Monday, November 28, 2011

In Search of the libertarian / liberal divide, part IV

To continue with my series of posts on libertarian proposals: I am now going to cover those two items I said I "mostly opposed" of Mr. Hanley's policy proposals: for summary's sake, and for the sake of adding yet another colon to this sentence, here they are:
  • Pass a constitutional amendment that bans subsidies to any for-profit corporation.
  • Repeal the corporate income tax. It gets passed on to consumers anyway, so it’s just a way of pretending we’re making corporations pay their fair share, rather than substantively doing so. And it would reduce accounting costs and diminish the incentive to engage in rent-seeking in looking for special exemptions to it.
First, I'd like to change my vote from "mostly opposed" to "I'm so confused about the matter and what it would entail and how it would be implemented that I don't quite know where I stand but I think I'm opposed at least for that reason along with some others."

Here are my reservations about a constitutional amendment to ban subsidies to for-profit corporations:
  • I'm unsure about the effect of an actual amendment. What would the amendment look like? How would it define "for profit" corporation, as opposed to some other entity?
  • What would count as a subsidy? Would it be a simple transfer of money to a corporation? Would it be a tariff designed to protect a certain industry?
  • Such an amendment would seem to run counter to the original mechanism used to create corporations. Now, it is probably open for debate whether corporations themselves are creatures of the state--it is possible that there is an organizing tendency among people to participate in joint enterprises and that such enterprises tend to act as a "body" in a way we might vaguely call "corporate"--but in practice, what we call corporations are indeed entities created by the state, either as a tool for people in business to use or, in their older form, as a special organization granted certain special rights to achieve a desired public end (I'm thinking of corporations created in the early 1800s to promote internal improvements). These types of corporations, and the privileges they enjoy, have had a long and evolving history. (Limited liability for shareholders was not necessarily an attribute of the corporation as it was originally conceived, for example.) Either way, it seems unclear to me how the creation of a corporation is not in some way a "subsidy" of those who choose to incorporate. How would an amendment take this into account?
  • Would such an amendment apply only to state governments, or only to the federal government? If the restriction would be only on the federal government, would that prevent the federal government from issuing incentives to encourage overseas corporations to open up shop in the U.S.? (If so, maybe preventing such incentives is not a bad thing in itself, and therefore it might be a good thing altogether to have such a restriction.) If the restriction apply to the states, I imagine it would make illegal the disgusting spectacle we see in Illinois, wherein the governor and the legislature are falling over themselves to give various tax breaks to companies that threaten to leave the state. But I imagine that such a restriction would reduce the flexibility of state governments to act in such matters. Again, maybe that's not a bad thing, or at least not necessarily, but I wonder what the practical effects would be.
As to repealing corporate income tax, again, I'm unclear on what to make of it. I should plead ignorance and say that I don't know how a corporate income tax operates. My main concern is whether the correlation with prices is necessarily 1:1. If a tax of 1% is added to a corporation's income, then do prices increase by 1%, or by a lesser (or larger) percentage? I guess my main reservation is that I'd want to know more about what these taxes pay for, how much they are passed on to the consumer, and how capable they are of enforcement. I do imagine that in Illinois, the spectacle I described above would be lessened by such a repeal, but at the same time I find it hard to believe the legislators would have had the courage to impose a higher personal income tax to make up for the corporate income tax (of course, that issue is complicated, for at the time the legislature raised the corporate tax, it also raised individual income taxes "temporarily"; there is also the question of whether raising taxes at this time of recession is the right thing to do.)

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