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September 26, 2010 / Melissa Leeanne

The Corporate Myth Debunked and Taxation of Small Businesses

When I was in college I despised my econ classes.  I had great professors but was far more interested in softer social sciences and drink specials at the nearby pub.  I took micro, international econ, and I even accidentally took an econ class in German while I was studying in Heidelberg.  My eyes would glaze over and my brain would slow to hibernation level activity.  I once wrote a paper and then changed my thesis entirely and rewrote the paper all in one day.  It seemed dense and dull and it was by no means anywhere near my favorite subject.

So, you can imagine my surprise when I found myself reading about how stock markets work and engaging in intelligent discourse about taxes and actually enjoying the exchange.  Something happened and I’m kind of giddy about it.

Economics is as important to understanding politics as history or political theory courses are.  I am really thankful that I chose International Studies as a focus versus straight politics.  Even if I hated my econ classes, I did pass them and I did absorb some information that has stuck with me.  If you want to know a secret, I have a macro text book that I fully intend to pore over on my own.

I work on a political campaign and, as with many things, understanding of tax policy and ownership structure for businesses is cursory to one’s ability to discuss, with any confidence, a lot of the issues.  A friend of mine posted a link to an article today about small businesses and how they would be affected by proposed tax hikes (which aren’t tax hikes, really, but the expiration of a temporary tax cut) and we briefly discussed what defines a small business.  I also got to have a chat with a constituent today about what defines a small business and what makes a corporation a corporation.

There are three ownership structures common in the business world that I know of: sole proprietorship, partnership, and incorporation.  The article my friend posted deals in sole proprietorships and partnerships and the discussion I had with a constituent today was about corporations.  If you had asked me six months ago how I would define a corporation, it would likely have elicited some rant about giant, evil corporations with only the interests of their shareholders in mind.  I would have ranted about wall street gambling and deregulation and I would have berated the supreme court for their ruling that corporations are entities with the same rights as citizens.

Now, I still may rant about wall street and deregulation and corporations as people but I won’t leave off the “giant, evil” prefix because I know what a corporation is.  I know because, well, I’m a board member of a corporation.  A small, not for profit organization.

A corporation is a business or organization with ownership distributed among a group of people, which elects a board to make decisions for the corporation.  So far, not too evil.  The group might be the participants in a sports league or may be shareholders.  Board members might be paid or unpaid.  The corporation can be for profit or not for profit and can fall under a vast array of different categories regarding tax status and fiscal restrictions.  Still not evil, right?  There are a number of reasons a business or organization might have for incorporating but one of the most important reasons might be that the financial liability is on the corporation and not on those who own the corporation.  In other words, if you are a small business owner and someone chooses to sue your business, they can seize all the assets of the business, but your personal assets are off limits.  This is really great news for a small business owner with a family and a mortgage, someone who could lose everything over a hot cup of coffee scalding a customer.

Where things get evil is that large, for profit corporations can operate with shareholders’ or board members’ best interests in mind and things can get a little lax on the ethics.  And when a giant, evil corporation goes under, the board, who make the decisions, don’t suffer as even the shareholders do, unless they are found to be participating in illegal activities and get shipped off to white collar prison.  Giant, evil corporations also have considerable resources with which to influence elected officials to legislate laws that benefit giant, evil corporations and their interests.

The lesson: not all corporations are giant and evil.  Some are.

Now about the taxation and small businesses:  Senate Republican Leader Mitch McConnell of Kentucky has claimed that not reinstating the Bush tax cuts will detrimentally affect small businesses.  Also, many candidates for elected office will claim they will cut taxes for small businesses, a move greatly appealing to those on the Right.

I will say without shame that those who have more, have more to give.  I believe that our poor and our middle class should pay less in taxes than the most wealthy of our society.  I believe that giant, evil corporations should pay giant, evil taxes and that millionaires ought to fund some social programs with what they have left over after buying mansions and luxury cars.  I am happy to see the Bush tax cuts expire.  But I am not particularly offended by “tax reform” that gives the little guys a break.  I don’t mind when the poor and middle class get tax breaks or when small businesses get tax breaks.

So, what is a small business?  I’m afraid I have not got a real answer for that, but I may have some guidelines for how to read your average political message.

Small is not specific enough.  My candidate, referring to small businesses, used income as the measure of a small business in his proposal.  A person can argue all they want that that number “isn’t that small” but the number is there.  Where are the criteria McConnell uses to define “small business?”  It is important for everyone to dissect the rhetoric and search for the meaning behind the messaging.  Vague descriptors and inflammatory statements seem to work all too well for the Right, so it seems it is the responsibility of the voter to find the actual facts, if they exist, in these statements.

That must be the elitist empiricist in me, wanting measurable variables instead of vague quantitative descriptors.  Econ, with all its numbers, made me cringe before.  Now I demand those numbers.  It is important to understand that the jargon and branding of modern American politics is dangerously misleading.  We’ve chosen the path of meaningless catch phrases and kitschy political gimmicks when the way we can make the best decisions for everyone is by looking at facts and comparing and contrasting data.  There is also room for testimony from real people and looking our citizens as individuals, but seriously, people: facts and hard data ought to be the main criteria for decision making.

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