Is Mitt Romney right about corporations?
“Corporations are people, my friend.” Mitt Romney’s currently earning a lot of taunts for that line, which was uttered to a heckler on the campaign trail today. Let’s look at what he was referring to:
ROMNEY: We have to make sure that the promises we make — and Social Security, Medicaid, and Medicare — are promises we can keep. And there are various ways of doing that. One is, we could raise taxes on people.
AUDIENCE MEMBER: Corporations!
ROMNEY: Corporations are people, my friend. We can raise taxes on —
AUDIENCE MEMBER: No, they’re not!
ROMNEY: Of course they are. Everything corporations earn also goes to people.
ROMNEY: Where do you think it goes?
AUDIENCE MEMBER: It goes into their pockets!
ROMNEY: Whose pockets? Whose pockets? People’s pockets! Human beings, my friend. So number one, you can raise taxes. That’s not the approach that I would take.
On the broader question, Mitt Romney has half a point. For a long time, the courts have treated corporations like people in many respects. They can sue and be sued. They can enter contracts. They can own property. They have some free speech rights. Thanks to last year’s Citizens United case, they can now fund political broadcasts in elections without limits. True, corporations still aren’t allowed to vote or run for office, but who knows what possibilities future Supreme Courts might imagine?
But Romney was also making a more specific argument — if the government taxes corporations, those taxes eventually filter down to specific people. That’s true. But which people?
That’s a much trickier question. Some economists, like Greg Mankiw, argue that it falls mainly on ordinary workers. Mankiw has cited, for instance, a 2009 Oxford study of nine European countries that concluded that “a substantial part of the corporation income tax is passed on to the labor force in the form of lower wages.” (The study goes on to suggest that “in the long run a $1 increase in the tax bill tends to reduce real wages at the median by 92 cents.”) Given that Mankiw is advising the Romney campaign on economic issues, Romney would presumably agree.
That’s hardly the consensus, though. Princeton economist Uwe Reinhardt has noted that economic models are getting increasingly more sophisticated — trying to account for factors like how easy it is for different sectors to substitute labor for capital. He points to a 2010 review of these newer models by the Congressional Budget Office, which concluded that about 60 percent of the corporate tax ultimately falls on the owners of capital. (This is still the working assumption of both CBO and Treasury when they analyze the distributive impact of different tax systems.)
And, either way, the corporate tax is still considered a progressive tax — one disproportionately paid by richer Americans — for reasons laid out in this Tax Policy Center report. Though, in Romney’s defense, the line, “Whose pockets? Whose pockets? Disproportionately wealthy people’s pockets, regardless of where you think the tax incidence falls!” isn’t quite as catchy.