Whitaker's Reviews > Unequal Protection: The Rise of Corporate Dominance and the Theft of Human Rights

Unequal Protection by Thom Hartmann
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's review
Jan 07, 2013

did not like it
bookshelves: uncategorised, 2011-read
Read from May 10 to 18, 2011

Added 20 June 2011

I thought this article by the Washington Post was a nice addendum to my views.

Entitled, “With executive pay, rich pull away from rest of America”, it notes that of the 152,000 people that make up the top 0.1% of American earners (i.e., those that earned at least $1.7 million and $5.6 million in 2008), 41% of these were executives, supervisors and managers:

This graphic, in “(Not) spreading the wealth”, was particularly interesting:

Note that 99% of Americans have seen their pay more or less stagnate over the 38 year period from 1970-2008. This occurred despite the American economic engine growing massively during that period. A rising tide, as it turns out, did NOT lift all boats.

The other statistic I found particularly interesting is that only 5% of American earners make more than $200,000. This means that proposed tax increases targeted at income earners of $200,000 and above would affect only this 5% of Americans, but oddly, a tax increase on this small group has no traction at all with the American voters. I can only conclude that to reduce the budget deficit it is apparently considered better to cut aid to the struggling bottom 90% of lower income families thereby sinking them deeper into destitution than to tax 5% of Americans a little more.

Juicy quotes from the article:
…extremes of wealth can unfairly reduce the economic opportunities and political rights of everyone else, according to sociologists. The wealthy, for example, can afford better private schools for their children or acquire political might by purchasing campaign advertising or making campaign donations.

In world rankings of income inequality, the United States now falls among some of the world’s less-developed economies.… According to the CIA’s World Factbook, which uses the so-called “Gini coefficient,” a common economic indicator of inequality, the United States ranks as far more unequal than the European Union and the United Kingdom. The United States is in the company of developing countries—just behind Cameroon and Ivory Coast and just ahead of Uganda and Jamaica.

…late last year, economists Bakija, Cole and Heim completed their massive analysis of income tax returns. Little noticed outside academic circles, their research focused on the top 0.1 percent of earners. From those tax returns, they could glean a taxpayer’s occupation, which is self-reported. Using the employer’s tax identification number, the researchers found the industry they were employed in.

“Basically, executives represent a much bigger share of the top incomes than a lot of people had thought,” said Bakija, a professor at Williams College, who with his co-authors is continuing the research. “Before, we just didn’t know who these people were.”
Now, you might want to say that, yeah, these people are smart, they work hard yadda yadda yadda. So, they deserve what they make. Fair enough. But do they deserve to see their salaries go up by 4 times when corporate profits have only gone up by 2.5 times?

This increase has ceased to have any relation to corporate profits, and essentially represents a larger and larger percentage of corporate profits going into the pockets of the one or two people that run the company. Behind this form of compensation is the notion of the leader as saviour. In the same way as Superman saves the earth, we think of CEOs as lone ranger supermen, single-handedly doing all the work of making the company profitable. Think of that next time you get told in a management meeting that it’s all about teamwork. Not according to the pay structure.

And what relation do you think this pay structure has in comparison to what the company spends on marketing, R&D, and other such drivers of corporate profit? That’s a question I think we should all be asking.

First of all, this review is dedicated to Brian whose zeal for this book is just amazingly cool. Check out his review here if you haven’t already done so. Thanks, Brian, for sending me the book (even if I’m less enamoured of it than you are).

Okay, I promised a review and here it is.

Honestly, I really don’t know what to say. Hartmann is coming from a good place, one that I generally agree with. I think that there is much more that needs to be done in the world to regulate corporate misfeasance. I don’t agree that corporate personhood is the problem. I think it’s a red herringmisdirection or sleight of hand, a Trojan horse to get a foothold into the real bastion of power, and I think he has to do so because he can’t say, “Down with the rich!!”.

Now, when I say “rich”, I don’t mean people who are well-off, who make a few hundred thousand a year. I don’t even mean people who have a net worth of a few million. That’s literally loose change for the kind of rich people I refer to. I mean people like:

The Koch brothers: Net worth of US$21.5 billion each

Erik Prince: Net worth of US$2.4 billion

[image error]
Lloyd Blankfein: Net worth of $9 billion

I think what he really thinks is that these people are the problem. You get hints of this from time to time:
Page 120: And the men who had amassed these fortunes through creating mega-corporations were shameless in their brazenness… It had become an open secret that the very wealthy had brought under their control Congress itself.
Page 146: Both Adam Smith and history tell us that such privatization schemes and the invisible hand work only to place more and more wealth into the pockets of the corporations and their stockholders.
Page 170: He had worked most of his life in the interest of the rich and powerful and was chomping at the bit for a chance to turn more of America over to his friends.
Page 237: The past thirty years has, in fact, seen the largest transfer of wealth from working people to the rich and the very rich in the history of both this nation and any nation on earth.
Page 254: As multinational corporate wealth increases, stock prices go up and the top few percent of the socioeconomic pyramid become wealthier.

But this would only get him accused of being a commie, and get him discredited. So he has to dress it up as an attack against big corporations because that strand of thinking has some popular support. But corporations per se are not the problem, and I think he’s quite aware of this. As he himself notes, 99 per cent of all American companies are small businesses (page 306). It’s the concentration of wealth and power in the hands of a few people or families that is a problem:
Page 127: All forms of organized business activity where there is money or power at stake, it seems, are equally susceptible to these corrupting forces…
Page 244: Whether the wealth and power agent that takes the place of government is a local baron, lord, king, or corporation, if it has greater power in the lives of individuals than does a representative government, the culture has dissolved into feudalism.
Page 304: The financial wealth of the top 1 percent now exceeds the combined household financial wealth of the bottom 95 percent.

The whole notion of limiting the power of government has such tenacity that we forget that power hates a vacuum. Weakening one power merely strengthens other existing powers. In the past, it used to be local warlords or barons. In our age, it’s wealthy business people and their families. Corporations are merely a tool used by the rich and powerful like the Koch brothers. The whole “personhood” notion is irrelevant to that power. It’s a very localised phenomenon situated only in the US. In no other country do you have a constitution that has been interpreted as granting corporations the same rights as humans but the problem of big, abusive corporations exists in all countries. Check this list out:
● Carlos Slim Helu (Brazil, US$74 billion)
● Bernard Arnault (France, US$41 billion)
● Lakshmi Mittal (India, US$31 billion)
● Vladimir Lisin (Russia, US$15.8 billion)
● Gina Rinehart (Australia, US$9 billion)
● Zong Qinghou (China, US$8 billion)
● Dhanin Chearavanont (Thailand, US$7 billion)

For more puke worthy information: http://www.forbes.com/wealth/billiona...

The law is merely one of the many means by which rich people seek to ensure that they concentrate more and more wealth and power in their hands.

I think using the courts to attack rich people might well work in the US as an effective Trojan horse. I don’t know because I don’t know the US system very well. I have serious doubts, but I’m not in a position to say anything intelligent about it.

So… I agree with his general thrust. However, I think he’s forced to wrap up the idea in a format that is more palatable to the American public, but which unfortunately rests on a bed of what I feel to be illogical thinking and inaccurate facts. I can’t honestly defend his logic and argument but I also don’t want to tear his ideas down.

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message 1: by Whitaker (last edited May 19, 2011 03:07AM) (new) - rated it 1 star

Whitaker Well, in the context of the US, I think the CP argument is overkill (in the context of the rest of the world, the CP argument doesn't arise). It also affects the 99% of US companies that are small businesses rather than simply the 1% that are large, mega-corps.

Do you really want to see a small press being shut down because it published books that are anti-government on the basis that it's not entitled to free speech rights? Do you really feel that the police should be allowed to seize the business records of a small car repair company in Ohio without due cause? Or that Ohio state should be entitled without good reason to expropriate property belonging to that company? You want a surgical laser, not a mallet.

message 2: by Ian (last edited May 19, 2011 01:40AM) (new) - added it

Ian Vinogradus I love this discussion, because it's the closest I can get to intellectual mud-wrestling.
In this case, I'm with Whitaker: I think we need to differentiate the vehicle from the evil, the man from the ball.
All of us want to prevent or punish the evil, but we have to play the ball, not the man (or the corporation).
There isn't anything wrong with "rich". There is something wrong with misappropriation of someone else's wealth.
There isn't anything wrong with power. There is something wrong with the abuse of power.

If you look at why most small business people use corporations, it probably boils down to two reasons:
1. it protects the shareholders from claims by creditors of the business;
2. the tax rate is lower for companies than it is for individuals.
The lower tax rate means that companies can keep their after tax-profit in the company and use it as working capital to grow the business and its wealth, and the only tax they have had to pay is the corporate rate.
However, if they reversed the tax rates, so that individuals paid a lower tax rate, the only small business people who would use companies would be people who were in risky industries who wanted to protect personal assets from the claims of business creditors.
You wouldn't use a company if you had to pay a higher tax rate.

My concern is that a preoccupation with what Whitaker calls a "red herring" actually distracts us from the evil that we might all be agreed on.
Divide and conquer.
Ironically, the perpetrators of the evil might actually derive some comfort from the fact that we are pointing all of our weapons at the wrong target.
As Whitaker says, we have to point them at the actual misfeasance.

Stephen Fantasitc review, Whitaker. I have just started this but so far would track very closely with your comments (it also means if this continues I am going to have to figure out what the hell to say in my review so that I don't look like I am copying you...so, thanks for that).

message 4: by Stephen (last edited May 19, 2011 09:00AM) (new) - rated it 4 stars

Stephen Brian wrote: "What about the question of participation in the political process. Do you argue that corporations have a "right" to take part, beyond the fact that all its employees take part.
That will have to be all for now- I look forward to continuing..."

Brian, I am only getting started with the book, but that is one thing I can completely get behind (i.e., getting the corporations as entities out of the political process)...yes, yes, yes. I am sure there will be some new means to funnel money through individual employees but anything that makes it harder would be fine by me....of course the same would have to apply to teacher's unions, trial lawyer's associations and every other large group that currently donate money in LARGE chunks.

Whitaker Well, Brian, I think I'm using "red herring" in two ways (I've deleted it from my review by the way. I think it's a distraction. I replaced it with "misdirection" instead.)

One is that it's a misdirection, a convenient way for him to get people to get on the bandwagon. If he were to say, "Super rich billionaires are screwing your rights. Take them down!", that wouldn't gain much traction. There's a strong belief that people are entitled to get rich. But if he says (as he does) that corporations are screwing you, and they're not even people, then people are more willing to buy into that.

But at the end of the day who benefits from the abuses of corporations? It's their owners: the billionaires like Murdoch. It's not a situation where someone like Murdoch is wringing his hands and saying, "Oh dear, Fox is out of control and I can't do anything about it." He actively encourages its rabid right wing stance: it makes money for him, weakens the government, and lowers his tax rate. From his perspective, what's not to like?

But in the US, perhaps going the route of CP is useful if only for the fact that maybe that's what's needed to get some leverage on the way the legal process has been corrupted or to derail what's being done right now. But it's only a teeny lever.

This leads to the other way I'm using the term "red herring". Getting rid of CP isn't a panacea, not by a long shot. If it were, then all the other countries around the world which don't have this concept wouldn't have the problem of the super rich using their corporate generated wealth to amass power. But they do.

Getting rid of CP is like getting rid of a criminal's handgun. Useful in the short term, but ultimately no help when he's also got a Molotov cocktail and a Kalashnikov.

On free speech, I'm not saying that controversial tracts will disappear. Not at all. But the mode of distribution (at least before the internet) would have required networks most likely to be run by companies. Stop the companies from distributing and the reach of the tracts gets limited to a much smaller area.

message 6: by Whitaker (last edited May 19, 2011 07:00PM) (new) - rated it 1 star

Whitaker Laws like CP can cut both ways. It's like State rights. Republicans love state rights when the democrats are in power. When the Republicans are in power, not so much. Then, Dick Cheney's all about expanding executive power.

The example that Hartmann gives of EU laws that require that companies show that a product causes no harm? Well, guess who hates it? The small businesses and companies. It's applied in areas like traditional medicines, and now you need to do studies to show that prescribing sassafrass root (or something) for like menstrual cramps will cause no harm. Big pharma companies have less problems with the law cause they have the money to do the studies, rig the studies, and lean on the regulators. And it destroys a source of competition for them.

Coming back to CP and free speech. Say you have a MNC in a county run a factory that is polluting the water table. A reporter wants to run an expose. The newspaper publishes and the public prosecutor shuts it down cause he's in cahoots with the MNC. The paper can't claim free speech rights.

So what happens? Even before you get to that stage, the owner of the local newspaper company says to the reporter, kill the story, I can't afford an expensive lawsuit to fight the big multinational polluting the water table especially if I'm gonna lose. Unless that is you have documents and witnesses willing to appear in court.

CP might look offensive but I'd like to find out how many suits at state or county level have seen it used by owners of small companies to protect their rights before condemning it.

message 7: by Ian (new) - added it

Ian Vinogradus CP is quite a widely accepted concept, and I would be pretty confident it originated in England, if not earlier in Rome.
I think that Whitaker was talking about giving constitutional rights under the US Constitution to corporations "as if" they were an actual person.
Some of the issues that concern you derive from the interpretation of the Constitution, which is a dark art not well understood outside the US.

message 8: by Ian (new) - added it

Ian Vinogradus One of the effects of embracing lower taxes from Reagan onwards is that a lot of agencies haven't been adequately funded, so that they just don't have the people power to prosecute a company that wants to spend millions of dollars defending itself.
As a result, they don't get prosecuted.
Here, they tend to go for the little, easy to win cases against the relatively defenceless, so that they can use them as "examples" and deterrents for everyone else.
But that doesn't really frighten the big companies.
Besides the authorities keep losing the cases anyway, usually because of the same lack of resources.

message 9: by Richard (new)

Richard Whitaker wrote: "Well, in the context of the US, I think the CP argument is overkill (in the context of the rest of the world, the CP argument doesn't arise). It also affects the 99% of US companies that are small businesses rather than simply the 1% that are large, mega-corps."

I haven't read this book (and don't plan to: I've spent enough time reading political economy, and I'm pretty sure he'd be preaching to the choir), but I think a very good companion would probably be When Corporations Rule the World (see the Wikipedia article for an overview).

Some of the crucial points he raises when arguing against CP are that:
• Corporations live forever. They don't die and spread their earthly goods to different-minded and differently-abled descendants (Who might fritter away that wealth, or direct it towards benevolent ends).
• Living forever means there is no "time limit" on how long they can accumulate wealth and power — imagine if the Koch brothers got to live for many hundreds of years, and you can see the problem.
• Corporations can co-opt the intelligence and efforts of thousands or hundreds of thousands, extending the awareness and force of the organization far beyond what any single individual could ever reach (just imagine an individual trying to argue a patent case against Google's army of lawyers).
• Corporations can acquire other corporations, allowing them to play shell games with money and responsibility.

Some wealthy individuals can do the forgoing as well — but only by using corporations as tools. If corporations were more strictly controlled, the wealthy would have less power.

[BTW, I very much disagree with the thrust of your analogy: Getting rid of CP is like getting rid of a criminal's handgun. Useful in the short term, but ultimately no help when he's also got a Molotov cocktail and a Kalashnikov. Getting rid of CP wouldn't be like taking away a handgun and leaving someone with a Kalashnikov, but like taking away all firearms and leaving them with knives and swords and such. Still dangerous, but under vastly reduced circumstances.]

And CP would not materially affect most small businesses. A few hundred years ago, companies were common, just as they are today. If you wanted to hire a bunch of people to build carriages, no problem.

And even limited liability corporations were tolerated as long as the purpose of such a corporation was elucidated and approved by a legislature. It might be very hard to gather enough money to build a canal, for example, without that LLC protection for the investors, but if the legislators though a canal was important enough, the charter was granted. But the corporation couldn't turn around and buy another corporation that built a toll road and try to get a monopoly on local transportation — their charter didn't permit it.

I don't think our economic world would survive intact with a wholesale reversal to eighteenth century restrictions on corporations, but corporations as they exist today are permitted an economic cross between the voraciousness of sharks and the metastasis of cancer.

Yeah, the wealth of individuals needs to be curtailed and our Gini coefficients got under control, but what has permitted this to happen in the first place is the lack of restraint on corporations.

message 10: by Ian (new) - added it

Ian Vinogradus Can I put the question another way: if there is some behaviour of corporations that needs to be restrained, are there any circumstances in which you would prohibit a company from behaving like that, but permit a person or a small business to behave that way?
I'm not sure whether the "corporations live forever" argument advances anything.
All corporations are owned by somebody, and sooner or later the somebody is a real live person.
Real live people run and control corporations.
It is what they make their companies do, that is the problem.
If Mum and Dad have four kids and one company, when Mum and Dad die, the ownership of the company will normally be split between the four kids.
And if those kids each have two grand-children, the company would normally be split between the eight grand-children, and so on.
The company will stay the same, but the ownership will be spread between the descendants.
Ultimately, the grand-children need to work as a team to make the company do anything.
The same would apply if they were in business directly and didn't have a company.
When someone owns a company, OK the company might be rich, but the shareholder is also rich because they own the shares in the company.
If a company has a value of $10BN and I own 50% of the shares, then my shares are worth $5BN.
I am worth $5BN.
And if I'm worth $5BN, then I can employ thousands or hundreds of thousands of people.
It's my accumulated wealth that allows me to do that, not the fact that I have a company.

The very fact that we're arguing about CP as an evil (rather than the behaviour that we want to prevent or punish) is what worries me.
Unless we specifically target the actual behaviour we want to prevent, we'll never agree with each other and we'll never prevent it.

And that's what the real live people who own corporations want to happen and will benefit from.

message 11: by Ian (new) - added it

Ian Vinogradus Thanks, Brian.
You have raised two issues there:
* participation in the political process; and
* privacy.
I would like to put your propositions to some sort of formal logical analysis.
There are probably better logicians than me here, but I'll have a go anyway.

Participation in the Political Process

I assume that you are not saying that participation in its own right is an evil.
I.e., if a citizen participates, that participation is not intrinsically an evil.
So you are presumably saying that, when a company participates, that is an evil.
So there is something about the characteristic of the company that participates, that makes its participation an evil.
I don't understand what that characteristic could be.
If a natural person had that precise characteristic, would it be an evil?
If not, are you simply saying that the participation is evil, precisely because it was by a corporation?
In other words, something that is not intrinsically an evil in its own right becomes evil because it is done by a corporation?
If this is your argument, then it is effectively saying that the identity of the "legal person" can make an activity an evil.
This could become a dangerous argument in the hands of other people.
Could it justify something being treated as evil if it was done by a person of one colour or race or gender, but not another?
This argument starts to offend the principle that everybody should be equal before the law.
Are you in reality saying that corporations are an evil full stop and that any activity by a corporation is evil?


Similarly, I assume that you are not saying that privacy in its own right is an evil.
Yet you seem to be saying that, if a company has privacy, then its privacy is an evil.
I don't understand the step that allows you to conclude this.
You say that a company can use its right of privacy to avoid inspections and audits by regulators.
Could an individual assert the same right of privacy to avoid the same inspections and audits?
If so, it's not the privacy of corporations that is the problem, it seems to be the manner in which any type of person must submit to inspection and audit that is flawed.
Something in the general drafting of the law must offend the general right of privacy.
If this is not the case, then you must presumably be saying that in the particular example a corporation has a greater right of privacy than a real person.
I don't see how that could be the case.
And I doubt whether you would argue that case anyway.
The whole idea of the "theft" in the title of the book seemed to be that corporations were getting the exact same protections as natural persons, not greater protections.

My ultimate concern in both cases is that you seem to be proceeding from the assumption that a company and its activity is intrinsically evil, therefore ban it.
In other words, if a natural person did the exact same thing, it would be OK.
But if a company did it, there's something wrong.
If that is indeed the case that anybody is making, I think you're going to have trouble getting anyone in Congress to take notice.

Whitaker The discussion seems to have moved since I started working on my own thoughts in response to posts 9, 10, 11 and 14. I'm just going to post them anyway. Hope no-one minds.


We need to be very clear about what we are talking about here.

As I noted before, there are two notions of corporate personhood that are being discussed, and they are being conflated and confused.

First, there is the concept of corporate personhood. This basically says that a company can sue and be sued in its own name, and that shareholders of the company cannot be sued for the company’s liabilities. There are many sound business and economic reasons for this, but chief of the reasons is the simple fact that business is risky, and businessmen who undertake business sensibly want some protection from risk. This is no more evil than taking out health insurance.

Say, Company A manufactures widgets and sells widgets to Company B for it to put into its televisions. Company A agrees to supply Company B with 100,000 widgets each month for a price of $1 a widget. This is based on certain cost calculations.

In month 2, petrol costs go up, and this makes selling its widgets at $1 a losing proposition. It is still contractually obliged to supply those widgets to Company B at the agreed price. In month 3, the factory has to shut down due to a workers’ strike. Company A is still on the hook. If Company A can’t supply, Company B can sue Company A for the lost profits it could have made from televisions it was unable to manufacture or for the cost of finding replacement widgets. I see no reason why the shareholder of Company A should be on hook for this.

Let’s add in a standard complication. Company A has a revolving loan with Bank A. Due to the events in months 2 and 3, it can’t repay its loan. Bank A refuses to renew the revolving credit thereby starving Company A of cash flow. It has to go into winding up. Again, I see no reason why a shareholder of Company A should be on hook for this.

These are standard business risks and hardly a question of businessmen seeking to run away from liability after having stripped mined and pillaged a village (which is what Hartmann suggests).

On the other hand, company law does have a complex system of checks and balances to ensure that the separate corporate personality rule is not abused. In brief, the key mechanisms are:
● Lifting the corporate veil: A shareholder that uses the company to perpetrate fraud will not be allowed to hide behind the company’s separate legal personality.
● In a winding up, there are a host of laws that allow a liquidator to go after the shareholders or directors of the company if they have siphoned off the company’s assets for themselves in order to avoid these assets ending up the hands of creditors.
● Criminal penalties for violations of numerous laws pin liability both on the company and on the officer of the company that allowed the crime to take place. The common law has a similar concept where the court looks for the organising mind in the corporation to pin the crime on him.

These are pretty standard in any common law jurisdiction, and represent a calibrated approach where the different risks and rights of the multiple parties are balanced.

As an aside, it is a misperception to say that corporations live forever. Notionally, they can. But two statistics that give the lie to this:
-- Of the companies in the Fortune 500 in the first half of the 20th century, most of them have disappeared by now.
-- Of the hundreds of thousands of companies that are incorporated each year, most of them have disappeared five years down the line.

This separate corporate personality rule is a cornerstone of modern commerce and honestly you are never going to get all the countries of the world to agree to remove it, which is what it will take. Furthermore, Hartmann’s bugbear is how corporate personhood is applied in the context of the US Constitution, and not separate corporate personality per se:
In common law there are two types of “persons”: “natural persons”, like you and me, and “artificial persons”, which include governments, churches and corporations. The creation of a separate category for governments, churches (and other non-profits), and for-profit-corporations was necessary so that the law (and taxes) could reach them.
That’s turn to that now.

message 13: by Whitaker (last edited May 21, 2011 09:58AM) (new) - rated it 1 star

Whitaker The notion of corporate personhood that Hartmann is upset about is allegedly said to have been ruled on by the Supreme Court in Southern Pacific Railroads v. Santa Clara County. I went and checked the actual case, and the headnote, and this is what it says, “Fourteenth Amendment to the Constitution of the United States, which forbids a State to deny to any person within its jurisdiction the equal protection of the law, applies to corporations.” So, the point that the case is supposed to stand for is simply that corporations are entitled to the equal protection clause under the American Constitution.

Seen in this light, I see very little that is offensive about that statement. A quick check on a legal database threw up a host of decisions deciding on the application of the equal protection clause to corporations. I give one example from each side.

Williamson v. Lee Optical of Oklahoma, Inc., US Supreme Court, 348 U.S. 483: An optician sought to have a law declared unconstitutional because its effect was to forbid an optician from fitting or duplicating lenses without a prescription from an ophthalmologist or optometrist. In practical effect, it meant that no optician could fit old glasses into new frames or supply a lens without a prescription. The Court held that the law did not violate the Equal Protection Clause of the Fourteenth Amendment and that the law's prohibition on the use of advertising for the sale of eyeglasses and lenses was constitutional because the legislature could treat all who dealt with the human eye as members of a profession who should use no merchandising methods for obtaining customers.

Concordia Fire Ins. Co. v. Illinois, US Supreme Court, 292 U.S. 535: The Court had to consider the constitutionality of property tax laws that applied differently to fire insurance companies than to casualty companies. It held that the laws worked a prejudicial discrimination against fire insurance companies and for casualty companies in respect of competitive casualty businesses of the same character, conducted in the same way in the same territory, and that there was no basis for making a distinction between the companies that had pertinence to the imposition of a property tax. Accordingly, the laws were in conflict with the Equal Protection Clause of the United States Constitution.

From this application to the Fourteenth Amendment, Hartmann then conflates that constitutional issue with corporate personhood per se. So he goes on to refer to other Constitutional Amendment issues as well in Chapter 12. Let’s look at some cases on these:

First Amendment Rights:
Pacific Gas & Electric Co. v. Public Utilities Com. 475 U.S. 1: Order requiring a public utility company to apportion space in its billing envelopes for inserts of an opposing consumer group was reversed because it violated the company's right to freedom of speech.
Grosjean v. American Press Co., 297 U.S. 233: A tax on advertisements in publications that had a circulation of more than 20,000 copies was an unconstitutional restraint on the freedom of the press under the First Amendment where the tax operated to limit the circulation of information.
Kovacs v. Cooper, 336 U.S. 77: City ordinance that prohibited sound trucks from broadcasting in a loud and raucous manner on public streets did not violate the First or Fourteenth Amendments.

In doing the research, I also stumbled across this 1988 SC case which still seems to be good law:
Braswell v. United States, 487 U.S. 99: The custodian of corporate records may not resist a subpoena for such records on the ground that the act of production would incriminate him in violation of the Fifth Amendment. Such a claim of privilege under U.S. Const. amend. V, asserted by petitioner, was tantamount to a claim of privilege by the corporation, which possessed no such privilege.
I ask then whether Hartmann is cherry picking his examples selectively to leave out cases that contradict his argument.

However, my point is that this seems to be an area of law that has complexities well beyond what a person other than a constitutional lawyer would be familiar with. I am by no means familiar with US law, and US constitutional law is (as Ian puts it) an arcane dark art to itself, but I would be very careful about messing around in an area where there are already thousands, if not hundreds of thousands of precedents, and decades of judges working out a complex network of checks and balances in respect of the multiple competing rights in the millions of laws and situations that could be affected by this.

message 14: by Ian (last edited May 21, 2011 12:16PM) (new) - added it

Ian Vinogradus Brian wrote: "I'm not sure evil is the best word to describe it. I'm thinking of something maybe half-way between "inappropriate" and "evil"...

They may be welcome in the country in a different context, under different circumstances, but not as political agents. "

Two interim responses:

I have used the word "evil" as a term to describe something that is regarded by the community or Congress as bad enough to justify the passage of a law prohibiting it.
I start on the basis that everything in society should be permitted, unless there is a law that prohibits it.
The question is: is there something that warrants the prohibition that Hartmann is advocating.

I was conscious as I wrote my comments of the concept of "aliens" or non-citizens.
Most nations accept that "aliens" are not entitled to be treated in the same manner as citizens.
As an aside, sometimes when you're a convicted criminal or felon, you lose some rights as well, e.g., the right to vote.
As far as aliens are concerned, international law would normally step in to make sure that aliens were treated fairly.

message 15: by Ian (new) - added it

Ian Vinogradus Whitaker, I share your frustration with the constitutional issues.
I suppose why I have tried to move the essential dispute is that I would like to forget about the legal and constitutional niceties and make the issue a political and legislative issue.

There is some sort of behaviour going down out there.
Some people don't like it.
They want to change the law (including potentially the constitution).
What sort of issues or logic should inform the potential law and debate.
We as citizens should be free, unless the state removes our freedom by passing a valid law.
What is sufficient justification for a law?

I have used thee shorthand of "evil" for the target of the law, so as to suggest that people shouldn't just pass a law because they feel like it, or because they're angry or offended, or they've read a great book that inspired them, or even because they happen to form a majority.
Once you start "abusing" the power of the majority to pass any law you like (just because you can), democracy would have become just as despotic as the political systems it was designed to improve and replace.

My greatest area of concern personally is laws that start to impose particular moral beliefs on people.
"There ought to be a law against it."
These laws can come from either the conservative, religious right or the politically correct left.
They're all just as bad as each other.
I don't want a whole lot of morally-based legislation being imposed on us, every time political power moves from one side to another in an eight year pendulum swing.

My resort to logic (in the philosophical sense) is trying to say: tell us exactly what your gripe is, so that we can see whether there is a better or more direct way of preventing it.
At the moment, you and I have become the defenders of CP.
However, we might all be on the same side when it comes to the underlying "evil" (to use my term, well, the term I've been using).
I'm sure that you and I aren't in the business of justifying or exculpating companies from the consequences of their evil, just because they happen to be a corporation.
As you have pointed out, part of the justification of CP is so that corporations could be made the subject of laws in the first place.

To be honest, I was a bit worried when Brian's response suggested to me that there are some things done by a company that should be prohibited, but if the exact same thing was done by a natural person, it should be permitted.
In my terminology, this means that the concept of a corporation is the evil that Brian and Hartmann are concerned with.
Legally and politically, that is just not going to wash with the powers that be.
One insidious reason is that probably every single congressman is pretty likely to have their very own corporation.
This is why I agree with the first paragraphs of your review: we have to get the focus back on corporate misfeasance (i.e., the underlying misfeasance or evil, which if perpetrated by anyone, should be prohibited).
I also agree with your original statement that CP is a red herring, even if you've retracted it.
Or maybe the herring should be a different colour?

["red herring" etymology: "smoked herring" early 15c. (they turn red when cured). Supposedly used by fugitives to put bloodhounds off the scent (1680s), hence metaphoric sense (1884) of "something used to divert attention from the basic issue."]

message 16: by Richard (new)

Richard Ian wrote: “All corporations are owned by somebody, and sooner or later the somebody is a real live person.
Real live people run and control corporations.
It is what they make their companies do, that is the problem.”

No, one very big problem is precisely that it doesn’t work this way. When a mid-level employee (say, at Enron, or Nestlé, or Countrywide Financial) does something that turns out to be illegal, they will be using the power and resources of the corporation in those plans.

That almost inevitably means the harm they do is vastly greater than they could have ever done as an individual. But it also mangles accountability.

That individual’s actions should be subject to oversight by higher management, right? But if those executives manage not to notice, the worst that is likely to happen is that they’ll lose that job, which often turns out to be not such a great loss.

After all, if Countrywide Financial uses that employee’s bait-and-switch tactics innovative marketing plan to engage in predatory proactive lending, the benefit of the crime mostly accrues to the stockholders and management. Thousands or hundreds of thousands of people might be harmed, with millions or billions of dollars at stake.

Who is responsible? Among those “real live people”:
• The “innovating” employee probably only gets fired, since they can reasonably claim that assuring the legality of the plan wasn’t their responsibility;
• The legal department can easily claim they were never presented with the problem in a clear way;
• Higher management can claim they didn’t understand the implications, although a token few will probably still be fired;
• Stockholders (i.e., your “All corporations are owned by somebody” people) are completely off the hook, since it is a limited liability corporation. Sure, the stock price might drop, but those that gained from the illegal activity might have long since sold their stake, and you might now be “punishing” many that didn’t gain anything at all.

Your formulation is applicable to a company that is small enough that lines of responsibility are obvious and undeniable, and one that hasn’t filed for LLC status. And those aren’t the ones that cause problems.

Ian wrote: “If Mum and Dad have four kids and one company, when Mum and Dad die, the ownership of the company will normally be split between the four kids.
And if those kids each have two grand-children, the company would normally be split between the eight grand-children, and so on.”

Again, the sole-proprietorships aren’t the problem.

And while LLC ownerships creates some problems, in many others the stockholders are of no significant relevance. Almost none of the corporations our author would find problematic is going to be affected by “Mom and Dad dying”. (There are some, of course, such as Cargill and Bechtel.) But when Sam Walton died and ownership of his megacorporation got split up, the company didn’t dissolve or even change much. If anything, the loss of a founder might eliminate the last vestige of human leadership that identifies so strongly with the company that he or she enforces a minimum conscientiousness.

An analogy: governments are put into place by voters. Ergo, voters have control over everything the government does, and when voters are replaced by younger voters, any problems attributable to the current polis will disappear.

But corporations are agents in their own rights, distinct in their power and abilities from the mass of employees that perform their functions. Another good analogy is that employees are like cells in a body — the emergent collective is ontologically distinct.

The motivation and direction of a largish corporation comes from its technostructure and executive class, none at all from the “owners”. Benefits accrue mostly to the executives and owners. Penalties commensurate with crimes don’t apply to anyone, human or otherwise.

message 17: by Richard (new)

Richard Whitaker wrote: “As an aside, it is a misperception to say that corporations live forever. Notionally, they can. But two statistics that give the lie to this:
— Of the companies in the Fortune 500 in the first half of the 20th century, most of them have disappeared by now.
— Of the hundreds of thousands of companies that are incorporated each year, most of them have disappeared five years down the line.”

In a sense you are correct — but what your observation misses is that the exceptions to the above statistics are the ones that we care most about, the ones should concern us. Your comment is akin to saying “Humans can’t become billionaires. Of the billions of humans that have ever lived, 99.9999999% never do so.” (Or some such statistic).

And even “live forever” isn’t the point — it’s that they can have indefinitely long productive lives. After finishing school and entering the workforce, humans get maybe fifty years. This year is IBM’s hundredth birthday, and it’s the 18th largest firm in the U.S. It doesn’t show any signs of old age, does it? Lloyd’s of London is over three hundred years old, and will probably be around long after we all die.

message 18: by Richard (last edited May 21, 2011 02:26PM) (new)

Richard Ian wrote: “And if I'm worth $5BN, then I can employ thousands or hundreds of thousands of people.
It’s my accumulated wealth that allows me to do that, not the fact that I have a company.”

This isn’t correct. Imagine personally trying to manage and direct thousands of people without a bureaucracy to transmit your instructions. Pretty much impossible — it is a practical impossibility for a human being to even remember the names of so many, much less to find the time to give them all personal directions and make sure they follow them.

So your axiom is backwards: it is your company that allows you to do that, not your accumulated wealth. In fact, wealth isn’t even necessary — you could be the general of an army, and again the only way you can manage such a large organization is to have a company, or it’s direct analog. The company is the mechanism through which you must operate if you want to do things at that scale.

You wealth only gives you the opportunity, should you wish, to have such a company.

Brian wrote: “I’m not sure evil is the best word to describe it.”

I tend to shy away from the word “evil” also, since it has supernatural cognates that I think are at best distracting. “Evil is banal.”

But immoral isn’t too strong a word. The second formulation of Kant’s categorical imperative says:
Act in such a way that you treat humanity, whether in your own person or in the person of any other, always at the same time as an end and never merely as a means to an end.
A local tavern where everyone knows your name is treating you as a person. But once organizations get so large that their customers become abstractions, they are heading towards treating those customers as objects: as an means to an end — i.e., a means to a revenue stream — and not as an end in themselves — as a human being.

Most of the time this isn’t a problem. The shoe salesperson simply doesn’t have enough power to do anything but be rude; but when you are nothing but a database entry on a bank’s ledgers, it makes it far to easy to jack up your interest rates for reasons that have nothing to do with your actual personhood; it makes it far to easy for the directors of a drug research firm to note that impoverished customers are less desirable than wealthy ones, and thus to direct their efforts for the next viagra instead of anti-malaria drugs. Far too easy for a company to sell products it suspects are mildly toxic, simply because the added cost of fixing the problem is larger than the projected insurance and litigation cost of the resulting harm.

It is so much easier for an amorphous organization to do evil — even if it is only doing it accidentally (see, for example, the story of the 1977 Nestlé boycott — which undoubtedly happened not because Nestlé employees set out to kill African babies, but because ethical issues simply “fell through the cracks”).

I’m not arguing for the abolition of mega-corporations — as our world is currently constituted, that is impossible, and it might be that something similar to them is a practical necessity in a world of so many billions. But corporations are such fundamentally different kinds of creatures that they shouldn’t be treated “as if” they were humans. Laws should be changed to reflect the ways they are different, and especially the ways they cannot be trusted. Today there are only a few meager exceptions to the general rule that “corporations are persons”, and that isn’t enough.

message 19: by Ian (last edited May 21, 2011 04:00PM) (new) - added it

Ian Vinogradus Richard wrote: "Who is responsible? Among those “real live people”:
• The “innovating” employee probably only gets fired, since they can reasonably claim that assuring the legality of the plan wasn’t their responsibility;
• The legal department can easily claim they were never presented with the problem in a clear way;
• Higher management can claim they didn’t understand the implications, although a token few will probably still be fired;
• Stockholders (i.e., your “All corporations are owned by somebody” people) are completely off the hook, since it is a limited liability corporation. Sure, the stock price might drop, but those that gained from the illegal activity might have long since sold their stake, and you might now be “punishing” many that didn’t gain anything at all."

Corporate Responsibility

Richard, these are all good questions, and they are the heart of the problem for me.
No matter how big or small the company:
* the shareholders own the company and their wealth is increased by their proportionate share of the company;
* the shareholders appoint the directors to manage the company at the macro level;
* the directors appoint an executive team to manage the company at the next level down;
* the executive team employ the staff.

Tweaking Limited Liability

Whitaker has listed some situations where the shareholders can be liable.
That is what the law currently thinks is appropriate.
It may be that the law needs to be tightened up.
In other words, there may be a case for making the liability less limited.
And penalising the people who ought to be punished.
But until we start discussing the issue in terms of the "evil" or "moral iniquity" or "misfeasance" or "mischief" or whatever, we won't even get within cooee of the real debate or the changes in the law that are necessary.

James Hardie Case

There is a major Australian case going through the Australian court system at the moment concerning James Hardie's liabilities to workers and customers as a result of its asbestos products.
The main company tried to get the liability off its balance sheet by setting up a foundation and putting "enough" money into the foundation to compensate all of the likely claimants.
This meant that the main company could trade on without being affected by the claims.
Guess what?
The foundation had $1BN less money than it should have.
The case concerns the liability of the company for the shortfall and the liability of the directors and legal department for the misleading statements made about the sufficiency of the funds given to the foundation.
At one level, all of the directors were found to have breached their duties, heavily fined and denied their eligibility to be directors of any company in Australia at all.
These directors were some of the highest profile directors in Australia.
Since that decision, there have been various appeals, and only this week did the High Court of Australia (the highest court) grant leave to appeal, so that it can consider the issues at the most definitive level.
For anyone interested in the issues, this case will be worth following.
Here is a link to a pdf issued by a legal firm about the case several years ago, but you can see that the issues are being seriously dealt with in the legal system:
It's worth reading what the article says about the limitations on the ability of the directors to delegate and rely on other people.

Government Analogy

The government analogy is an interesting one.
The Australian Government recently apologised to aborigines for their treatment by previous governments.
One of the main conservative reasons for not apologising was that the damage had been done by "previous" governments for whose actions the current government and "we" should not be liable.
In other words, we could wash our hands of anything that had been done before the last election, because it wasn't our "fault".
Fortunately, a version of "corporate personality" also applies to governments.
Today's government is the same entity as yesterday's government, and is still on the hook for its actions.

message 20: by Ian (last edited May 21, 2011 04:01PM) (new) - added it

Ian Vinogradus On the Meaning of Evil

It might help if I explain why I used the concept "evil".
It might be and sound like an old-fashioned term, but it has been widely used in political and legal philosophy.


It is used a lot in "An Introduction to the Principles of Morals and Legislation", by Jeremy Bentham.
He had a utilitarian approach to the law:

"All punishment is mischief: all punishment in itself is evil.
"Upon the principle of utility, if it (punishment - ed.) ought at all to be admitted, it ought only to be admitted in as far as it promises to exclude some greater evil."

Bentham was trying to codify the rules upon which it would be appropriate to limit freedom and make some action a crime against society and the state that was punishable by the law.
He also used the word "mischief".


Framing the Law

My input is trying to establish:
* what is the evil or mischief that we are trying to prevent?
* what is the appropriate law or method of preventing the evil or mischief?

Freedom from and against the Law

If some activity is not prohibited by the law, then it should be permitted.

I apologise if this all sounds very old-fashioned.
But it is as old-fashioned as the Romans, though I can only find the French maxim at the moment:

Tout ce que la loi ne defend pas est permis. (Everything is permitted, which is not forbidden by law.)

It amazes me that the Romans had a great expression for everything, even if I can't find it (yet).

message 21: by Richard (new)

Richard Ian wrote: “No matter how big or small the company:
* the shareholders own the company and their wealth is increased by their proportionate share of the company;
* the shareholders appoint the directors to manage the company at the macro level;
* the directors appoint an executive team to manage the company at the next level down;
* the executive team employ the staff.”

… and …

Ian wrote: “Fortunately, a version of "corporate personality" also applies to governments.
Today's government is the same entity as yesterday's government, and is still on the hook for its actions.”

But don’t you realize that these two directly contradict one another? In the first you are presenting the argument that there are individuals within and above the corporation that can be identified as responsible for everything that happens. Ergo, holding “the corporation” responsible makes no sense — just figure out which person in the hierarchy is responsible and you’re done.

But if today’s government is the same entity as yesterday’s government, then you’re arguing that a corporation has an ontological status that is separate from the individuals that constitute it, and thus the corporation (government) can be held responsible.

One of my points is that corporations will sometimes hide the smartest people around to muddy up this story, so they get the benefits of both sides of the story when it suits their bottom line, and later are able to avoid the penalties from either side by telling the story a different way.

And, in fact, neither side really tells anything like the truth with respect to a large corporation. In the first telling, while the shareholders might indeed own the company, they are so removed from day-to-day activities that they seldom provide any oversight at all. Those shareholders that have the expertise and incentive to provide oversight are generally (a) other large corporations, (b) absurdly wealthy families and individuals, or (c) investment funds. None of whose interests align well with the public interest. Meanwhile, the management and directors have often been able to run many companies as fiefdoms, hiding crucial activities from what limited shareholder oversight should apply, and carefully partitioning lower levels so blame doesn’t spread up the corporate ladder. Your four bullet points might reflect an idealized picture which is seldom in evidence in any sizable company.

The second version, that the government (or corporation) is somehow “on the hook for its actions,” is also lamentably rare. Even when corporate malfeasance is proven — notoriously difficult and rare — what penalties could be applied? How does having a dozen or so employees banned from future similar jobs punish “the company”? If a company reaps billions from its bad acts, how does a penalty of a few millions or even hundreds of millions serve as punishment?

It is possible to find exceptions, I guess. But in large corporations responsibility is so dilute and distributed that punishment is incredibly difficult; I think that is an excellent reason they should be controlled and regulated far more than humans. But treating them mostly as having rights akin to natural persons interferes with such restrictions.

message 22: by Ian (new) - added it

Ian Vinogradus Thanks, Richard.
I don't see them as inconsistent.
In each case, the company or the government is primarily liable, not the people behind them.
The exception to this rule for companies is the list of liabilities that Whitaker mentions.
I mentioned the ownership and control heirarchy to imply that, if there was a political and legislative intent and justification, you could use this heirarchy to determine who was culpable and who should be punished.
But that would involve a change of the law.
In the case of the government, of course, the equivalent of the shareholders would be us, the public.
So when the government is liable, we the public end up paying indirectly through our taxes.
The wiki article on "legal fiction" is worth reading:
It explains how the CP idea was developed to impose the same obligations (but also rights) on corporations.

message 23: by Richard (last edited May 21, 2011 08:53PM) (new)

Richard Ian wrote: “I don’t see them as inconsistent.
In each case, the company or the government is primarily liable, not the people behind them.
The exception to this rule for companies is the list of liabilities that Whitaker mentions.”

Okay, I guess this is just where we fundamentally disagree. I think that “punishing the company” seldom does any good, because those very individuals are the ones that initiated the unethical behavior. And punishing the individuals doesn’t do any ultimate good, because the structure of a company means so many others benefit from the wrong-doing that the behavior isn’t deterred. There’s a fundamental chicken-and-egg problem.

And Whitaker’s list (if I’m looking in the right place in this long discussion) only deals with a tiny subset of problems that corporate personhood entails.

Many of them aren’t even legal issues. Whether corporations should have free speech, for example, isn’t a legal question but a philosophical one. If the individuals owning (or served by, or employed by) a corporation feel passionately about something, they as humans are already free to engage in speech advocating their beliefs. Who is this corporate persona that also somehow has beliefs, wants and desires? If it is a megaphone for corporate directors (as I believe), then why don’t they use their personal funds instead of being permitted to tap the vast reserves of the corporation?

A similar question can be applied to the corporation’s right to engage in any business it “wants” to. This seems so obvious that it seems strange to question it today, but when LLCs first were permitted, this wasn’t the case. I think part of the problem with the recent global economic crisis is because banks — whose fundamental responsibility should be to safeguard their customer’s funds — were permitted to speculate with those funds. The Glass-Steagall act was a reasonable prohibition that prevented such a problem from occurring.

Similarly, why are corporations freely allowed to buy and sell other corporations? That was another “right” that came later, and has permitted corporations to grow so large that we can’t allow them to fail because of the widespread disruption that would entail. Right now, the rule is effectively that any purchase or merger is permitted unless explicit consumer harm is shown, which has proven to be a very high hurdle. Why didn’t we retain the prior rule, which required explicit benefits to consumers to be proven? Tens of thousands of smaller corporations would be the result; something that would fit the economic models of the neoclassical synthesis much better.

Corporate personhood creates structural problems in our society that go far beyond legal issues of outright fraudsters trying to use corporate veils.

I suspect the philosophical difference is the one we will end up disagreeing on: I believe that it was a mistake to unleash this onto society and would like to see corporate rights gradually curtailed, whereas most people don’t see a significant problem.

message 24: by Ian (new) - added it

Ian Vinogradus You're elected President at the next election.
You know you have eight years in power with a friendly Congress.
You can make any laws that you want to solve this problem.
What do you do?
What structures and/or activities should be banned?
What new crimes should there be?
Who should be punished for them?
What should the punishment be?

message 25: by Richard (new)

Richard Nice set of questions, but I'm not going to go that deep. I don't believe in revolutions, since I think they too readily inspire counter-revolutions, so I'd lay out five, ten, twenty and fifty year plans that would roll back some of those rights.

I'm not sure how one would partially roll back corporate freedom of speech, for example, but that's what advisors and blue-ribbon panels are for.

But my goal at the end of those eight years would be to have a culture growing used to the idea that megacorporations are gradually being bound in a tighter and tighter web of laws with the goal of eventually reducing their largest size to something manageable.

At the same time, small companies are pretty much the same as they've been for a thousand years or so, hopefully leaving the vast majority of voters satisfied (if, perhaps, a little bemused) by the new state of affairs.

Restrictions on "corporate free speech" and mergers would come pretty quickly. Taxes that penalize corporations for being "too big to fail" should start the process of them splitting themselves up voluntarily.

One penalty I'd bring back would be dis-chartering as a death sentence for egregious behavior. Since that would leave many ordinary people unemployed, I'd shift unindicted ex-employees to become the first beneficiaries of any bankruptcy sale, which should have the effect of encouraging shareholders and lenders to examine corporate behavior much more closely.

Of course, this is just a fantasy — as much as I dislike the global corporate takeover, I don't see any prospect of its retreat.

Whitaker Richard, nice ideas! I'm much in favour of targeted regulations and laws properly enforced that bind corporations and create structural incentives to direct behaviour in the right direction. I think we might differ on the exact mix but I think we'd have a place to sensibly have dialogue.

message 27: by Lisa (new) - rated it 4 stars

Lisa Great review! I accepted Brian's challenge also and need to get back on it!

Whitaker Lisa wrote: "Great review! I accepted Brian's challenge also and need to get back on it!"

Thanks! I can't wait to hear from all the people who the book. It'll make for a very interesting discussion.

message 29: by Ian (new) - added it

Ian Vinogradus Go for it, Lisa, and don't hold back!

blakeR You make a good point in identifying the REAL problem (i.e., "the rich" instead of "corporations"), but you can't regulate wealth unless you first rein in the corporations that wield it. I don't believe Hartmann necessarily argues this point (or if he does, very well), but that seems the obvious crux of the issue. Any effort to change the status quo will run into billions of dollars of corporate propaganda and corporate-run politicians and thus be a non-starter. Therefore the pathway that Hartmann highlights does seem to be the most vulnerable point of attack.

message 31: by Richard (new)

Richard I'd disagree that wealth, per se, is the problem. Retained wealth within families is a huge problems, because it concentrates power very much the way corporations do.

But as long as the standards of civilized society make sure everyone has the basic needs — and the flexibility for enough more that allows them some freedom to explore — equal distribution of wealth would be... uninteresting.

As long as their is turnover of wealth — rename the "death tax" to the "what have you done to earn this? tax" — then the ability to earn wealth brings a lot of innovation.

message 32: by Ian (new) - added it

Ian Vinogradus Richard wrote: "rename the "death tax" to the "what have you done to earn this? tax" "

The money that we accrue over our lifetime is usually post-tax, i.e., we have already paid tax on it once.

A death tax would tax it twice, just because we died.

I would turn your question around and ask the Government, apropos a new or second tax, "what have you done to earn this?"

And: why isn't one lot of tax enough to fund the cost of government services?

message 33: by Ted (new)

Ted "One lot of tax" in the U.S. (income tax) doesn't come close to funding government services, because the tax rates are not high enough.

Of course it's not a "death tax", though people opposed to an inheritance tax like to call it that - it makes it sound sinister. And it is no tax at all to the vast majority of Americans, since they have estates that are nowhere near the point at which it kicks in (although many individual states also have an inheritance tax, and of course those that do have all sorts of different levels at which it applies, rates, etc.)

If you have upwards of several million dollars, you have a right to "worry" about this I suppose, if you have not enough other things to worry about in life. There are many ways to plan for this and lessen its impact. The average person should not have the least reason to care about inheritance taxes in the U.S.

message 34: by Ian (new) - added it

Ian Vinogradus The Reagan Inheritance?

message 35: by Ted (new)

Ted Not sure what the question means, Ian.

message 36: by Ian (new) - added it

Ian Vinogradus Didn't Reagan start the whole low tax trend in California in the 80's. People focus on what the tax rate is, rather than on why we pay tax and what services we get for our taxes.

message 37: by Richard (new)

Richard Estate taxes aren't double taxation. They are income to the next generation — why should the kids of billionaires get so much money without paying taxes when I have to work for my next dollar?

If you really want to perceive it as double taxation, I don't have a problem with that. There's no magic in the number says once is fine but two is somehow wrong.

And I'm fine with asking what the government is doing with the money. There is no conflict between trying to increase the rationality behind spending while also trying to increase the rationality behind taxation.

I agree with Ted — I have no idea what Reagan has to do with this.

message 38: by Ian (new) - added it

Ian Vinogradus I am not and never have been a US citizen, but my recollection is that California's Proposition 13 in 1979 provided an ideological foundation for all subsequent attempts to lower tax rates and promote small government.

As a result of the popularity of these initiatives, there is less money to fund government services and there are now enormous budget deficits, which might never be reversed.


"Passage of the initiative presaged a "taxpayer revolt" throughout the country that is sometimes thought to have contributed to the election of Ronald Reagan to the presidency during 1980."

Reagan and Thatcher were great promoters of these ideologies.

message 39: by Richard (new)

Richard Oh, s'pose so. But Reagan wasn't the taxcutter people remember him as. It was more of a grassroots thing (and I am a Californian). The Republican party went heavily small-government in the years after Reagan, and Reagan was the one that rescue the party from the depression that Nixon had put it into, so the two threads were twisted together after the fact.

I suspect the grassroots fiscal conservatism of the times pushed Reagan, but Reagan wasn't pulling, if that makes sense. If I remember correctly, he tried to appeal more with "I'll be tough on those evil Soviets" and "It's time to stand tall and proud again!" more than fiscal stuff.

message 40: by Ian (last edited Feb 16, 2013 01:47AM) (new) - added it

Ian Vinogradus Richard wrote: "Estate taxes aren't double taxation. They are income to the next generation — why should the kids of billionaires get so much money without paying taxes when I have to work for my next dollar?"

Let's say, after years of living at a subsistence level, I wrote a book and I made $20M profit from it and I paid, say, $8M tax, so I netted $12M.

That $12M is my after tax capital.

If I died straight away and my kids inherited the $12M, then it remains capital, it is not income in the hands of my kids.

I don't know how the US Estate Tax works, but if that capital is taxed, then it is double taxation.

I don't mind that any interest earned on the $12M is taxed, e.g., 5% interest on $12M = $600K per annum.

Equally, if the kids invest it in a building and the building is eventually sold for $20M, I don't mind that the $8M capital gain is taxed.

But I do object to the $12M being eroded.

As I said, that capital has already been taxed once.

message 41: by Ian (new) - added it

Ian Vinogradus Just to explain why I feel strongly about this.

I think that we should work out what government services we want and then fix our tax system, so that, by and large, it can fund our expenses on a year by year basis (subject to fluctuations in economic activity).

We should have the guts to determine the right tax rate and to pay the right tax rate.

Estate tax is a gutless attempt to remedy shortfalls, by taxing people when they die, or more accurately, when they inherit.

Because there is a transition, bureaucrats think that the tax is a sort of victimless crime, sort of, nobody will miss it if we skim some off the top.

It's the equivalent of lawyers slogging clients when:

(1) they buy a home (the bank can fund the fee);

(2) personal injuries (the insurance company funds the fee)

(3) a divorce (the house has to get sold anyway, so the sale proceeds fund the legal fee.

message 42: by Richard (new)

Richard Ian wrote: "As I said, that capital has already been taxed once. "

I agree: *you* have been taxed on it once. When you die, *you* are not being taxed — the kids are.

Is the money being taxed a second time? Sure. It'll be taxed over and over again as it goes through the economy.

To me, it makes sense to focus my attention on who is paying the tax, and the transfer of an estate is taxed on the recipients, so the fact that the originator has already been taxed once isn't of interest.

Apparently your focus is, instead, on economic production. After the originator of the income has paid tax, it shouldn't be taxed again until it is spent?

Why not?

From my perspective, the person that *earned* the money is the one that *earned* it, not his or her children. They didn't earn it, so I don't think there is anything particularly fair in the idea that they get it gratis, while other humans get squat.

If we're only talking $12M, or maybe even $50M — hell, $100M! — I don't really care. But there are families who have armies of accountants and lawyers who are passing several hundred million or even billions down to their kids.

If your kids happen to inherit $12M or so, they can't just live off the capital and hire those accountants and lawyers to use the power of their money to manipulate governments, learn about the next big deal in from buddies at the club, etc. Power corrupts, and extreme wealth is power. I think it is fair to presume that the person that earned it has a tolerably good idea of how hard it can be to make money and how much one might have to suffer to make it in the world. But should one presume that about someone that not only inherits enough to never have to work, but even enough that they can shove around others without consequence? Do you really think that an aristocracy of wealth has no negative repercussions on society?

The world's developed nations all, by and large, have bought into the idea that "all men are created equal", but when some by an accident of birth are granted outsized endowments, it makes that a lie. I think a substantial tax on the inheritance of extraordinarily large fortunes makes sense to bring those families gradually back into line with the rest of us.

At one point Bill Gates was worth $100B. I suspect it is much lower today, and his philanthropy will take an even bigger chunk out of it, but let's say he passes $10B on to each of his three kids.

I think a good plan would be a decent estate tax rate of, say, 10% from $50M up to maybe $250, 15% up to $500M, and 20% above that. I'd be perfectly happy to compromise with the first step being at $100M — below that, you're likely to still be talking about family businesses and farms and such, where the following generations have to actively engage in maintaining wealth. Above that, wealth mostly maintains itself.

Ian wrote: "Estate tax is a gutless attempt to remedy shortfalls, by taxing people when they die, or more accurately, when they inherit."

I don't see the cause for the vehemence. Why is an estate tax "gutless" when a VAT or sales tax isn't? Isn't that also double taxation?

I agree that a balanced budget year-on-year is a worthy goal (although I'm also a Kenysian and think a strict requirement for an annual balanced budget can be a foolish straightjacket).

But why do some forms of taxation have moral onus that others don't?

Well, actually: I can see how some forms of taxation are worse than others, but for the reasons I'm outlined above, I think an estate tax with a high wealth threshold is among the least ethically problematic. A regressive sales tax/VAT is the worse.

message 43: by Ian (new) - added it

Ian Vinogradus If I read you correctly, you want to tax wealth, because you think wealth is bad, because some people with wealth have done bad things.

I think we should tax income or capital gains, there is nothing intrinsically wrong with wealth, and we should directly criminalise and punish the bad or "evil" things that are done by wealthy people, whether they are done by rich people or poor people.

The vehemence about Estate Taxation is partly because it can only be imposed once a lifetime. I'm arguing that all of us should pay the right amount of tax every year while we are alive, so that it isn't necessary to slog people when they die or inherit.

message 44: by Richard (last edited Feb 16, 2013 02:59AM) (new)

Richard If you skim up a ways (the first of my comments that you responded to yesterday), you'll see that I *don't* think that wealth is bad, and I don't even think that extreme wealth is bad. Ergo, I would agree with you that there is nothing intrinsically wrong with wealth. So: wrong. You've made assumptions that don't apply to me.

But I do think that giving people power without asking them to earn that power does lead to bad things. That's what I meant about an aristocracy of wealth. You didn't comment on that — is that something that you have no opinion on?

I don't want to "slog" people; I'm not trying to criminalize or punish people for anything Where is this moralizing language coming from?!?

I just don't see the moral basis for handing wealth to someone that hasn't earned it.

Why do you think someone that hasn't earned wealth *should* get it? Because they happened to get lucky in their choice of parents?

If you can't see beyond the assumption that everything belonged to the parents must legally morally be inherited by the children, I can see why you might perceive this as stealing, but why is that your default assumption? I'm not trying to be nasty or anything; I just fail to see why examining other possibilites is so morally indefensible — other than "because that's they way it should be!" or "that's the way it has always been!"

Re: "pay the right amount of tax every year while we are alive" — I don't even quite understand that. What about long-term capital gains?

Why is it acceptable to tax some things as they happen (sales / VAT, maybe excise, import duties, whatever), other things on an annual basis (income, property), other things when a qualifying exchange takes place (capital gains) — but not something that happens when someone dies? The prohibition seems strangely arbitrary.

message 45: by Ian (last edited Feb 16, 2013 03:21AM) (new) - added it

Ian Vinogradus OK, so you argue that wealth isn't bad per se, but retained wealth is.

Where we disagree on that argument is precisely the point that you make: "everything belonging to the parents must legally and morally be inherited by the children". That's a fair enough statement of what I believe, subject to what I say about taxes below.

I expect governments to justify their restraints on our liberty and our wealth.

I expect them to tax us in the most economically and personally efficient manner possible.

I want my government to provide me services that the US government doesn't provide to its citizens and I expect to pay for the services through appropriate taxes.

I'm not talking about you personally slogging estates, I'm talking about governments doing it.

You don't have to pay the same amount of tax every year. The income or capital gain is taxed in whatever year it is generated.

Long term capital gains should be taxed, on the sale by an owner, but not on their inheritance.

However, the passive receipt of my parents' wealth or my wealth through a will is not a sale of that wealth that should be taxed.

OK if it is subsequently sold by the kids, it can be taxed then, if there is a profit or a capital gain.

message 46: by Ted (new)

Ted Yes Prop. 13 certainly did set California on an interesting course. One of the things it did was, over the next three decades, turn their public school system from one of the best in the country to one of the worst.

Now we have in this country a situation where an a-hole like Grover Norquist can call the shots on an entire political party's philosophy on taxation (and we only have two political parties, not a multitude like parliamentary style governments do - more's the shame).

In the U.S. now, there is a maximum federal estate tax rate of 45%. I don't know what the different levels are, or where they cut in. This rate has been ratcheted down ever since the early 30s by changes made in the tax law. The tax itself has been around in the U.S. in basically its present form for close to a hundred years. The exemption level is now the highest it's ever been at $5 million. (There may be some recent changes in these numbers that I'm not aware of.)

From a Progressive point of view, I agree with much of what Richard has said above.

message 47: by Ian (new) - added it

Ian Vinogradus Ted wrote: "In the U.S. now, there is a maximum federal estate tax rate of 45%. I don't know what the different levels are, or where they cut in."

I was shocked to see just how many of the great galleries of Paris and London were filled with artworks by artists whose families had gifted the works in order to pay Estate taxes.

Let's say an artist dies with a collection of their own work worth $10M and let's say the tax is $3M.

The government basically said give us 30% of your catalogue by value and we'll stick it in a gallery.

The thing is that the artist had never made any money out of it nor had their children.

Our marginal rates on ordinary income tax are too low to fund the services we expect governments to pay.

Many countries have moved away from a tax on estates or capital (cf. income) to a tax on capital gains.

I agree with these taxes as a supplement to income tax.

They avoid many of the anomalies I am concerned about.

message 48: by Richard (new)

Richard Ian wrote: "OK, so you argue that wealth isn't bad per se, but retained wealth is."

Well, not precisely, but getting closer. I believe that extreme levels of retained wealth are bad — not in and of themselves, but like a horrible diet or lack of exercise. It's asking for trouble.

So we have a interestingly clear ideological division: on your side, wealth created within a family cannot be taken from that family, with no caveats or exceptions.

On my side, wealth has moral standing only when held by the person that earned it. And: society should value and strengthen families and their business enterprises.

But those two together encourage low (or zero) inheritance taxes at levels that are commensurate with an actual family business, but that inheritances in the hundreds of millions or billions is far beyond the scope that a real family can be responsible for.

There are many instances where any tax policy will have lamentable effects; I suppose the art galleries of the world might well represent some of that. But I’d also note that your example isn’t consistent. If the artists is already famous enough to have their art placed in galleries, and 70% of that by value is left in the hands of the descendants, then you really can’t say the family had never made any money out of it.

What I really find difficult to understand is that you don’t see a distinction between the different levels of wealth — that an inheritance of $5B is no different than an inheritance of $5M.

You also often reference the government as an independent “other” —
• “I would turn your question around and ask the Government, apropos a new or second tax, ‘what have you done to earn this?’”
• “The government basically said give us 30%”
• “I expect governments to justify their restraints”
Which even sometimes veers into an attitude of enmity towards the government — e.g., “I’m not talking about you personally slogging, I’m talking about governments doing it.”

This isn’t uncommon, but I think it is a pretty big problem in your analysis. I mean, if we are even having a discussion regarding what we think appropriate tax policies are, then we implicitly agree that this isn’t a problem that citizens have no power over: the government isn’t some external authority, but an authority that is legitimized and at least partially controlled by the citizenry. The whole purpose of this thread has been to examine the extent to which corporations may have interfered with that equation (which I think is sizable), but the default assumption must still be that democratic control is the norm.

Treating the government as if it is a fully independent actor obfuscates reality. The populace has only indirect control over government policy, but in the end the voters are what matter. Even the influence of corporate dollars is more less direct than that.

So when “the government” says “it” wants higher estate taxes, that is, in the end, the voice of the people. If you want “the government” to be more responsible about a balanced budget or tax policy, then look to the voters and you’ll notice that our complaints are very often contradicted by how we actually vote and how we reward politicians with reelection. Treating those “the government” as if it is a fully independent ontological entity is a logical error.

message 49: by Ian (new) - added it

Ian Vinogradus The government is what we make it do or allow it to do.

At the moment, it has tax laws based on public policy principles that I don't necessarily agree with.

You and I simply disagree about these principles.

I'm not a laissez faire capitalist. I'm a social democrat.

I'm pretty sure that, either in this thread or Bird Brian's or my own review, I've set out as best I can why I think corporations (and by extension, wealth) are not the real evil.

I am not saying there should be no Estate Tax. I'm saying it should only be levied when there is a subsequent sale of the asset by the family, if it realises a profit or capital gain.

I used the art example, because copyright lasts beyond the death of the artist, precisely because many artists never get recognition or wealth during their lifetime and their families suffer personally and financially as a result of the fact that that they were the children of artists. Copyright allows such a family to benefit or be compensated after the death of the artist, sometimes beyond the imagination of the artist, because sometimes a dead artist's work is worth a lot more than a live one's.

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