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Romney was right: Corporations really are people

At the end of the classic '70s eco-apocalyptic film "Soylent Green," Charlton Heston's character discovers that the green soybean and lentil-based chips that have become the only reliable food source are actually made out of "recycled" human beings. As he's carried away, he yells "Soylent Green is people!"

GOP presidential hopeful Mitt Romney met with similar shock last week when he informed a heckler at an Iowa campaign stop that "corporations are people" -- rejecting the idea that taxing corporations to reduce the national debt would somehow mean not taxing "people."

If Romney's statement was a gaffe, it was only one in the classic Washington sense: A statement that's undeniably true, but politically inconvenient to acknowledge.

Corporations are composed of people. So are unions. So are universities. So are families. The belief that we can somehow "tax corporations" without "taxing people" is the fallacy at the heart of Romney's exchange.

It's the same with any collective: If we take away union rights, we take away the rights of individual union members. If we strip a university's accreditation, we also strip credibility from its students and its graduates.

Consider: When we raise corporate tax rates, we raise their cost of doing business, which means they must recover those costs from elsewhere. Firms can do so by cutting wages and benefits or by finding new sources of revenue by raising the prices of their products.

One study by Harvard economists estimated that 45 percent to 75 percent of the burden of a corporate tax increase is borne by workers, and another from the University of Michigan found that a 10 percentage point increase in the corporate income tax reduces mean annual gross wages by 7 percent. Yet another alternative is that profits fall, meaning fewer dividends and lower share prices for stockholders.

In other words, there is no such thing as a corporation separate from the people who comprise it, whether as employees, customers or investors.

You are not raising taxes on some abstract entity that has no connection to real people; the burden of the higher tax on the corporation is borne by individuals in all of those groups, andpossibly more.

Romney's point will make a good sound bite for Democrats if he's the Republican nominee, but that just demonstrates the economic illiteracy of our political discourse. The belief that one can somehow tax a corporation without the costs being shouldered by individual Americans is the worst sort of wishful thinking.

Until we face the reality of Romney's statement that corporations really are people, we will continue to run the risk of cannibalizing our economy by increasing what is already one of the world's highest corporate tax rates.

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Steven G. Horwitz, Ph.D., is the Charles A. Dana professor and chairman in the Department of Economics at St. Lawrence University in Canton.

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