COTW: As the Tax Burden Shifts

US Person is often amazed at the ability of right-wing 'free marketeers' to twist logical arguments to fit their ideology. Mitt Romney is a leading example*. It is no secret that corporations have successfully shifted the US tax burden from themselves to individuals, but corporatists claim that that shift is a statistical artifact because of the shift in the form of business ownership away from C corporations to S and LLC corporations which feature flow-through taxation, i.e. the corporations do not pay income tax, but individual owners who received net corporate income pay income tax on their share. C corporations are big businesses, and in the United States where capital is extremely concentrated, they still do most of the business as these charts make clear:

[credit: Richard D. Wolff]

Limited Partnerships and S corporations are small businesses. In 2004 75% of businesses were organized as flow-through enterprises up from 60% in 1994. C corporations still do the most business in terms of receipts:

What is not an artifact is that corporations pay less income tax now than since World War II when corporations paid 50% more income tax than individuals. In 1943 total corporate income tax paid was (in millions, OMB statistics) $9,557; individuals paid $6,505. In 2008 corporations paid a total of $304,346 in taxes while individuals paid $1,145,747. The trend towards individuals paying more income tax than corporate businesses began shortly after the national emergency of depression and world war passed into history.

What free-marketeers refuse to accept is the economic lesson of the post-war world: capitalism does not work well without government to regulate it. It can even become predatory, as we have seen with the near collapse of the US economy caused by malignant securities speculation. Government spending in the United States as a percentage of GDP increased from about 17% in 1948 to 29.5% by 1970. That period includes administrations of both major parties. Post-war domestic spending in the US parallels a similar, stronger trend in Europe as it recovered from war's devastation. As a result of government participation in the economy, poverty fell from 51% of Americans in the Depression to just 17% in 1965. Government spending not only achieved laudatory social ends, but also encouraged private enterprise with substantial investment. Spending for research and development increased from 2.4% of total spending in 1948 to 11.7% by 1965. A congressional committee estimated in 1959 that the government was funding 85% of electronics research and development. Throughout the post-war period until about 1970 when stagnation set in the United States experienced 3 to 4% growth in GDP. Capitalism did not do it alone; remember that when you cast your vote.

*Mitt Romney wrote a 2008 editorial in the New York Times entitled "Let Detroit Go Bankrupt". Yet despite his free-market posturing he and his wife gained at least $15.3 million from the rescue of the auto industry. The Nation provides the deal's damning details in its November 5th issue. Hedge funds, including Elliott Management directed by Paul Singer, gained control of GM parts supplier Delphi Automotive. Singer is a big contributor to the GOP. Delphi was formerly a subsidiary of GM, and its auto parts such as steering wheel assemblies remain essential to GM's production. In 2009 Singer led hedge investors into buying up Delphi stock using bonds acquired when Delphi went bankrupt in 2005. Since Delphi had defaulted on them, the bonds were considered junk so Singer and fellow investors were able to buy them at a distressed price of 20 cents on the dollar.
Two years later in 2011 the investors sold their stock for $22 a share. Of course this was after the government rescued General Motors, and indirectly, Delphi. GM was allowed to give troubled but indespensible Delphi $2.8 billion in TARP funds and forgave the company $4.5 billion in liabilities. Not only that, the Pension Benefit Guaranty Corporation was compelled to take over union workers' pension rights because the controlling hedge fund investors refused to pay the pension program shortfall of $7 billion or anymore pensions. Exactly how much the Romneys made on the Delphi deal is not clear because the relevant tax return for 2009 has not been made public. The Romneys were invested in Elliot Management before the bargain basement purchase of Delphi and they were all in when Delphi went public in November 2011. Assuming the investment with Elliot Management was at least $1 million as indicated on their tax returns from released years that investment is now worth $15.3 millionat current Delphi stock prices. The auto czar who oversaw GM's bailout likened the demands of Singer and other Delphi bondholders to "extortion demands by Barbary pirates." It is an example of vulture capitalism at its worst; Mittster, perceived by wing-nuts as John Galt with hair, gorged on the public carcass. Instead of making good on its pension obligations this year, Delphi, relieved of billions in liabilities at taxpayer expense, and flush with $1.4 billion cash bought $972 million worth of auto part plants in Asia from--wait for it--Bain Capital, Romney's former firm.