted part of the Declaration of Independence is, of course, the introductory part, up until the famous lines:
We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.
Many people rightly recognize this as a declaration of individual freedom. Since it was written, it was viewed in this light.

However, it is not true that the Declaration of Independence is just a statement of individual liberty. It is  also a statement of unity, a call to action of a diverse group of nation-states acting together. Nowhere is this better represented than in the closing line of the Declaration itself:
And for the support of this Declaration, with a firm reliance on the protection of divine Providence, we mutually pledge to each other our Lives, our Fortunes and our sacred Honor.
Those who emphasize only the individual liberty aspect of the Declaration miss the point of it and of the entire American Revolution. If each individual founding father, or each individual colony, had clung fast to only its own interests, its own economic drivers, there could never have been the sort of unity needed for independence.

How many people today, on either the political left or the political right, are truly willing to pledge their "Lives, Fortunes, and sacred Honor" to protect the unalienable Rights of "Life, Liberty, and the pursuit of Happiness."

I see a lot Americans with great fortunes who don't seem to give a care about the lives and happiness of others.

Many Americans are not willing to accept a slight inconvenience to their sense of entitlement, suffer even a slight disturbance in their happiness, in order to defend the rights of another.

On this Independence Day, I will be teaching my son that individual liberty is tied together with our responsibility to help others, especially those who are less fortunate than us.

As Benjamin Franklin said at the signing of the Declaration of Independence:
We must all hang together, or assuredly we shall all hang separately.
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5 Patriotic Videos for Independence Day

For the past several years, my Fourth of July tradition has been to watch the 1972 musical 1776 (Amazon, BN), which recounts the events surrounding the writing and passage of the Declaration of Independence. This isn't the only film appropriate for this day, of course - GeekDad has a nice list (linked below). In that vein, I consider a handful of other films and videos that I've begun working into my Independence Day traditions.

1776 (AmazonBN)

This is a film adaptation of a stage musical which, were it not about America's independence, probably would not have gotten any traction beyond its initial limited release. As a musical it contains a few decent songs, but the real enjoyment comes from the vivid and charming portrayal of the founding fathers (particularly Howard Da Silva's Benjamin Franklin) and the trials they faced in uniting together to stand against the British. There are a number of historical inaccuracies, but the overall mood portrayed is spot on and helps to illustrate conflicts which are still taking place in American politics over two centuries later ... and over quarter century after 1776 was produced!

Liberty Kids (Amazon, BN)

This 2002 animated series outlines the events from the Boston Tea Party through to the writing of the Constitution, as seen from the point of view of a handful of teenagers in the service of Benjamin Franklin. What's nice about the show is that it focuses on a very diverse perspective of the revolution, rather than just presenting the straight historical account that most of us grew up with. Here are the main characters of the series:
  • James - An orphan who works as a reporter for Franklin's newspaper, the Pennsylvania Gazette.
  • Moses - A free black man who is Franklin's apprentice at the print shop and newspaper.
  • Sarah - A British citizen who is living in the colonies and becomes a journalist out of a desire to see that the British viewpoint is represented to the colonists.
  • Henri - A French boy who was transported to the colonies as an indentured servant.
  • Benjamin Franklin - Voiced by veteran newsman Walter Cronkite, Franklin is the perfect founding father to be at the center of a series which includes such a broad perspective on the revolutionary activities.
While being firmly rooted in the patriotic ideals that founded the nation, it doesn't gloss over the failings of those same colonists to recognize liberty for everyone, nor does it shy away from the reality that the British troops could at times be heroic and noble, even while being on the wrong side of the conflict.

The 6-disc series contains 40 episodes, plus a host of extra features that are great for teaching your kids history, including:
  • A full-sized poster of the main characters with a map of the colonies and major events on the back
  • A booklet containing descriptions of all episodes, plus a timeline of revolutionary events running from the Boston Massacre (1770) through to Washington assuming the Presidency (1789)
  • Benjamin Franklin's Newsbytes
  • Continental Cartoons
  • Now and Then feature
  • Mystery Guest Game
  • A Look Back at Liberty's Kids with the Creators

The Patriot (Amazon, BN)

Once upon a time, Mel Gibson was a good actor. The Patriot represents a period that was probably the apex of his career, before he became known as a man who goes off on drunken rants about the Jews (but does, afterward, give decent apologies).

This is one of the most ambitious feature films to depict the American revolution and certainly received the broadest popular reception. Gibson plays a military veteran of the French and Indian Wars (called "the wilderness campaigns" in the film) who is initially hesitant to take up arms against the British, though he himself does agree with the cause of liberty.

It also features a great performance by Heath Ledger as Gibson's son, a young idealist who enthusiastically joins the cause of liberty, not understanding why his father resists. The film vividly depicts the battles, making it clear that the American Revolution was not won through a sanitized process of debates (though the first two shows on this list make it clear that even the debate process wasn't particularly sanitized).

My Fellow Americans (Amazon, BN)

The only film on this list that isn't directly related to the founding fathers and their activities, this James Garner and Jack Lemmon comedy film nonetheless represents one of the most fun patriotic films out there. Two ex-presidents and intense political rivals discover a conspiracy that goes to the very highest levels of government. After escaping assassination, they travel America on the run in attempt to get proof and uncover the truth. In the process, they discover - in between sniping at each other - that their political differences are a lot less important than the things that unite them as Americans.

National Treasure (Amazon, BN)

Finally comes the most fantastic of the explorations of America's history, in which Nicolas Cage goes on a quest to discover a mysterious lost treasure of the ancients that the founding fathers hid, leaving clues throughout documents and locations that were central to the founding of America, including the very Constitution of the United States. With much more emphasis on action and adventure than historical accuracy, it's still a fun movie to watch that can help give some historical facts along the way.

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