Romney Was Right: Corporations Really Are People

If Mitt Romney becomes the Republican candidate for president, you are going to see a lot of attack ads that show him declaring: “Corporations are people, my friend.”

Romney made this observation last Thursday, standing before a largely hostile crowd at the Iowa State Fair. The comment quickly made its way to Twitter and YouTube. Journalists, looking for some early election drama, eagerly labeled it a gaffe. An NPR blog even referred to the comment as “an early Christmas gift” for Democrats.

Most news reports, however, left out or sidelined the context of Romney’s remark. On its own, the statement seems to be a reference to the legal concept of “corporate personhood,” the idea that corporations have certain basic rights such as the freedom to enter into contracts.

A basic assertion of corporate personhood is not particularly interesting. Questions about the principle’s reach remain, but the fundamental concept is well accepted.

Romney, however, was not talking about corporate personhood. He was responding to audience members who suggested that an increase in taxes on “people” could be avoided by instead taxing “corporations.”

“We have to make sure that the promises we make in Social Security, Medicare and Medicaid are promises we can keep, and there are various ways of doing that,” Romney said. “One is we can raise taxes on people.”

“Corporations!” a member of the audience interrupted, echoed by several others.

That was when Romney made his now famous remark: “Corporations are people, my friend.”

“No, they’re not!” the audience members responded.

“Of course they are,” said Romney. “Everything corporations earn ultimately goes to people.”

The point Romney was trying to make is an important one: Corporations are not alien entities from which money can be magically retrieved. They are human creations, and taking money from corporations has consequences that affect those human beings. Taxes on corporations are taxes on people.

Of course corporations are not exactly people. If they were, we would not need to create them. We would simply do all our business in our own names, getting supplies from places like Joe’s General Store or Mary’s Lumber Yard. But human beings have limitations, the most important of which is that we eventually die. Corporations, on the other hand, can outlast any single human life. IBM recently marked its 100th anniversary, a feat that would not have been possible if its destiny had been inextricably tied to that of its founder, Thomas J. Watson Sr., who died in 1956.

When I started my business 19 years ago, I did it in my own name, as most founders of start-ups do. But as the company accumulated clients, took on employees and opened new offices, it needed an existence separate from my own. Clients needed to know that the services they relied upon would not suddenly end if something happened to me. Employees needed to know that the company had a long-term future they could help build. So I created Palisades Hudson Financial Group LLC. While a limited liability company does differ in some ways from a corporation, it still creates a distinct entity. Along with setting up the LLC, I established an estate and succession plan to ensure that the new entity could go on without me.

The addition of those three letters at the end of the business name, however, does not change the fact that what happens to Palisades Hudson still ultimately happens to me. If taxes on the business increase, I will have to make changes, as I have already done in response to the burdens introduced by the health care reform act. If, in some distant future, I were to take Palisades Hudson public, its ownership would become more dispersed, but the owners would still be people. They would still feel the impact of increases in taxes or of any other conditions affecting the business.

This is the principle that Romney asserted. On its surface, the audience members’ claim that corporations are not people in this sense seems absurd. It is, however, understandable when viewed as a holdover from a time when union members made up a large percentage of the private sector work force. In those days, people tended to think in terms of two distinct groups – unions and businesses – whose interests were mutually exclusive. Each side defined the other in terms of contrast. By that logic, if unions were made up of people, businesses had to be something else – some sort of inhuman force. In reality, both unions and businesses were then, as now, human-created entities, used to organize the collective efforts of groups of people.

Most people have come to recognize that workers and business owners are essentially in business together. Taxes and other burdens on business do not just affect the entity, nor even just the entity and its owners; directly or indirectly, those taxes affect employees too. Union membership has plunged as this idea has taken hold.

The idea of corporations as somehow independent of human interests, however, continues to be an important part of the Democratic Party’s rhetoric. This allows Democrats to use “corporations” as both scapegoats and money trees, while ignoring the consequences for the individuals behind those corporations. In his simple statement, Romney challenged the lie inherent in that rhetoric.

Romney may take flak from Democrats over his comment, but he is only saying what nearly everyone already knows. And while Exxon or Apple won’t be going to the polls, those companies’ shareholders, managers and employees will be. I suspect that they, too, will remember Romney’s remark. They won’t be so quick to call his defense of their interests a gaffe.

About Larry M. Elkin 534 Articles

Affiliation: Palisades Hudson Financial Group

Larry M. Elkin, CPA, CFP®, has provided personal financial and tax counseling to a sophisticated client base since 1986. After six years with Arthur Andersen, where he was a senior manager for personal financial planning and family wealth planning, he founded his own firm in Hastings on Hudson, New York in 1992. That firm grew steadily and became the Palisades Hudson organization, which moved to Scarsdale, New York in 2002. The firm expanded to Fort Lauderdale, Florida, in 2005, and to Atlanta, Georgia, in 2008.

Larry received his B.A. in journalism from the University of Montana in 1978, and his M.B.A. in accounting from New York University in 1986. Larry was a reporter and editor for The Associated Press from 1978 to 1986. He covered government, business and legal affairs for the wire service, with assignments in Helena, Montana; Albany, New York; Washington, D.C.; and New York City’s federal courts in Brooklyn and Manhattan.

Larry established the organization’s investment advisory business, which now manages more than $800 million, in 1997. As president of Palisades Hudson, Larry maintains individual professional relationships with many of the firm’s clients, who reside in more than 25 states from Maine to California as well as in several foreign countries. He is the author of Financial Self-Defense for Unmarried Couples (Currency Doubleday, 1995), which was the first comprehensive financial planning guide for unmarried couples. He also is the editor and publisher of Sentinel, a quarterly newsletter on personal financial planning.

Larry has written many Sentinel articles, including several that anticipated future events. In “The Economic Case Against Tobacco Stocks” (February 1995), he forecast that litigation losses would eventually undermine cigarette manufacturers’ financial position. He concluded in “Is This the Beginning Of The End?” (May 1998) that there was a better-than-even chance that estate taxes would be repealed by 2010, three years before Congress enacted legislation to repeal the tax in 2010. In “IRS Takes A Shot At Split-Dollar Life” (June 1996), Larry predicted that the IRS would be able to treat split dollar arrangements as below-market loans, which came to pass with new rules issued by the Service in 2001 and 2002.

More recently, Larry has addressed the causes and consequences of the “Panic of 2008″ in his Sentinel articles. In “Have We Learned Our Lending Lesson At Last” (October 2007) and “Mortgage Lending Lessons Remain Unlearned” (October 2008), Larry questioned whether or not America has learned any lessons from the savings and loan crisis of the 1980s. In addition, he offered some practical changes that should have been made to amend the situation. In “Take Advantage Of The Panic Of 2008” (January 2009), Larry offered ways to capitalize on the wealth of opportunity that the panic presented.

Larry served as president of the Estate Planning Council of New York City, Inc., in 2005-2006. In 2009 the Council presented Larry with its first-ever Lifetime Achievement Award, citing his service to the organization and “his tireless efforts in promoting our industry by word and by personal example as a consummate estate planning professional.” He is regularly interviewed by national and regional publications, and has made nearly 100 radio and television appearances.

Visit: Palisades Hudson

4 Comments on Romney Was Right: Corporations Really Are People

  1. Unfortunately, too many Americans don’t see the point. They see a one-liner. It’s obvious that Romney’s right on this one. When it comes to taxes, Corporations are people. I hope people will watch the next debate that comes up, because Romney will get a question on this. The funny thing is that this is going to be his easiest question at the debate. He’ll basically say what is said in this article (but in less than a minute :P ).

  2. Kudos to the author for a well reasoned and articulate argument. I shall save this article in my favorite places so I can direct my liberal friends to it before we discuss Mr, Romney’s gaffe.

  3. are you saying that the tax laws should be the same for corporations and humans?and be offered the same protections when the laws are broken by our corporate friends? that’s a great idea.

  4. Why do we care about Romney again?

    It’s been very obvious that his polls are drastically over-inflated by the same people that pull Obama’s strings.

    Look for the real maverick in the race, you know who I’m talking about. The one that has an army of followers backing him in everything he does… nor luap.

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