Companies shield their employees from the State

A Company shields its employees from being punished for co-operation... to the detriment of the self-employed

http://en.wikipedia.org/wiki/Tax_shelter
"Tax shelters are any method of reducing taxable income resulting in a reduction of the payments to tax collecting entities, including state and federal governments." (as at 7th Feb'09)

Collaborating allows people to achieve more together than they would working on their own... Since it does not remove the ability to work in isolation, it only extends possible behaviours. Because of this, a group in collaboration would be able to sell their collective work for more than a similar group of people acting individually.

So, consider two similar groups selling their work: The collaborative group is able to earn more. But the taxation punishes collaboration since the great majority of taxes fall on transactions, which is to say they tax people (who are) working together.

So how does it make sense for such a group of people working together to form a corporation, which attracts another extra layer of tax? It is because the company shields the individuals from paying tax on the internal transactions within the company...

Imagine a small group within a company; on their own they would need to pay tax on everything they exchange. Within a company they can exchange goods collaboratively, in a similar fashion to a "gift economy" and subsequently sell their combined labour to the company itself. They will earn more this way for having avoided many of the taxes associated with collaboration.

So the company provides a market for the employees to associate freely and sell their combined labour, for which the company must then find a market.

The cost to those involved with companies is the extra layer of taxation at the corporate level, but as the evidence of the market shows, it is a cost worth paying for most to avoid the hardship of being punished for sharing expertise...

The corporation allows taxation to be charged at a level one tier above that at which it would normally be charged.


9th January 2009