A Critique of the Corporate Legal Persons Doctrine: The Case of Corporate Taxation

In his commentary in The Wall Street Journal in 2010, Michael Boskin went over the disadvantages in levying an income tax on corporations. Within his argument, he observes, “Of course, the corporation is a legal entity; only people pay taxes.”[1]  In so doing, he transcended, if only for a moment, his own approach that was oriented simply to giving the pros and cons of corporate taxation.  His observation is significant, and it gives us a launching pad of sorts by which we can approach the corporate income tax as a itself as a concept, rather than simply assessing its utility. In short, corporate taxation is an oxymoron if only humans pay tax. In fact, we can conclude from Boskin's remark that the doctrine that corporations are legal persons has been incorrectly construed. 

Treating a “legal entity” as if it were a tax-payer is unnatural, and thus gives rise to the double taxation problem.  It is interesting that Boskin uses the word “entity,” which is not the same as “person.”  That is, to argue that corporations should not be taxed directly, he implies that the legal-person doctrine is not valid (i.e., only humans rightly pay taxes). 

I contend that Boskin was correct in referring to corporations as legal entities as distinct from humans in terms of taxation. I submit that he did not go far enough, for it is possible to narrow the legal-person doctrine to mean only that stockholders' personal assets are protected in the event that a corporation has accrued so much in liabilities that they cannot be paid off on time by the corporation. In this case, the term "legal person" should be changed as it would be a misnomer and thus liable to be confused. 

In fact, to treat or consider a corporation as a person in any sense is anthropomorphistic.  Put another way, an association of human beings does not constitute in itself a person in any sense. To presume otherwise is to make a category mistake between a legal concept and a human being.  This error is evident, for example, when someone says, “GM says X.”  Only human beings can talk, so it would be better to say that GM's management issued a statement. 

Furthermore, an organization cannot be a moral agent. Only the persons in an organization, not the latter itself, have human brains. Only these can entertain the thought denoted by should. Even from merely descriptive thoughts should cannot come, according to David Hume's naturalistic fallacy. Additionally, to make an ethical decision requires cognition that a human brain rather than organizations in themselves have. In fact, organization itself is merely an abstraction. You can not point to GM down the street, for GM is not just its headquarters' building or one of its plants. 

Therefore, applying person to an organization can be deemed a category mistake--one that has been enabled by a societal blind-spot. 

On business ethics in organizations, see Skip Worden, Cases of Unethical Business: A Malignant Mentality of Mendacity, available at Amazon.

1. Michael Boskin, "Time to Junk the Corporate Tax," The Wall Street Journal, May 6, 2010.

Contradictory Comments on Health Insurance as Unethical: The Case of Newt Gingrich

Newt Gingrich said on May 15, 2011 that people should be required to buy health-insurance. He added that he would like to see the mandate implemented at the state rather than the federal level. These comments unleashed a torrent of criticism from Republicans, so the former Speaker of the U.S. House of Representatives spent the following week “walking” his comments back by denying that he had said that he was for a mandate.  The media was in a feeding frenzy, astounded that the former Speaker could simply deny that he might get away with the contradiction. However, in such cases, is it the person or logical contradiction itself that gets us so steamed?

Although we tend to point to the person who has made a contradiction without acknowledging it, ascribing possible sordid motives, it could be that the logical contradiction itself lies at the source of the angst in the beholder. More specifically, the logical contradiction itself may be in its substance an uncomfortable emotion rather than reason. In other words, violating logic may be an emotion that appears in the form of twisted reason.

Otherwise, it would be a case of reason causing an emotion. For example, “You logically contradicted yourself and that makes me mad” is typically taken as something of reason causing a particular emotion. It is difficult to link reason and emotion because we take them to be different things. It is a bit like Descartes’ mind-body problem.  Were logical contradiction itself an emotion, however, then to say that a contradiction caused anger might be easier to explain as one emotion would be giving rise to another—both being of the same type of thing (i.e., emotion).

Going even further, the observation that logical contraction is an emotion distinct from the anger may be an illusion.  Because the anger comes so quickly and naturally, it could be that what we take as the anger is simply part of the complex emotion of experiencing a logical contradiction. Similarly, when a person says that he feels confused, a cognitive condition is really an emotion because it is felt. Like confusion, experiencing logical contradiction does not feel good.

In general terms, talking about logical contradiction as an emotion of disapprobation reconciles Kant’s first formulation of his categorical imperative to Hume’s psychological theory of morality.  To Kant, moral principles are universal because of the role of universality and necessity in reason, so maxims that involve a logical contradiction if they are universalized cannot be moral. To Hume, moral judgment just is the sentiment of disapprobation.

Typically, Kant’s ethical theory is viewed as rationalist, whereas Hume’s is portrayed as psychological. However, if logical contradiction is itself an emotion having the form of reason, then it could be said that the moral sentiment of disapprobation applies to the uncomfortable emotion that the experience of logical contradiction. Reason turned against itself only seems to be cognitive rather than emotion. If what we have in a logical contradiction is essentially an emotion (or even an emotional reaction), then Kant’s rationalism and Hume’s sentimentalism are no longer antipodal. To say that logical contradiction is unethical is to say that it gives a rational and emotional being a sentiment of disapprobation. Logical contradiction itself naturally gives us a bad feeling; indeed, the contradiction may simply be a way of labeling a particular emotion.

So when we say that Newt Gingrich should not have contradicted himself (or he should own up to having contradicted himself), the basis of our moral judgment could be the emotion that we feel when we are confronted with a logical contradiction—the contradiction being that sentiment of disapprobation.

See related essay: "A Health-Insurance Mandate Consistent with Federalism."

Sources:

Kant’s Groundwork of Metaphysics and his Critique of Practical Reason.  See also David Hume’s Treatise of Human Nature.

Naftali Bendavid and Jonathan Weisman, “Medicare Revamp Exposes Divisions Within the GOP,” The Wall Street Journal, May 17, 2011, p. A6.