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.