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Is Corporate Tax really Tax?

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So you are saying that in this hypothetical scenario, the one and only person responsible for the accident is the driver of the cab?

May I ask, then, what possible reason would any Court of Law have to force anyone else, except the one person responsible, to pay so much as a dime to the victim?

What could possibly be wrong with the other 6.999.999.999 people on the planet, organized in whatever way they are organized, working for one or 50 different corporations, avoiding being held liable for the victim's medical costs?

Are you saying you don't believe in vicarious liability?

Long story short the answer is: because that someone else is the employee's supervisor.

Now one might say: but the parent corporation is not the supervisor of subsidiary, it is the shareholder. But that is true on paper only, in reality it will be a supervisor-employee relationship, because the managers and the employees are the same people whether if it is 1 corporation or 50 corporations.

Edited by Puzzle Peddler
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Are you saying you don't believe in vicarious liability?

What I believe in is logic, and cause and effect.

It's your hypothetical scenario. You are free to construct a chain of cause and effect where the cab driver's superiors are somehow partly to blame for the accident. But you have to specify how. You can't just use "vicarious liability" as a floating abstraction. Vicarious liability refers to cases where there is a cause and effect relationship between the actions of a superior and some damage an employee caused (i.e. a superior tells his employees: "Go ahead and come to work drunk or on drugs, I don't care.").

It's not an axiom that transcends causality and states that the status of being a "superior" means you cause everything your employers do.

Long story short the answer is: because that someone else is the employee's supervisor.

Now one might say: but the parent corporation is not the supervisor of subsidiary, it is the shareholder. But that is true on paper only, in reality it will be a supervisor-employee relationship, because the managers and the employees are the same people whether if it is 1 corporation or 50 corporations.

So you're saying that the cab driver and the supervisor caused the accident together? That's fine, it's your scenario.

If the victim can prove that a superior is also responsible in some way for the accident (or, in this case, that the controlling corporate entity, which owns the 50 little corporations, is responsible), then he can sue that superior. There is nothing protecting the parent corporation from such a lawsuit.

P.S. I won't try to define your scenario for you, but I would just like to say that, if a cab driver decides to ignore company policy and get into his cab drunk and drive someone over, then the employer-employee relationship all by itself would not constitute a cause and effect relationship between the employer and the victim's injuries.

And yet, I would bet that most juries today would in fact find the employer liable. If, in today's irrational legal climate, someone finds a way to avoid such potential liability by creating a bunch of tiny corporations that make it harder to get sued, good for them. However, in a LFC society, such arrangements would be unnecessary, because a regular employer would already be protected by Reason, he wouldn't need a complex scheme for that.

Edited by Nicky
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For those who aren't familiar with the subject area, here's another example as food for thought:

consider this business strategy (common known as "thin capitalization", legal in most jurisdictions):

let say there's a corporation that owns 50 taxi cabs, in this situation if 1 of your taxi cabs hit an innocent pedestrian, all assets of the corporation will be on the hook for any impeding lawsuits (i.e. if the corporation lose the personal injury lawsuit all 50 taxi cabs may need to be liquidated to pay the medical bills).

But now consider this: corporation themselves are persons and can become shareholders of other corporations. Thus to further limit liability, the 1st corporation can do the following: create 50 new corporations, put 1 taxi cab into each one of the 50 new corporations. So now instead of having 1 corporation owning 50 taxi cabs, you have 1 parent corporation owning 100% of the shares in 50 subsidiary corporations, and each subsidiary owns 1 taxi cab. The employees, managers and owners in real life are still the same. The only thing that's changed is the paper work.

Now if they employed this strategy before the accident took place, and 1 of the taxi cabs hit a person, then that person can only sue that subsidary corporation (and not the parent corporation or any of the other subisdiaries) because they all seperate entities at law. So the end result ends being the following:

let's say each taxi cab can be liquidated for $10k

and that the injured person need $1million for medical bills and lost income

in scenario 1 (only 1 corporation) = the injured party can claim up to 50 x $10k = $500k in damages

but in scenario 2 (a corporation limiting it's own liability with another layer of corporations) = the injured party can only claim $10k maximum,

It is equivalent to being hit by a really poor person (when in reality the "business" as a whole does have the cash). Yes you can also go after the employee who drove the cab and caused the accident, but what if he's also a poor person and there's no point in suing him?

sketchy strategy? justifiable?

This situation already happens.

In the trucking business companies will hire independent contractors, better known as Owner Operators. The Owner Operator is an independent business and must repot and act as one under law, but they also benefit (based on the contractual agreement) from the parent company through fueling contracts, maintenance account accruement with access to networked repair sites that benefit from economies of scale, and pay the company to let their accountants handle things like fuel taxes and other burdensome regulations that can cripple an independent’s time (and in trucking, time should be spent driving since you only make money if the wheels are turning). In fact, regulation has forced Owner Operators to link with large companies so they can gain help from these resources. This is one of the many very demonstrable proofs I toss at my liberal friends of how their regulations protect the “big businesses” they whine about by crippling the small business men.

Anyway, trucking companies will easily employee 50+ independent “companies” that are Owner Operators who have their own Tax ID plus other business specifics like insurance/bonding requirements. So to your point:

1. If an Owner Operator does get an accident, the Owner Operator is liable through their insurance for all basic damages. This protection is minimum one million dollars by the way which is SOP for insurance.

2. If it is catastrophic then then the Owner Operator is sued not only for insurance but also higher amounts in damages which they will be require to “self-insure” as they say - Pay out of pocket.

3. Companies are still sued as a result since they are linked contractually to the Owner Op. Sometimes this *could* be construed as legit (they gave him a load that required the driver to speed and take risks) and sometimes they are not (the driver was up for a two days and wired on something).

Not that anything over a million generally is legit anyway since once you get to that level you are not actually paying for someone’s injuries or lost work time, but punitive action that is usually only available thanks to a trial lawyer trying to mine deep pockets so they can cash in on their 40+% rates. Translation: A $40 million payout (twce in the last year in the industry) is immoral since it is the product of ambulance chasers feeding off their betters.

So the point is, real liability is already well covered and if the company is negligent with an independent they can be held accountable, and already are under the law. In fact, in today’s culture they are attacked for more than their actual responsibility anyway thanks to trial lawyers and people who want to use a tragedy as an excuse to avoid an honest day’s work.

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It's your hypothetical scenario. You are free to construct a chain of cause and effect where the cab driver's superiors are somehow partly to blame for the accident. But you have to specify how. You can't just use "vicarious liability" as a floating abstraction. Vicarious liability refers to cases where there is a cause and effect relationship between the actions of a superior and some damage an employee caused (i.e. a superior tells his employees: "Go ahead and come to work drunk or on drugs, I don't care.").

It's not an axiom that transcends causality and states that the status of being a "superior" means you cause everything your employers do.

of course not, but the questions is: if there is a causal link to the employer, can they cover their own ass by saying they are an not really an employer, they are a "shareholder" because the paperwork says so?

on paper they are a shareholder, in reality they are a supervisor.

edit: it seems like you are arguing against two principles here, the second one being the following:

It seems like you really do believe that if your dog bite someone, and you if you didn't tell your dog to do it, then you as the owner is not responsible (because even though the dog is your property, there is no actual casual link). What do you have to say about this?

obviously it seems in principle LFCs believe that people should have the right to enjoy the benefits of their property merely because they own it. But then the flip question becomes: why shouldn't you also have the responsibility over problems caused by their property merely because you own it? why do you need something more here all of a sudden?

for example: if you brought land with fruit trees on it, and the trees grow fruits, why don't you have to show a "causal link" between yourself and the ripening of the fruits before you are allowed to eat the fruits? now if you watered the plants, obviously you can use that as evidence, but what if you didn't? what if they grew by themselves because the land is in a nice climate?

Edited by Puzzle Peddler
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This situation already happens.

In the trucking business companies will hire independent contractors, better known as Owner Operators. The Owner Operator is an independent business and must repot and act as one under law, but they also benefit (based on the contractual agreement) from the parent company through fueling contracts, maintenance account accruement with access to networked repair sites that benefit from economies of scale, and pay the company to let their accountants handle things like fuel taxes and other burdensome regulations that can cripple an independent’s time (and in trucking, time should be spent driving since you only make money if the wheels are turning). In fact, regulation has forced Owner Operators to link with large companies so they can gain help from these resources. This is one of the many very demonstrable proofs I toss at my liberal friends of how their regulations protect the “big businesses” they whine about by crippling the small business men.

Anyway, trucking companies will easily employee 50+ independent “companies” that are Owner Operators who have their own Tax ID plus other business specifics like insurance/bonding requirements. So to your point:

1. If an Owner Operator does get an accident, the Owner Operator is liable through their insurance for all basic damages. This protection is minimum one million dollars by the way which is SOP for insurance.

2. If it is catastrophic then then the Owner Operator is sued not only for insurance but also higher amounts in damages which they will be require to “self-insure” as they say - Pay out of pocket.

3. Companies are still sued as a result since they are linked contractually to the Owner Op. Sometimes this *could* be construed as legit (they gave him a load that required the driver to speed and take risks) and sometimes they are not (the driver was up for a two days and wired on something).

Not that anything over a million generally is legit anyway since once you get to that level you are not actually paying for someone’s injuries or lost work time, but punitive action that is usually only available thanks to a trial lawyer trying to mine deep pockets so they can cash in on their 40+% rates. Translation: A $40 million payout (twce in the last year in the industry) is immoral since it is the product of ambulance chasers feeding off their betters.

So the point is, real liability is already well covered and if the company is negligent with an independent they can be held accountable, and already are under the law. In fact, in today’s culture they are attacked for more than their actual responsibility anyway thanks to trial lawyers and people who want to use a tragedy as an excuse to avoid an honest day’s work.

yes that's exactly right, I didn't mention the lnsurance development because I didn't think it was all that relevant to the core issue. The taxi cab case I mentioned is a real case: http://en.wikipedia.org/wiki/Walkovszky_v._Carlton

the court held that the corporate strategy is legitimate and the state legislature responded by forcing thin-capitalizers to buy insurance (so people getting hit by thinly-capitalized cabs don't get completely screwed, but that solution still seems like state-intervention).

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Well isn’t that interesting!

And it certainly is intervention, and a product of unintended consequences from previous intervention.

First, the reason corporations will limit their liability through tricks like this is because of other problems run amok. I bet Tort reform would do wonders to prevent that but I’m not a specialist by any stretch of the imagination in law.

Something not mentioned in the article is how much insurance the cabs already had, what was the real damages from the accident (property loss, medical bills, and work time lost), and what amount did the claimant sue. Most people carry enough auto insurance to cover the basics and even basic corporate liability insurance should handle the couple of hundred thousand dollars your typical catastrophic accident should cause in legitimate losses.

Second, we need to remember that cab companies are government protected through licensing programs, so the kind of competition that would generate quality transportation in a busy market like New York will never happen. Real competition would change the landscape quickly since they would be forced to meet consumer demands.

Frankly, the fact the city passed a law looks like typical government – Creating more regulations to patch holes brought about by previous regulations and unprincipled liabilities.

At least with a casual look. There may be more to the story then the link suggested.

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of course not, but the questions is: if there is a causal link to the employer, can they cover their own ass by saying they are an not really an employer, they are a "shareholder" because the paperwork says so?

Cover it against what? They can cover it against their status as an employer being used to automatically hold them liable for an employee's actions, maybe.

But they can't use it to escape liability for anything they actually caused. There is no law against suing a parent corporation, if you have evidence that they acted to cause you harm through a subsidiary.

edit: it seems like you are arguing against two principles here, the second one being the following:

It seems like you really do believe that if your dog bite someone, and you if you didn't tell your dog to do it, then you as the owner is not responsible (because even though the dog is your property, there is no actual casual link). What do you have to say about this?

Only that I'm not arguing for that. If my dog bites someone, I'm responsible.

On the other hand, if my employee bites someone, I'm most definitely not responsible. Fun fact about employees: they're not the employer's property.

for example: if you brought land with fruit trees on it, and the trees grow fruits, why don't you have to show a "causal link" between yourself and the ripening of the fruits before you are allowed to eat the fruits?

You don't have to "show" it every time one of your fruits ripens, but such a causal link does exist. It's just that it's so obvious to everyone that the reason why the fruit exists is because the owner used his land to grow that tree on it, that no further "showing" is necessary.

now if you watered the plants, obviously you can use that as evidence, but what if you didn't? what if they grew by themselves because the land is in a nice climate?

If a fruit grows on a tree you didn't plant or take care of in any other way, on land you never acquired by some legitimate means, then that's an unowned fruit. Anyone has the right to pick it and eat it.

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yes that's exactly right, I didn't mention the lnsurance development because I didn't think it was all that relevant to the core issue. The taxi cab case I mentioned is a real case: http://en.wikipedia....szky_v._Carlton

the court held that the corporate strategy is legitimate and the state legislature responded by forcing thin-capitalizers to buy insurance (so people getting hit by thinly-capitalized cabs don't get completely screwed, but that solution still seems like state-intervention).

Insurance as a condition for driving is not a state-intervention made necessary by state control of the roads. In a private system, the road owners would set things like speed limits, seat-belt rules and whether you need insurance to drive on their roads. Since, there aren't private owners to make these decisions, the government needs to do it to keep the roads usable.
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Let's consider more closely where liability for financial consequences should rest in an Objectively perfect world. Consider a business entity (without considering whether it is a corporation or a partnership at this point) that hires people to build a $1 billion dam, and everyone involved takes all due care and uses the best available materials. The dam nonetheless fails and causes $5 billion damages to the people living below it. So, this is not a question of "fault" per se ... we cannot shrug it off as the responsibility of the managers, or workers, or any others hired by the business entity. We also cannot blame the people below the dam because the dam was built after they had already settled there -- to make the situation even clearer, let's assume the dam provided no benefits to the people below, but rather provided energy that the owning business entity sold for a profit for use in another county.

Now a "looter" like Jim Taggert of Atlas Shrugged might argue that "tort reform" is appropriate and the people below the dam should receive only limited compensation for the damage they have suffered. I believe any Objectivist, upon careful reflection, would reject this view and find that the business entity should take responsibility for the results of its actions. To accept "tort reform" is to push the cost of the entity's activities to the victims or, quite likely, to the government. It is hard to envision a moral person who would, upon reflection, allow the former (cost shifted to the victim). Collectivists (like myself) might accept the latter in appropriate circumstances (cost shifted to the government). I am eager to hear if any Objectivist on this forum disagrees, but I do not believe that so-called "tort reform" is Objectively moral or appropriate.

Of course, placing the burden on the "business entity" does not answer the original question posed by OP. I would argue, again, that limited corporate liability can be defended on non-Objectivist grounds, but that there is generally no legitimate basis for it under Objectivist ethics. Consider first the case where the business entity is owned by two individuals who were both deeply involved in planning the dam project and in hiring the managers who would oversee construction. It is hard to see why they should be "on the hook" if organized as a partnership but not as a corporation ... unless perhaps, as OP posits, the corporate tax allows the government to take responsibility. I do not believe the answer should be fundamentally different if there are a large number of owners of the business entity. Each partner or shareholder would reap the benefit of profits earned by the entity and should have considered whether their investment was consistent with their morals. They did not simply "entrust their money" as though it were a bank account. By the same token, they should take responsibility for the actions of the business entity in which they have taken an ownership interest.

Having said all this, there is one type of limited liability that might be Objectively proper - namely, "proportional liability". Under current US law, if the business entity is a partnership, all partners are "jointly and separately liable". To expand on our two individual investors' scenario, assume one individual has $10 billion dollars in personal assets and the other has only $1 billion. Under current US law, the poorer partner would have to contribute his entire $1 billion to cover damages while the richer partner would have to make up the difference: $4 billion. Under proportional liability, the richer partner would only be liable for his proportionate share of damages - $2.5 billion. It seems to me that this system would be consistent with Objectivist principles of individual responsibility.

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I like how you take the concept of Tort reform and repackage it as a looter concept, as if returning liabilities to the actual and legitimate loses of the individual whose property or self was damaged was hurting them. Today people can sue for ridiculous amounts of money that is far exceeding the real damages and this is largely the case when a company no longer has the assets to pay for the verdict. Being objective means reason adhering to realty, not faking your life by shaking down someone for over your damages because the system lets you do so.

There is no cost “being pushed” to the injured party when the purpose is to return the amount to real damages, not outrageous verdicts whose only purpose is to fleece someone. When you see quarter million accidents cost someone 40 million dollars, you quickly figure out who the real James Taggerts are.

As for proportional damages, your basing justice not on actions but the ability to pay. As in to each his ability, to each his need - I hope I don’t have to explain how monstrously evil that is. Then again you admitted you’re a collectivist so maybe I do need to explain it.

Edited by Spiral Architect
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@Spiral Architect - Hmm, yes, there is certainly room for proper Tort Reform in an Objectivist system. The limitation (or elimination) of punitive damages ... as well as of "pain and suffering" type damages are quite appropriate. (On punitive damages, there is room to argue whether the tort system, the criminal justice system, or some combination is the appropriate forum.) But, much so-called Tort Reform is about limiting actual damages to unreasonably small sums. I use the Jim Taggert comparison carefully. He was a businessman who abused the power of money to get government to violate rights and favor his business over his rivals. When you talk about excessive verdicts won by individuals, Philip Rearden would be a better symbol.

But please expand upon your point about proportional damages. It seems to me that your "from each according to his ability" condemnation more aptly applies to "joint and several" liability than to proportional liability. But perhaps that is what you meant? Proportional liability arguably bases justice only on actions: i.e., if I am a 50% partner, I should not have to pay more than 50% because then I would be being held responsible for my partner's actions rather than my own.

As for your explaining monstrous evil to me, there is no need as I have already read Atlas Shrugged and am well familiar with the parable of the Twentieth Century Motor Company. In my childhood, the abilities-means maxim held significant resonance with me. I have since come to see its results as, indeed, monstrously evil. I have long since given up overly simplistic viewpoints and now hold both some Objectivist beliefs and some Collectivist ones. (No need to argue with me here whether or not Objectivism is overly simplistic ... that discussion underlies all of my posts, so I urge you to argue with me in specific contexts instead.)

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