We're missing the delicious nugget at the heart of the debate between corporations and people. Here is the nugget: Corporations have it way, way better than people. People should aspire to become corporations, not vice versa. In this battle it's not the people who are winning. Corporations are not tossing and turning at night in their tax-deductible beds, mussing their subsidized sheets, staring unseeing into blackness lit only by a thousand tiny points of light because they are tortured by their lack of humanity.
No they are not.
They are chortling at the stupidity of the humans. It's so much better to be a corporation.
Chapter 1: Liability
Whenever there is an FAQ with the title "Should I incorporate my small business?" or "advantages of incorporating" the number one reason listed is: "limitation on liability". Now, human beings are inadequately protected from liability. That is because, generally, they don't have enough money for it to be worth it to sue them. But here's the deal (this, incidentally, why the "double taxation" argument, applied to profits distributed as dividends from companies to company owners (stockholders), is bogus). If a corporation does something wrong, the owners of the corporation are not liable for the actions of the corporation.
So, say you own a chemical company, and conditions in the factory caused by your negligence, result in damage to somebody. Your own personal assets, and personal assets of any of your partners, are part of the pie that anybody who sues you can look to for compensation. However, say you own stock in a chemical company (let's call it, for example, Union Carbide). Say a subsidiary of this company happens to be negligently cutting safety precautions in a chemical plant located dangerously close to an urban population in India, and a foreseeable leak occurs killing 16,000 humans and injuring 550,000 other humans, including 3,900 severely disabling injuries to humans. Now, you're in a much more attractive situation, liability-wise. Your personal assets, as an owner of this company, are not part of the pie that is available to compensate persons who were killed or injured for damages. Is this valuable? You bet your ass it is. Is it worth the extra taxes? You bet your ass it is. Or people wouldn't be incorporating for exactly this reason, and it wouldn't be listed as the number one reason to incorporate.
Chapter 2: taxes rates
We're all familiar with the terrible tax tables that afflict poor corporations in the US compared to those in other countries, right? The ones that endanger US competitiveness because the rates are so much higher than those in other countries? Republicans talk about this a lot. And actually, for some truly multi-national corporations, this is a reasonable concern (although I have my doubts that Goldman Sachs employees would really pull up stakes after going through all of the tremendous effort that getting their kids into the best Manhattan pre-schools that feed into the very best kindergartens in The City that the most fabulous elementary schools look to that Exeter recruits from heavily...would those really trade all of that for a home in Singapore? Unlikely [and with Goldman-Sachs, wouldn't that just mean that in a few years Singapore would be in real trouble?]). But, yes, some companies we actually want here (Caterpillar & Boeing come to mind). So, being competitive on tax rates is a concern. For large multinational companies. But many, many companies are not going anywhere. They're nothing but an attractive business structure that saves money for the business owner (who would, without the legal structure of the corporation be a sole proprietorship or a partnership or an LLC). They're not going anywhere. They're just a shield for a human to hide behind. They're what the lawyer told the building contractor to set up to keep him from being personally liable for construction defects. The lawyer has one too. And so does the orthodontist that straightens the lawyer's daughter's teeth. And the plastic surgeon who keeps the lawyer's trophy wife looking fine. We'll look at liability in Chapter 1 (alas, even a corporate structure does not protect owners against professional liability -- can somebody get Boehner on the phone?). But here is the skinny on tax rates. We'll just talk about individual filers because it's less complicated. Basically rates if your married are double (so if two corporations to marry, it would be the same thing)
MARGINAL Income: $0 - $8,700
Corporation: 15%
Human Beings: 10% (2012)
Human Beings: 15% (2013 and beyond)
So, it's better to be a severely impoverished human being than a severely impoverished corporation -- Score: Humans 1; Corporations 1 (nota bene, this temporary advantage is for 2012 only; in 2013 we revert to Humans losing even this first bout, so I'm scoring it even)
MARGINAL Income: $8,700 - $35,350
Corporation: 15%
Human Beings: 15%
This is a draw. Being a very, very impoverished corporation is about the same as being a very impoverished human being -- Score: Humans 1; Corporations 1
MARGINAL Income: $35,350 - $50,000
Corporation: 15%
Human Beings: 25%
Human Beings: 28% (2013 and beyond)
Here's where it starts definitively to be better to be a corporation than a person. A human being has to pay 25 cents income tax on that 35,351st dollar, but a corporation only has to pay 15 cents. Score: Humans 0; Corporations 2 -- also, in 2013, rates for Humans will go up to 28%, and so will be even more poorly treated by the tax code than Corporations.
The national median for human households (which you can think of as a main corporation plus some subsidiary corporations, all living under related articles of incorporation) for 2003 was $44,000 and some change, so Human Beings making the median income are really screwed by not being Corporations. The NY Times divides Human Being (Household) income into quintiles, and, interestingly enough, this income level, roughly $35,000 - $50,000 corresponds remarkably closely to the third and fourth quintiles. So, basically, a boatload of people (people formerly known by that quaint term "the middle class" could really benefit by being Corporate Entities rather than Human Entities.MARGINAL Income: $50,000 - $75,000
Corporation: 25%
Human Beings: 25%
Human Beings: 28% (2013 and beyond)
At an income level of $50,000, Humans draw even with Corporations. From $50,000 to $75,000 each is paying the same marginal rate. Score: Humans 1; Corporations 1.5. Again, this is a temporary victory for Humans, with the rate increasing to 28% starting in 2013, so I'm giving half a point extra to Corporations.