Behind the Gotcha! Moment, Romney had a point about corporations being people

Posted by Nolan Miller on Aug 18, 2011

Filed Under (U.S. Fiscal Policy)

Last week Mitt Romney lost focus on his primary campaign strategy of keeping his mouth shut and actually said something, providing the cable news networks with an excellent “gotcha” moment.  The phrase that paid, which Romney spoke in response to an audience member’s statement that we should pay for entitlement programs by taxing corporations, not people,  was:

Corporations are people, my friend.

This phrase, seemingly pro-business and dripping with condescension, drew immediate criticism from the Democrats, who called it a “shocking admission” of “misplaced priorities.”

Now, let’s leave aside the existential question of whether corporations are people or not and focus on Romney’s main point, which has been conveniently left out in many cases.  He continued to say “Everything corporations earn ultimately goes to people.  Where do you think it goes?”

Now, this is a point that I often make in class.  Curiously, however, when I make it I start by saying that corporations are NOT people.  That is, they don’t eat.  When money goes into a corporation, it isn’t like the corporation uses the money to buy fancy cars and big screen tv’s for its own enjoyment.  Money that goes into a firm goes to pay its bills, and what’s left over is split between its employees and its owners.  In the case of a publicly traded corporation, the owners are the people who own stock in the company. 

In this light, the logical fallacy underlying the belief that corporations can be taxed without harming anyone becomes clear.  If you take money from the corporation and give it to the government, this is not without consequences.  That money is coming out of someone’s pocket.  Sometimes that money may be coming out of the company’s top executives’ bonuses, but other times the pocket in question belongs to a middle-class worker who has his or her retirement money invested in the stock market.

Now, I don’t mean this as an argument for or against raising corporate taxes.  Rather, I simply want to point out that raising corporate taxes is a form of redistribution from the owners of the firms (and the firms’ customers if the higher taxes cause them to raise prices) to the recipients of government services, and these owners may be the very same “hard working middle class Americans” whose welfare we are raising taxes to protect.  This may or may not be desirable.  But, corporate tax revenue is not “free money.”  Despite the joy of a good Gotcha Moment, Romney was right on this point.