Senator B.S.

faceofevilA lot of people think of janitors as a group that’s not particularly well paid. Those people might be surprised to learn that in the last five years alone, American janitors earned over $250 billion! That’s billion! With a B!

Despite that enormous income, janitors pay no taxes whatsoever — or at least no taxes whatsoever over and above the taxes that are paid by you, me and other ordinary Americans. And shockingly, it appears that the U.S. Congress would rather cut spending than institute a new tax on janitorial income.

If the above strikes you as insane, congratulations. You are smarter than the intended audience of Senator Bernie Sanders, who observes in his new book “The Speech” that General Electric’s shareholders collectively earned a staggering $26 billion over the past five years, and paid absolutely no tax on that amount.

Of course $26 billion is only a tenth of what janitors earned over the same time period, but I guess it does look mighty big if you don’t bother dividing by the number of shareholders. Without having all the numbers in front of me, my best guess is that we’re talking maybe a few hundred bucks per shareholder, though of course (as with janitors) some earn more and others earn less.

And as for the shareholders paying absolutely no tax, perhaps they didn’t, as long as you don’t count taxes on dividends, capital gains and wages. To wit:

  • GE pays no current dividends, but the expectation of taxes on future dividends suppresses the current value of the stock, amounting to a tax on past and/or present shareholders.
  • Every shareholder who cashes out — that is, every shareholder who actually realizes any of these profits — pays a capital gains tax.
  • Every shareholder who ever earned a dollar and bought GE stock has already paid income tax on that dollar, which the government (as opposed to the shareholder) has had the opportunity to invest, so that the government (as opposed to the shareholder) is collecting some fraction of the investment revenue, which is to say that the shareholder’s investment income is effectively taxed up front.

So right. No taxes paid whatsoever, except for the taxes, and the double taxes and the triple taxes. Just as janitors have paid no taxes whatsoever, except for the taxes they’ve paid.

Surely Senator Sanders understands most of this, and ought to understand all of it, and therefore can only be laughing up his sleeve, as befits the most cynical of demagogues, at the gulls who take him seriously. But it’s a delicate business. He’s aiming at an audience that’s smart enough to read or hear his words and still dumb enough to swallow his analysis. According to my careful calculations, the relevant IQ range is a rather narrow 81 to 84. Coincidentally, that’s just about the IQ of the average NPR listener, which I suppose is why Senator Sanders got a respectful hearing last week from Diane Rehm.

The problem with democracy is that these people get to vote.

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31 Responses to “Senator B.S.”


  1. 1 1 Phil Birnbaum

    Ah, GE didn’t pay any corporate income tax. That’s what he’s complaining about. I understand now.

  2. 2 2 neil wilson

    Don’t you understand that all corporate taxes are voluntary?

    GE has decided that it will make more “utils” if it is a C corp rather than as S corp.

    Having worked closely with the GE tax department 5 to 10 years ago, I know that GE would have been paying taxes this year if the AMT were similar to the AMT of 2002.

    I am not saying that GE should or shouldn’t pay taxes but I honestly believe that the US would be better off if we had a tax similar to the AMT of 10 years ago.

  3. 3 3 Steve Landsburg

    Phil Birnbaum:

    Yes, he’s complaining that GE paid no corporate income tax, which is to say that he’s complaining that GE’s shareholders paid no additional tax over and above the taxes that everyone else pays. This makes exactly as much sense as complaining that janitors paid no “janitorial income tax” over and above the taxes everyone else paid.

    In fact it makes *less* sense, since investment income is already taxed at least twice, possibly thrice, and conceivably four times (the last being when it’s inherited), whereas janitorial income is taxed once. So if you’re going to slap one additional tax on either GE shareholders or janitors, then surely you’d want to go after the janitors first.

    This is especially so if you apply Senator Sanders “they deserve to be taxed more if a lot of money is involved” standard, since janitors earned ten times as much as GE shareholders.

    It is of course true that the shareholders of some companies other than GE pay corporate income taxes, so that their income is taxed up to *five* times. By that standard, GE’s shareholders are undertaxed. By the same standard, janitors are *way* undertaxed.

  4. 4 4 Ken B

    Alas most people will conflate two issues here. GE gets special treatment amongst corporations because of its political pull. That really is corrupt. (perhaps eliminating the corporate income tax is the simplet way to eliminate any such corruption …) But it is separate from the issue Steve is highlighting, which is that tax really is paid, just not multiple times.

  5. 5 5 math_geek

    I don’t buy that at all. The situation is not that GE pays no corporate income tax, it’s that GE pays no corporate income tax while thousands of other American corporations do pay corporate income taxes, leading to the more salient point that America has the highest corporate income tax rates in the world while still collecting a smaller amount from those taxes due to an incredible number of tax write-offs and credits in the tax code.

    I also reject the popular among Republicans notion that double or triple taxation is a grave moral evil, as if “being taxed” is some uniform bad event that just happens. Feeling cheeky, I can propose that we can eliminate all the shareholder taxes Prof. Landsburg complains about (make investments income tax deductible, eliminate capital gains tax, eliminate taxes on dividends) and replace them all with say a 60% tax on corporate revenue. Of course this is a breathtakingly stupid idea, but it would just be one tax. Of course, 5 relatively little taxes are vastly superior to one big one, and the question is really what we should tax and what we shouldn’t. And this brings me back to the beginning. Either GE should pay corporate income taxes or the United States should not have corporate income taxes, let alone the highest rates in the world.

  6. 6 6 Steve Landsburg

    Math_Geek:

    Either GE should pay corporate income taxes or the United States should not have corporate income taxes, let alone the highest rates in the world.

    Agreed, in the sense that of course the US should not have corporate income taxes. If some corporations pay them and others don’t, that’s an additional reason not to have them.

  7. 7 7 Me

    Do explain how you, an economist, calculated IQ based on absolutely no information?

    Or were you just throwing an obnoxious jab at others?

  8. 8 8 Matthew

    Steve,

    I agree with and understand 100% with your thoughts on individuals being taxed multiple times on the same stream of income.

    Couple minor things though. Looked at GE’s 2010 10-K. Appears that they do pay dividends and did also pay some taxes.

  9. 9 9 Super-Fly

    @Me

    Relax, it’s a fairly standard calculation.

  10. 10 10 Richard

    Of course $26 billion is only a tenth of what janitors earned over the same time period, but I guess it does look mighty big if you don’t bother dividing by the number of shareholders.

    Doesn’t $250 billion look big then if you don’t divide by the number of janitors and then account for the average number of hours they all have to work in order to reach that collectively large number?

    LOL! I’m just saying…

    On a more agreeable note, Bernie Sanders is probably one of the worst demagogues in Congress. He’s on par with Ron Paul in my book.

  11. 11 11 Richard

    Oh, not to mention the fact that it was over 5 fraggin’ years! Don’t forget to adjust for inflation.

    PS: Janitors aren’t well paid. The average pay of a janitor back in 2000 was $9.56, but that number was larger if the janitor worked for a union/public sector or lower for other geographic regions.

    http://www.bls.gov/opub/cwc/cm20031121ar01p1.htm

    So yeah…you expect to elicit sympathy for those poor ol’ shareholders who get double or triple taxed? You’re full of just as much %$@& as Sanders. If you want to make a case against corporate taxation or just rant against Congressman Sanders, you can do that without necessarily demonizing poor laborers.

    PPS: Average per capita income for janitors then according to the bls and your 250 billion number is 25k per janitor. That number may be even lower considering that the number of janitors now compared to ten years ago has perhaps increased (maybe decreased, not too sure. Need more relevant data.)

  12. 12 12 Will A

    @ Richard:

    I don’t believe that Steve is demonizing janitors. He is just putting things in perspective.

    Another example would be the 50% of the worlds population that get paid $ 2 per day. Just a back of the envelope calculation (50% population * $ 2/day * 365) shows that this group makes 2.5 Trillion! With a T!

    And I bet if you were to add up the taxes paid by GE shareholders, and the taxes for those making $ 2/day, then the taxes paid by GE Shareholders would be more.

    And yet these stupid NPR listeners ignore these facts and see these people – who get a pass on their taxes – as the ones needing help.

  13. 13 13 Scott H.

    Clearly the play here is insiders versus everybody else — its not really a base level taxation issue. GE cheats a system that others cannot cheat.

    This same thing happens with individuals as well. That is the reason I laugh when I hear pundits and writers scheme to bring down the dreaded “elites”. The idea that we are going to somehow saddle the elites with the world’s financial requirements is a pipe dream. Forget about the elites. With international law and tax havens being what they are these people are already untouchable — untouchable.

    No, the real people that are going to pay are the sub-elites. The people that work their butts off; make pretty good money, but don’t have international reach and an army of lawyers. These are the people that will be forced into slave labor to support our tax load.

  14. 14 14 dave

    (o/t)
    i probably wouldve never checked out this blog, let alone spent hard-earned cash on dr. landsburg’s book had i not first heard him on npr.
    /(o/t)

  15. 15 15 Me

    “And yet these stupid NPR listeners ignore these facts and see these people – who get a pass on their taxes – as the ones needing help.”

    yes, npr’s priorities are all screwed up. we are completely focusing on the wrong population. we should focus on the millionaires who get overtaxed. they are giving up all their hard earned money and their children are getting terrible educations and going hungry and are going to be consigned to terrible working conditions all their lives. these are the people that need the world’s concern.

    its certainly not, to take your example, the laborers earning $2/day. they pay little if any taxes, so their lives are just wonderful. we don’t have to be concerned about them at all.

    Personally, I do not think that we should just devolve into socialism and take all the money from the wealthy and divide it up. But for you to argue that NPR is misplacing its focus simply betrays your existence in an ivory tower.

    Maybe the wealthy shouldn’t be asked to give up all their money, but to say that NPR has misplaced its concern by focusing on the indigent people of the United States and the world, rather than the wealthy who pay a far greater share of taxes but otherwise live generally more comfortable lives is something i could only call sickening.

  16. 16 16 Mike H

    A question -

    Suppose I am the only consumer and only wage earner in some economy.

    If I earn $10, and spend it, I put $10 into the economy, which then comes back to me as $10 in wages, which I spend, which comes back to me as $10 of wages…

    Suppose now the government imposes a 10% wage tax, and this is the only tax. Suppose the government doesn’t spend anything yet.

    So I earn $9, and spend it, and it comes back to me as $8.10, which I spend, which comes back to me as $7.29 of income…

    Is there, in some sense, some double, triple, or even apeiruple taxation going on here? And if we accept that governments are necessary, isn’t this somehow unavoidable?

  17. 17 17 Richard

    And I bet if you were to add up the taxes paid by GE shareholders, and the taxes for those making $ 2/day, then the taxes paid by GE Shareholders would be more.

    And yet these stupid NPR listeners ignore these facts and see these people – who get a pass on their taxes – as the ones needing help.

    You’re joking, right?

    Yes, of course they pay more in taxes. They control more resources! And you think people in an impoverished life of $2 a day (most of whom support families in developing countries) should pay a tax rate equivalent to that of a shareholder? Damn them for getting a pass on their taxes.

    I’m with the poster “Me” on this one…that’s what I call rather sickening.

    If we’re going to make more obnoxious jabs, I would venture that people who read Steve’s books don’t really have a relatively high IQ either.

  18. 18 18 simon...

    “The problem with democracy is that these people get to vote.”
    I’m not sure I would want to live in a democracy where only high IQ people can vote.
    I’m in full agreement with William Buckley’s “I would rather be governed by the first two thousand people in the Boston telephone directory than by the two thousand people on the faculty of Harvard University.”

  19. 19 19 confused.

    It seems to me that really what we are looking at is the cheating of the tax code through favoritism. Basically, you just need to replace the current tax code with a consumption tax that eliminates pretty much MOST of that ‘good ole boy’ back scratching. Check out the Fairtax.

  20. 20 20 Will A

    @ confused.

    I did check out Fairtax. I really like the following:
    “Business-to-business purchases for the production of goods and services are not taxed”

    I for sure have enough enough money to afford a lawyer to create a corporation which unfortunately would be a money loosing corporation because all of the money I put into the corporation would probably end up going to buy food, clothing, cars, vacations, etc.

    On the flip side, I would never have to pay taxes on any of my income so having a money loosing corporation would be a good deal.

    This could also help to spawn new businesses that specializes in creating businesses for individuals so that they to would never have to pay taxes.

  21. 21 21 Will A

    @ confused.

    Also, just so I haven’t miss anything. My business will be selling photographs on line. My goods will be my artistic photographs.

    I will specialize in selling photographs of groceries, clothes, cars, Hawaiian landscapes, etc. So my business will need to make these purchases for the production of my goods.

  22. 22 22 Harold

    On previous posts on the topic, Steve has been careful to say that taxing investment income did not result in “taxing all income equally”, as genuine investment income has already been taxed. He has always said that we might have other reasons for taxing such income.

    We could assume that we (as a country) had chosen to tax such income, for reasons other than attempting to achieve equal taxation. In order to fulfil this reason (whatever it is), it is decided to tax such income directly, whilst recognising that this amounts to double taxation. If one company can then avoid this, it would be reasonable to draw attention to this and stop it if possible.

    In drawing peoples attention to it, it would be very difficult to explain the whole tax and double tax thing every time we mention it. Instead, we can refer to the direct tax on the investment income that is being avoided.

    Steves copmparison with janitors would only work if we as a country had decided that, for reasons other than equal taxation, it would be a good idea to tax janitors a special “janitor tax”. If some group of janitors managed to avoid this tax using similar methods to GE, then we could stand up and shout “Those janitors haven’t paid their janitor tax!”

    Some people may wonder why the janitors are taxed specially in this way, but that is for another day.

  23. 23 23 Steve Landsburg

    Harold: Points taken. But it would still be outrageously dishonest to claim that those janitors who hadn’t paid their janitor tax had therefore paid no taxes at all. And it would be outrageously dishonest to report the total income of all janitors as “proof” that individual janitors are receiving a lot of untaxed income.

  24. 24 24 Me

    And so, Professor Landsburg, what would you recommend as a better plan than corporate taxes? It seems to me that you would prefer if the United States did not have any corporate taxes, but we as a country cannot afford to simply get rid of all corporate taxes without replacing them with either more taxes or lower spending. I realize that this is not the topic of this post, but I am curious because i am unfamiliar with your opinions on these matters. What would you recommend instead?

  25. 25 25 Will A

    @ Me:

    We could afford to get rid of corporate taxes if we reduced defense spending by the amount that corporate taxes revenue. Apparently the government took in ~ $250 Billion in corporate taxes. The government military spending was ~ $650 Billion.

    If we were to cut military spending by $ 250 Billion, we would still spend more on military than China, UK, France, and Russia combined.

    The way I see it, a main reason to have a corporate tax when you also have an income tax is to prevent everyone from incorporating themselves to avoid paying income taxes.

    Do you think that income and corporate taxes are the best system available?

    It seems to me if I were an NPR listener who cares about the poor, I would prefer some sort of consumption tax where certain goods like rent less than $ 1000 per month and groceries have no sales tax. But items such as alcohol, hummers, cigarettes, BMW’s, Nascar Tickets etc. have a pretty high sales tax.

    I would also think that if I were an NPR listener I would also be in favor of a pretty hefty inheritance tax. Maybe something like a 50% tax rate on estates larger than $ 5 million.

  26. 26 26 Steve Landsburg

    Me:

    what would you recommend as a better plan than corporate taxes?

    If you search the archives of this blog, you’ll find multiple arguments for taxing consumption rather than investment. I believe it’s fair to say that the great majority of economists would be on board with that.

  27. 27 27 Harold

    Steve: “But it would still be outrageously dishonest to claim that those janitors who hadn’t paid their janitor tax had therefore paid no taxes at all”
    Yes, that is why I said we “could assume” – I don’t believe that the double taxation issue is actually acknowledged.

  28. 28 28 vic

    Sen.Sanders is considered an inspirational figure by many on this side of the pond. I don’t pretend to understand his thinking but I feel I ought to make the effort because of its visceral appeal as well as huge potential for damage.
    Is what is really happening a sort of nostalgia for the Corporate Culture for the 50′s and 60′s? High Corporate taxes would tend to reinforce a divorce between ownership and control and endow Corporations with a distinct culture or ‘Lebenswelt’. Is there a hunger for a return to the sense of belonging that ‘Fordism’ (as the Left called rational bureaucratic Business formations) offered together with the sort of ‘Kuznet’s curve’ feeling that income distribution was becoming flatter?
    Economically, Sanders is indefensible- but as a straw in the wind, my fear is, we ignore him at our peril.

  29. 29 29 Dave Backus @ NYU
  30. 30 30 Bry Willis

    Poppycock! The comparison between corporations and janitors is a false analogy. This article by Steve Landsburg is specious if not intentionally disingenuous. Steve knows that Bernie is not addressing taxes paid by the shareholders. He is talking about the taxes paid by the corporation itself. This so-called “double taxation” decoy is a red herring. People may be assessed taxes and corporations (as fictitious persons) may be assessed taxes. That each entity is taxed in its own right does not equate to double taxation.

    In a further attempt to obfuscate, Steve points out that these shareholders pay capital gains on any appreciation, but no mention is made that the long-term capital gains tax rate is 15% rather than 35% that might be paid by an otherwise affluent janitor.

    At Steve recognised and appropriately categorised this piece under the tag “Bad Reasoning.” But it is more than that. This is willful ignorance. I am not even convinced that Steve has actually thought this through but is rather a conduit for this type of propaganda being spewed by one channel or another for generations.

  31. 31 31 Steve Landsburg

    Bry WIllis:

    Steve knows that Bernie is not addressing taxes paid by the shareholders. He is talking about the taxes paid by the corporation itself.

    You can’t be serious.

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