Thursday, April 09, 2009


The Concept of Ownership

In my previous post I wrote a little essay about corporations. I own stock in three corporations now. In the past, my wife and I owned shares in several corporations. My present shares are in public utilities. In the past we held shares in two aerospace firms, both of which I worked for, in several electric utilities, and in a mining company. Some of these investments turned out well, others turned out badly. We learned to be suspicious of stock brokers. We quarreled about some of the investments. We were a normal, average married couple. We were not as sophisticated as we would have liked about investing in stocks.

In theory, I own a portion of each of the three public utilities in which I now own stock. In practice, this ownership is a fiction. It’s really an investment. I have no more, or very little more, control over the way these utilities are run than I have over the way the bank is run in which I have two accounts, one for checking and one for collecting revenue from other investments. President Bush tried to persuade us that if we owned shares of stock in some company we were part of the “ownership” society. We owned something. We would vote for candidates and ballot propositions that would tend to increase the value of the things we owned.

That argument never impressed me or my wife. We voted for candidates that we thought would do good things for the society as a whole, not just our investments. You can argue that we were misguided, and perhaps we were. However, our voting decisions were our own, influenced more by our ideals and our prejudices than by our pocketbooks.

I have never agreed with the rationale for the decision to eliminate or reduce the income tax on dividends from shares in corporations. The rationale is that, since the corporation already pays taxes on its income, taxing the dividends amounts to double taxation. To me that argument made as much sense as arguing that the gardener who mows my lawn and trims my bushes every week should not have to pay any tax on the money I pay him because I have already paid income tax on the same money. The argument doesn’t appeal to me because I don’t accept the notion that I actually “own” part of the corporation.

I suppose if I were a really large shareholder, if I owned twenty percent or more of the outstanding stock in a corporation I would be more willing to believe that I actually owned and controlled part of the firm. With twenty percent of the shares I would be a logical candidate for a position on the Board of Directors. I would have an important vote in decisions about the business practices of the corporation. I would consider myself a part owner. I might look with favor on a proposal to reduce the income tax on dividends.

Life is more complicated than logic. Logically, if I own shares in a corporation, I either own part of the corporation or I don’t. It shouldn’t matter how many shares I own.

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