TWO CENTS’ WORTH (PENNY ONE OF TWO)

AUGUST 9, 2019 – To be honest, I’m not following the Democratic presidential campaign very closely.  I don’t have to.  I just need to vote for the Democratic nominee.  The 2020 election will not be one in which a responsible citizen, in my judgment, should express displeasure with both major parties.  A vote for any candidate other than the Democratic challenger is a vote for the incumbent, and in my opinion, re-election of the incumbent would be a major, even irredeemable, setback for the American Experiment.

Nevertheless, I’m abundantly aware of the progressive Democratic agenda, which I believe has some serious flaws. I’m just as critical of economic conservatives, however, in their defense of corporate America.  In this first segment of a two-part post, I address my progressive friends:

Before you get too enchanted with Bernie Sanders or Elizabeth Warren, you need to grapple with a killer dichotomy.

Like it or not, large, public companies account for a huge chunk of our annual GDP. You can harangue about corporate greed, power, influence, nefarious conduct, and fairly so, but here’s the rub: if you have a 401(k), an IRA, a pension, or any other form of retirement savings, you—no matter how progressively liberal you think you are—have a a vital financial stake in corporate America.  Either you have a direct interest (ownership of individual corporate stock or debt) or an indirect interest (ownership of an interest in a mutual fund, a managed fund or an indexed fund, the proceeds of which are invested in American corporations).  This creates a dilemma.  If you hammer too hard on corporations—and I’m not saying they don’t deserve some pretty strong hammering—you’re going to be hitting your own pocketbook.

This conflict between your political ideas and your financial interests needs to be understood and sorted out before you lead us too deep into the progressive agenda.

Taxes.  Most progressives glibly use “taxes” to pay for all the free stuff. As good and easy as that sounds, it’s not that simple.

Moreover, contrary to urban legend, no big, bad corporation gets by paying zero taxes—even if it’s operating at a loss.  Every company with employees pays payroll taxes, at a minimum, equal to 6.2% (Social Security) of each employee’s gross wages up to $132,900, and another 1.45% (Medicare) on each employee’s gross wages with no cap.

In addition, corporations are subject to “double taxation.”  The corporation pays income taxes on earnings.  When the corporation distributes its after-tax profits to its shareholders, those dividends get taxed again.  Thus, even if by “loopholes” a corporation avoids substantial income taxes at the corporate level, all profits distributed in the form of dividends will be taxed.

Furthermore, heavily regulated industries (e.g. financial; transportation) spend tons of money on regulatory compliance.  Those costs are not called “taxes,” but conceptually they are—compliance with government regulation is not “free,” though granted, this form of “taxes” is often passed on to consumers.

But hang in there, progressives.  You just need to adjust your aim.

© 2019 Eric Nilsson