Ev Ehrlich's Everyday Economics


Romney Is A Person, My Friend

I think Romney’s going to be the next President. I think that because the economy is miserable, the 2008 electoral map can’t be reproduced, and the independents who decided to give Obama a chance are uninterested in giving him another. Voters have shown their willingness to take chances when presented with these kinds of circumstances; in retrospect, Reagan beating Carter looks inevitable, but at the time, it was startling. Moreover, just below the level of speaking painly, the folks who allowed themselves the experience of moving past our society’s legacy of racial division in 2008 don’t the need for a second shot, particularly if the alternative presents himself with a civil manner, a Romney specialty.

I also believe in location theory economics, and therefore do not believe the right will abandon Romney in a general election. The only good example with which I can come up of a far-wing abandoning the nominee closest to its position is the Left’s ditching of Humphrey in 1968. I was part of that Left and had my apostasy about Humphrey at around 11:30 on election night, when Nixon showed the country crewel work Presidential Seal his daughter (I think it was Julie) had made for him . But by then, it was too late. Now, as I’ve said before, today’s Tea Party Right is a mirror image of the New Left of 40 years ago, so they might make the same mistake. But given that Obama’s a known incumbent rather than simply an unknowable prospect, as was Nixon, I doubt it.

(My prognostication should give comfort to my fellow Obama supporters, as my predictions have only been right three times in this life – one that Gingrich would quit after the 1998 election (a prediction made to an audience in Chile, thus minimizing awe at my stunning success), second that McCain would rue the day he picked Palin (the political equivalent of “I got drunk and did what?”) and the third that Michigan was about to run a fake field goal against the Hokies the other night. Beyond those three, I’m pretty much oh-fer-life.)

There’s another odd connection between Romney and Humphrey – they are two of the people in rock star politics in my lifetime who most desperately wanted to be President. I mean, wanted it so badly that no inconsistency was insurmountable. I might put Clinton and Nixon in this group, but neither took the same liberties with their core convictions; even Humphrey’s worst moments were “limited” to his peonage to Johnson on Vietnam (and his willingness to consider Wallace as a running mate). See page 446.

Am I alone in the feeling that half of Romney’s ultimate voters will support him because they believe him and the other half because they think his conservative campaign is some kind of odd piece of right-wing performance art? Half taking him seriously, half thinking "he's just saying that."

I have moments of sympathy for Romney. To start with, his father was an interesting and self-made guy who was pilloried for saying he was “brainwashed” by the military when visiting Vietnam – as with Geroge H. W. Bush, I find myself crediting the son for the father’s dignity. Romney saved the 2002 Olympics. And his health care program was path-breaking, even if he now has to deny it (which is like Picasso saying, “Guernica? That piece of shit!”).

But a new moment of sympathy occurred this morning, when I watched an Occupy protester jump on Romney in New Hampshire about what threatens to be a defining remark for the candidate – “corporations are people, my friend.”

Let’s calm down and parse that remark for a moment, because attacking it on its own face is a gratuitous evasion of what Romney meant (or, what I presume he meant – remember, it’s Romney). The corporation is a legal form in which people can work together with certain requirements and protections – so are the ASPCA, the Knights of Pythias, and the Houston Astros. The people in the ASPCA think animals need
protection, the people in the Astros are talented ball players, the people in a corporation think its prospects are good enough that they commit money to it.

Romney’s statement carries with it two important implications, one of which is the one he meant, the other one he embodies in opposition. The one he meant is about corporate taxation. It’s easy to point to corporations that paid no taxes on substantial net income and argue it seems unfair. That’s not due to the venality of corporate comptroller, but occurs instead because the tax code is a pinball machine that can be played within reasonable limits. But a problem of even greater concern is that the money corporations make is taxed twice – the first time as corporate
profits, the second time when what’s left is distributed to shareholders. There’s an argument that something like this is fair, since being a shareholder in a corporation conveys a legal privilege, that of limited liability. The company can do all sorts of illegal, stupid, or dastardly things and the most you can lose is the value of the shares you bought. That’s a special protection and there’s an argument that the shareholders of a corporate entity ought to pay something for it – Theodore Roosevelt, every progressive’s favorite Republican, said it this way: Great corporations exist only because they are created and safeguarded by our institutions, and it is therefore our right and our duty to see that they work in harmony with these institutions. But doubling the tax paid on earnings – even if the definition of earnings is a little jaundiced – seems pretty excessive, even by Roosevelt’s standards. In fact, society benefits from having the corporate form, since it allows capital to be raised and used at a level that any one individual or partnership of individuals could not manage – nor would we want them to. Take the name of the corporation you dislike the most and now imagine them as a group of private investors with no reporting or governance obligations. It would be like the entire economy run by the Ewings and the Carringtons.

Which is why a goal of the tax reform that’s coming in 2013 ought to be eliminating the corporate income tax and melding it with the income tax paid by shareholders. After all, “corporations are people” – the people who hold their shares. That proposal’s not without problems. For example, not all corporate income is distributed, so some shareholders have the risk of paying taxes on income they haven’t received as cash – imagine a widow in a print dress having to pony up for taxes on profits that were plowed into investment or research and development.

There are ways to manage this problem, and their cost in terms of complexity and compliance strike me as minor compared to getting rid of the double-taxation of corporate income and the inefficiencies and mis-incentives it can convey. But at the same time, if corporations “are people” – that is, simple agglomerations of people, like the ASPCA or the Astros – then how can they have the right of speech independent of the individual members, as suggested by the Supreme Court in Citizens United?

It’s one thing for people to come together in groups that advocate – that’s the group’s mission, and the privileges of corporate form have nothing to do with this advocacy. But the corporation exists only to limit the liabilities of shareholders – it has no inherent right to “free speech” other than the right enjoyed by its members as citizens. Which means that you can say what the heck you want, but you can’t misuse the corporate charter to be your megaphone. If an executive wants to hit up his colleagues to bundle money for a candidate, that’s fine, within the law’s limits. But if the corporation itself wants to use money to act out its “right to speech,” there’s a problem. Society benefits when corporations do what they’re supposed to do – raise capital and use it efficiently. How is our collective interest in a meaningful political debate furthered – or not further abused? – by giving a legal fiction – a shell designed to limit liability to loss – a right to ‘speech” separate from that of its members?

The need for changing the way corporations are taxed and the need to limit their right to independent ‘speech” are flip sides of the same coin, the coin that Romney tossed in the air when he told a heckler that “corporations are people, my friend.” He was right. But not even Romney – a guy who can live on both sides of a flipped coin, and who's proved a master ofusing copious amounts of money as a political weapon – can have it both ways.

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