The Societal Impact of Financial Profit

In recent years, the idea of “corporate profit” has been demagogued by certain elements of the American political discussion.  

I routinely see protestors in Madison carrying signs demanding that corporations pay more taxes, and suggesting that their profits should be redistributed elsewhere. Are corporate profits really a bad thing?

First, many people misunderstand what a corporation is. Did you know that many small family farms are organized as corporations today?  The same applies to any number of small businesses that you and I would not view as a “corporation,” such as the little shop on Main Street, the small construction company or the local carpet cleaning service.  

Surely we want these enterprises to be profitable. The more money they earn, the more likely they are to take risks with their capital. The profit generated as a result is often reinvested in the corporation to create more jobs or is distributed to shareholders in the form of dividends. Corporate profits drive investment and economic growth in America. The amazing wealth and prosperity we enjoy is due to business investment and risk-taking - and profit.

While corporate profits provide jobs and wealth for Americans, they also provide vast amounts of funds for charities. In 2010, corporations gave an estimated $15.3 billion to charity, a massive contribution toward building the institutions of our civil society and helping the disadvantaged among us. That does not count the financial donations of the many individual corporate employees or the charitable foundations set up through the years by corporations seeking to make a greater contribution to society.

We are better off as a result of these contributions, and we should encourage more of it. That means we need to look long and hard at how to get more people and corporations to give. Does a combined state and federal corporate income tax burden of 39% help or hurt a business’ ability to give to charity?  While we need to operate government and provide a modest safety net for the poor and disabled, I believe the huge tax burden on businesses is stopping them from giving more.

What are we getting in exchange? Wisconsin has many compassionate citizens willing to freely fund and volunteer for charitable organizations and deliver quality services to those in need. But a high tax burden and massive government has rendered many quality organizations under-funded or moot, giving us instead a web of government programs run by administrators in far-off capital cities and county seats to deliver services that could be more effectively and efficiently delivered by private charities locally.

As we enter the Christmas season, I am reminded that Americans are generous people easily touched by stories of those who do not have enough money to purchase gifts for their children, or even put up a Christmas tree. In a difficult economy, I believe it is the responsibility of those of us fortunate enough to have a little more to provide for those who do not. We should choose to give freely – and thankfully – out of what we have been given so that the less fortunate may be thankful, too.

Corporations large and small have been a crucial part of our civil society and deserve some credit for improving the lot of many Americans. And to bolster our charitable organizations we need to ask, too, how we can change our tax code so that individuals and corporations and will give even more?

To contact me with any questions or comments or to sign up for my regular e-updates, please send an e-mail to Rep.Knodl@legis.wi.gov or call me at (608) 266-3796.