Are Corporations People?

Corporations are people, my friend.

Four years ago, while campaigning in Iowa for President, Mitt Romney spoke those words to protestors who were angry about low income tax rates on corporations. Romney was saying that corporations are owned by people and employ people, and that their income is ultimately returned to people. Thus, for all intents and purposes, corporations are people.

The principle was later revived when the Supreme Court of the United States outlawed most regulations and restrictions on corporate contributions to political campaigns. They reasoned that corporations (as people) possessed the right to free speech, and thus also possessed the right to speak with their money by making (largely) unregulated and unrestricted donations to candidates.

But the principle that “corporations are people” appears to have its limits. Earlier this month, for instance, Brooklyn based Etsy — the online crafts platform that claims to be building a human, authentic, and community-centric global and local marketplace — initiated a complex tax avoidance strategy. The firm’s United States unit loaned funds to its Irish unit, which then utilized the funds to buy the American unit’s intellectual assets.

Why did Etsy engineer this strategy? Well, Irish corporate income tax rates are lower than American rates. So with Etsy’s intellectual assets now housed in Ireland, any income earned from the use of those assets can be taxed at Ireland’s lower rates.

It’s a nice way to reduce one’s tax bill, isn’t it? You’re probably tempted to replicate it, if possible. Perhaps you can simply tell your employer that you’ve transferred your personal knowledge, skills, and experience to a shadow version of yourself that is based in Ireland. Then your employer can pay your salary to your shadow self, who can (in turn) pay lower income tax rates.

Is this actually possible? Regrettably not. The tax strategy is only available for corporations. Human beings are not eligible to take advantage of it.

And there’s the rub of believing in the principle that corporations are people. On the one hand, it can be utilized by corporations to enable their own tax avoidance strategies and protect their own political lobbying and contribution activities. But on the other hand, people are not permitted to take advantage of many benefits that are routinely granted to corporations.

Today, four years after Mitt Romney spoke those famous words while campaigning in Iowa, many new candidates are seeking a Presidential nomination. Should we be surprised that, unlike Mitt Romney in 2011, today’s Republican Party front-runner is gaining support by charging that corporate interests buy people, instead of claiming that corporations are people?