Tax the big, evil, corporations!

It sounds like a great plan: the government needs more money to help Joe the Plumber get by so it’s going to get that money by raising taxes on I. M. Evil, Inc. Uninformed voters love the plan because their taxes don’t go up and politicians applaud themselves for how government saves the little guy. However, the little guy might be getting raw end of the deal anyway.

Who are corporations more loyal to: shareholders and owners or its employees? Hold up. Since when do corporations have feelings? The “feelings” of a corporation are defined by its board of directors or shareholders. While it’d be idealistic to think that corporations cared more about its laborers than its stock price or dividends, in the end it’s a trick question because the shareholders ARE the corporation and will act in self-interest. Certainly, having productive employees is desirable, but only because it makes good business sense. The more productive the employee, the more profit for the shareholder. However, when decisions must be made on issues where what’s best for Joe the Plumber isn’t necessarily best for Tom the Shareholder, Tom’s usually going to win out.

Increasing taxes on corporations is like trying to negotiate a better deal with a used car salesman. The used car salesman might seem to take a hit when he agrees to compromise by lowering the price of the car by $500, but as he’s dropping that price, he’s already calculating how to make it up by dropping the value of your trade-in by $300 and squeezing an extra $200 out of the financing. Corporations work the same way. When a corporation encounters an additional cost, whether it be demands for higher wages or more benefits, increases in the cost of goods, or rising taxes, it has to figure out how to distribute those costs among the different parts of the company.

But just cut the profits, you say, and no one gets hurt except the company and they can certainly take a hit, right? Wrong. Those profits belong to the shareholders, whether they’re used for reinvestment or dividends. Falling profits hurt Tom the Shareholder. If the company raises prices to cut the drop in profits – assuming they are in an industry where demand allows that – then Joe Plumber is going to spend more of his paycheck, leaving less for him. Or the company can decide to cut costs by reducing compensation or benefits. Then Joe the Plumber has to find a second job and spend his own money to buy his health insurance.

The government won’t let that happen. Workers have rights and we’re going to make sure companies aren’t allowed to do that here in America. Fine, says Evil, Inc. – err, Evil Inc.’s board or directors – instead of building my cars here in America where I have to pay a higher corporate tax rate and hurt my shareholders because I have to take the hit in the profit category, I’ll move to Canada, where I can pay my workers well because I don’t have to deal with the higher corporate tax. When this happens, Joe the Plumber doesn’t have a job at all.

Perhaps I’m too idealistic in believing that most companies aren’t out to take advantage of their employees, but it just doesn’t make good business sense. Between a higher turnover ratio of unhappy workers - a Gallup poll found that “the length of an employee's stay in an organization is largely determined by his relationship with his immediate supervisor,” the training expenses for replacement employees, and the bad publicity for those companies, treating workers well has tangible benefits. However, when those tangible benefits are outweighed by costs imposed by outside forces, the workers lose.

When workers lose, the economy loses. There is no simple fix for our economic crisis, but we should demand better solutions from politicians than pandering for votes based on misinformation, and until voters take the time to study these issues and make informed decisions, shallow policies will continue to win at the ballot box.