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Daily Kos: There is some really bad economics in there

The Daily Kos website is in the news a lot. We in Connecticut know the founder of the Kos was a strong supporter of Lamont in his bid to unseat Senator Lieberman. Most of us also know the Kos is generally speaking shall we say, left leaning.

But I didn’t know how left it leaned until I visited the site for the first time today. I frequent tech sites, specifically slashdot.com, digg.com and to a lesser degree reddit.com. The traffic on reddit.com has gotten silly and boring with the constant calls for impeachment of Bush, Cheney, and the horse they rode in on. For some reason which I can not understand many of our young technocrats are junior socialists, those that would have the most to lose in a socialist economy! Maybe someday I’ll post on it.

Today on digg.com some junior Karl Marx posted a link to a Daily Kos column called the Eternal Hope’s diary :: :: and today’s column is calling for the elimination of “personhood” for corporations. And they proceed to list all the “rights” that corporations have that we don’t have.

This post is long so I’ll post my conclusion now. Do you really know what the “left” is up to? It is worth our time occasionally to visit these sites and re-acquaint our selves with the true nature of the left. This is socialism and socialism has never worked, there is no example of socialism ever working. The language of this article is loaded with “fairness”, “exploitation”, “suffering”. Implicit in this is that you can not be trusted to fend for yourself and that you must be taken care.

From the Daily Kos:

I suggest that the people who run businesses work and play by the rules that the rest of us play by — which means that I suggest that we end special rights for corporations and the corporate elites. And the way that they exploit our lives for profits, capitalizing on human suffering and the fact that we must get from Point A to Point B, means that this may be the time to say enough is enough.

This is classic socialist drivel. Notice how the discussion is framed right from the start:

1) play by the rules that the rest of us play by

2) corporate elites.

3) exploit our lives for profits

4) capitalizing on human suffering

Hear hear, enough is enough! They should be banned! Hmmm wait a minute I work for a corporation. I like my paycheck, I can leave when I want and start my own company or go work for another corporation if I want. I must be too stupid to see my own exploitation. I shouldn’t really be allowed all that freedom.

It gets worst after that, and a lot of it is just plain wrong in addition to being really bad economics.

Another quote: That means that if I run myself into debt, I can protect myself by putting all my assets under the control of the company so that I can immunize myself from collection efforts. I can game the system in a way that others can’t.

Actually no you can’t. The statement above shows a really basically wrong understanding of business and law. It is so wrong it is hard to correct.

Another quote: In other words, I can secretly transfer ownership of my company so that I can weasel out of any lawsuits that come my way.

And just where is this weasel going to go? The lawsuit is not filed against the weasel but rather the corporation, no matter who owns it, it gets served. And who is going to buy a corporation that is about to be lawsuited? If you don’t tell the buyer about pending suits you commit fraud. Serious lack of understanding here.

Another quote: And why should I pay lower taxes because I happen to own a business while my neighbor down the street does not?

News flash: You don’t get to. You get to deduct legit business expenses that is only reasonable, anything beyond that is called fraud and the IRS is very good at finding it.

To back up this tome they take a poll, a poll of Daily Kos readers. Such an unbiased sample has yet to be seen.

Poll

It’s not secret that the biggest job generators have been small business who may start out as a sole proprietorship but end up as a corporation to attract investors and to grow. In addition, most debts taken on by the corporation or the individual are not nearly as liability free as the Diarist attempts to portray.

Generally any small businessman has to personally guarantee along with other shareholders the obligations of a corporation that exceed a certain undefined limit. In fact large corporations in large part, can’t take on debt without pledging assets as collateral.

The Diarist assumes that debt taken on by an individual can then be moved into a corporation . Not so. That’s called illegal transfer of assets. If one personally assumes debt to purchase or for cash and then transfers ownership to the corporation to escape creditors, the corporate veil is easily pierced.

In short the Diary, is way too general and shows just a tidbit of knowledge of how the real world works. Most of that could have been picked up from a quick primer on corporations. I can assure you from experience, the real world works quite differently.

If the Diarist had focused his attention on large corporations getting corporate welfare to help protect against losses and paying for access to get lareg contracts, then there is a viable and strong argument. If he had spent time on how they used the govt to break the middle class, that would have been useful. But the way he put it up, he attacks all corporations even the individuals who incorporate.

No one would buy stock in a corporation if they were liable for it’s debt. But to assume that shareholders are not liable for a corprorations debt shows the diarist needs far more education. Once he divides public vs private and class of Corporation and size plus capitalization then one can more accuartely evaluate the validity of the argument.

Most small corporate shareholders always sign personal guarantees on corporate debt. If the corporation goes under then their personal assets are cleaned out.

If it goes the other way, the person could go to jail for illegal transfer of assets to avoid paying. So if the Diarist ran up a huge personal debt and then transferred those proceeds to a corporation, it would easily be traced and he could go to jail.
Check for 4 for bankruptcy filings.

At the very least, the corporate veil would be pierced and the assets seized and auctioned. The person would then be held liable for any gap in what was owned against the proceeds. Then should that person decide to file bankruptcy, he would be subjected to the means test.

I find , over-all , the diary is wholly incomplete and doesn’t come close to addressing the large corporate abuses that have been visited upon us. But the diarist , apparently would be in favor of all small business staying small and not generating jobs.

Since the only way a small corporation can grow is injections if equity capital , internally generated cash flow and ultimately have liquidity to cash out shareholders who no longer want to hold shares in a private corporation the diarist advocates the only job generator to be limited. .

I’m sure he didn’t mean that. I’ think he just picked up a corporate primer and made some assumptions that were clearly wrong.

Incorrect Assumptions

1. Corporate tax rates are at around 35%. The diarist may be referring to dividends. But that’s a double tax. The Corporation first pays up to 35% on the pre-tax earnings and the individuals pay taxes on the dividends. Dividends are distributed in after tax dollars.

2. In Sub-chapter S corporations which most small business files for instead of C corps, all earnings and losses are distributed to shareholders and taxes are paid at the personal level of income. They can also write off more than $3000. Cost to form a Sub-chapter S is minimal and doesn’t require a lawyer. It is limited to I beleive 50 shareholders or less. If the company grows in converts to a C corp.

3. Liability: If only that were true. But bankruptcy laws and creditor lawyers have long since figured a way to pierce the personal asset transfer scheme. In the reverse scenario, most small corporations have signed personal guarantees against any debt the corporation takes on. Only Large corporations can get away with pledging corporate assets as collateral for debt.

4. On unrecorded transfers of shares, if the state allows this, the person who did it to avoid personal liability would be subject to perjury and other laws. It’s usually hard jail time. The look back period is long too.

I know Capitalism has it’s inequalities and many of the industries need to be re-regulated from banking to utilities. Govt needs to stop bailing out big companies and subject them to the same bankrutpcy laws that they put in for individuals.

But using the diarists suggestion would probably cause a mass depression. It would never happen.

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