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Of the Corporations, By the Corporations, For the Corporations
By the Corporations, Of the Corporations, For the Corporations. Government of the people, by the people, for the people.
The corporation's main purpose is to make a profit for its shareholders or owners by following the laws of the country and international laws. The government provides the structure and laws for owning and operating the corporations. The governments follow their constitution.

On November 19, 1863, the U.S. President Abraham Lincoln gave a speech at the dedication of the Soldiers' National Cemetery in Gettysburg, Pennsylvania, USA. The most widely remembered quote from his speech was – " …that this nation, under God, shall have a new birth of freedom — and that government of the people, by the people, for the people, shall not perish from the earth."

The last sentence describes the primary role of the government – "of the people, by the people, and for the people." What about corporations? If we look at government laws, we find that corporations can be treated as citizens of a country, especially in financial disputes. The basis of giving equal rights is because corporations are a group of the people, and the constitutional rights of the group of people cannot be different from individuals. Hence, can we say that an additional role of the government is – "of the corporations, by the corporations, and for the corporations." If there is a dispute between the people and corporation, whom should the government prefer? The answer depends on the situation. Although the fundamental principle of the government is to take care of the people, governments also need money to run their business.

Consider the case of the USA (United States of America), where the government hardly owns any business, except a few services like the Postal Service (USPS), military, and police. Even the evolution of space technology is slowly shifting from the government agency NASA to corporate worlds like SpaceX. If there are no corporations in the USA, the machinery of the country will not function. In some cases, the government can provide more incentives for the corporations than the individuals. For example, if you have your medical insurance or have paid money for medical services, say $10K in a year, the government does not make that tax deductible. However, if the medical insurance is provided by the corporation where you work, and you pay $10K per year, then this amount is deductible from your taxes. Hence, if you earn $100K per year and say the tax rate is 30%, then your taxes with your medical insurance will be $30K. However, under the corporation's insurance, you can deduct 10K, and you will now have to pay $27K in taxes, savings of $3K.

Medical insurance may be optional for citizens, but most countries have mandatory automobile insurance. In the USA, it is against the law to drive a car without auto insurance. Why is that? The simple reason is that in the case of an accident there are accidental damages to people including medical and property costs. The government does not want to pay from their pocket. What the government does is to allow corporations to issue auto insurance to the citizens. Moreover, in the case of damages, the insurance firm takes the financial burden of the accident. Hence, the laws of the country do help in creating corporations.

One of the reasons corporations have become powerful over the years is mainly due to large market capitalization. If we see the market capitalization of the G-10 (the Group of Ten countries that have agreed to borrow and make resources available to the International Monetary Fund, now eleven), we will find that the market capitalization of these countries in 2012 on an average was 97.3 percent of their GDP as per World Bank statistics. Moreover, the corporate capitalization of some of the small countries is more than the GDP of the countries: Honk Kong 420% of GDP, Singapore 149.8% of GDP and South Africa 159.3% of GDP. Moreover, this trend is also increasing rapidly for developing countries. Perhaps, in the next 30 years, the world GDP will be equal to the market capitalization of the corporations. The larger the corporations, the more they can borrow and grow. Governments cannot deny the fact that most of their taxes come from these corporations. Even though the value of your home property may be more than your yearly income, but you pay more taxes in income coming from the corporations than the property taxes of your house. Hence, it makes sense for the government to prefer corporations. Eventually, the money received from taxes goes to the benefit of the citizens.

CountryMarket capitalization as a percentage of GDP (2012)
Belgium62
Canada113.3
France69.8
Germany43.4
Italy23.9
Japan61.8
Netherlands84.5
Sweden107
Switzerland171
United Kingdom122
United States114.9
Average97.2
Although the government gives equal rights to corporations as individuals, in legal disputes the corporations are mainly liable for the civil cases, and the damages are settled financially. Corporations cannot be tried as criminals. If a corporation is found a responsible party in a criminal case, the responsible employees or the board are deemed guilty in the court.

The job of a corporation is to make money for their shareholders, and the simplified equation is
Income = Revenue – costs.
Profits = Income – taxes.

Beside the income, the main objective of the corporation is to maximize profits and taxes are the major hindrances to profits. For example, in USA the federal corporate tax is 35% excluding the state taxes that can range from 0 to 12%. Therefore, it's in the best interest of corporations to avoid taxes to maximize profits.

On the other hand, the governments of the countries do not make a profit, but work for the benefit of the people. The objective of the government is to invest the money in infrastructure and services, so that majority of the citizens use them.

Consider the case of two countries USA and Ireland with the total government revenue of 3,947 billion US Dollars and 55.4 billion Euros (58.7 US Dollars as of Jan 2017) respectively. The below graphs shows the source of revenue as a percentage of different categories. I have added the US state taxes and Federal taxes for comparison.

USA Ireland corporate taxes chart comparison Ireland has only 12% in corporate taxes as compared to the USA where corporate taxes are 35% at the federal level and 0-12% at the state level. However, the revenue from both countries is 8% of the total revenue. Since the corporate taxes are low in Ireland, many mature US corporations like Apple Inc. is moving cash and operations from the USA to Ireland. Based on the 2016 Business Insider article (US companies are 'hoarding' a record $2.5 trillion in cash overseas), USA corporations have moved more than 2.5 trillion dollars in other countries like Ireland. It is logical for corporations to save tax money on behalf of their shareholders and the lower tax rate is the major source of profits.

From a government perspective, beside the property and sales tax, the major source of revenue are the corporations – payroll taxes, Income tax, and corporate taxes. This is one of the complex problem for the government of countries that can allow them to increase their revenue and consequently more money for the GDP and citizens of the country. Hence the government of countries are creating innovative solutions to attract new businesses in their countries or states. For example, in 2014, New York Governor, Andrew Cuomo, came up with a plan for entrepreneurs with an advertising campaign: "Move your business to New York State ... and pay no taxes for 10 years — startup.ny.gov." In the state of New York, the corporations pay 7.1 percent corporate state tax. What about people? Is there any deal that can help increase their savings? Even though the constitution says "government of the people, by the people, for the people," but the world is moving in the direction of "government of the corporations, by the corporations, for the corporations."

About the author:
Raj Badal is a technologist, author, and designer. He is a technology consultant at one of the largest cable companies. The content and art in this article is taken from his book — Systems: Brains of Corporations, avaliable on Amazon, Barnes and Noble, and Kobo.
 
   
 
 
© 2016 – 2017 Raj Badal