Companies never pay taxes, consumers do
You should oppose all business taxation, especially increases, for two reasons. First, they’re a fiction — a lie. More importantly…
They’re really a tax on you!
These two points are inseparable. The fiction is that taxes are paid by business. Actually, those taxes are built into the cost of the good or service you’re purchasing. If those taxes weren’t assessed then…
- The consumer price would be lower
- Retiree pension funds and 401k’s would garner a larger return
- The employees would be paid more
- Or some combination of the above
Therefore, we can say…
Companies collect taxes, their customers pay them.
The problem is, this isn’t obvious. It’s not transparently clear that you are paying these taxes. The claim that companies pay taxes is an intentional political manipulation. Most people are so misled that…
They are upset to hear that corporate “scoundrels” are getting away with paying too little in taxes!
And that’s exactly what the statists want. Taxation is painful. If politicians can hide the fact that consumers are actually paying the tax, your neighbors are more likely to vote for it.
But, since consumers are really the people paying the tax, that means that the poor and people on fixed incomes are hurt the most by business taxes. This is one of the dark contradictions in the left-statist position – they are using envy of the rich to impose a hidden tax on the poor.
By Jim Babka & Perry Willis
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While I support lower (or no taxes) on corporations, I think this over-simplifies things.
* The consumer price would be lower
Um, not really. This suggests that pricing is set by cost and not by market forces. Cost plays a factor certainly, but the market determines the selling price in a competitive marketplace.
* Retiree pension funds and 401k’s would garner a larger return
Via what mechanism?
* The employees would be paid more
The counter-argument is going to be that the C-suite gets paid more, but it any tax savings won’t flow down to the rank and file. Why would employees get paid more? Unless the supply of employees decreases or the demand for employees increases, companies are not going to increase their wages simply because they are sitting on stacks of cash.
Our Mental Levers are mini-articles, so they simplify by necessity.
Prices are set by supply and demand. Reduced business taxes would impact both the supply side and the demand side in ways that would mostly tend to lower prices and raise wages.
Money that doesn’t go to taxes will be used to lower product prices to gain a competitive advantage or to invest in expanded production which will tend to bid up wages while driving down prices, or it will be consumed by the business owner. It is only in the latter circumstance that reduced business taxes could exert upward pressure on prices. But such a business person would probably lose market share to competitors, and be forced to adjust his or her prices downard at a later date.
So our article does simplify, but we do not think it over-simplifies.
I agree with your premise here, and that the fewer taxes everyone has to pay, the better off we all will be. The welfare/warfare state is a huge problem here, and though eliminating the corporate income tax would be a good thing, we really need to start respecting the Constitution and 1) limit spending to ‘necessary and proper’ government expenditures, 2) restore to the state legislatures (as per Ninth and Tenth Amendments) the discretion to use that money as they see fit. We further should respect the Founder’s intent and follow Thomas Jefferson’s advice: “A wise and frugal government, which shall restrain men from injuring one another…….and shall not take from the mouth of labor the bread which it has earned.” It costs over forty cents out of every dollar to collect the Personal Income Tax, according to http://www.taxfoundation.org, Also, it is a progressive tax, and outside the Founding Father’s intent. Some of the more recent amendments to the Constitution should be repealed, including the one interpreted to allow ‘taking from the mouth of labor the bread which it has earned.’
pardon the bad link. http://www.taxfoundation.com is the original link. More accurate information may be found at https://www.nationalpriorities.org/budget-basics/federal-budget-101/revenues/ The repeal of the section of the 16th Amendment dealing with the Personal Income tax, and eliminating some of the unnecessary, harmful and downright immoral government spending could balance the budget, especially if combined with ending the Federal Reserve.
since we don’t get a thumb up to click here, i’ll just have to say thanks for the good comments. Then I also have to say your link to the website didn’t work, but I was able to find it using Startpage. I couldn’t easily find anything about how much it costs to collect/confiscate the income tax money though. Can you give more info on how to prove how much we actually pay to pay the illegal 16th Amendment tax? I have no doubt that it is an outrageous cost. It really would help for us to have some real proof of what the number is though.
where the money goes can be found at: https://www.nationalpriorities.org/analysis/2018/tax-day-2018/
Someone really messed up decimal places here, because, according to the IRS, it costs $ .40 to collect $100, making the simple collection pretty efficient, compared to other facets of government. That’s not all of the story, however. There are hidden costs that relate to filing, such as hiring a firm to file, or the man-hours to file accurately yourself, you can read about those here: http://www.beaconhill.org/FairTax2007/TaxAdminCollectionCosts071025%20.pdf
or here:
https://www.mercatus.org/publication/hidden-costs-tax-compliance
The link in Penni’s comment is fixed. It was missing an “n.”
Yes, that makes the link work for getting to the website now. Thanks – it all looks very interesting! But then it indicates that the site has 455 articles, and I have no idea where the one about the cost of confiscating each dollar of tax revenue is. Sorry i’m so lazy about it and just never have enough time for finding particular info. To all the research experts who care about our excessive/outrageous tax issues; actually a list of articles and such, to show proof of specific problems with our tax industry would/could be very helpful to us who want to expose our friends to the terrible truth. It’s entirely too easy for everybody to go on just living with it when we so seldom get our noses rubbed in some of the more glaring problems on any regular basis.
The response that I would anticipate from the left is that if corporate taxes were reduced, not much of the savings would be passed on to the consumer or go to better pay or pensions of regular employees. Instead, most the money would go directly into the pockets of the CEOs, whose pay is already 300 times that of the average worker.
Of course this does not change the fact that any increase in taxes will be passed on to the consumer. So, as far as I can tell, the best argument that can be made with this mental lever is that it is pointless to ask for more corporate taxes (because the cost will be passed on to the consumer). But to promise people that a reduction of corporate taxes will benefit consumers may be promising too much.
Where this argument fails is by conflating “Business Taxes” with “Corporate Taxes”.
If 3 or 4 people become partners in running a business and work at it, taxing their “business” income and their “personal” income, is simply an excuse to charge them more taxes by taxing them twice instead of once.
Where problems arise, is when States write statutory laws that define a group of people to be an Artificial Person, called a “corporation”.
That’s what every corporation actually is.
It’s a group of people who are collectively named to be an artificial person. The artificial person assumes the liabilities of the individual persons who are it’s members.
The very oldest corporations in the US are Cities. Akron, Ohio, for example, is a corporation. When one drives across the boundary from unorganized farmland into the City of Akron, one encounters a big green sign prclaiming in white letters, “AKRON, Corporation Limit”.
Why the State of Ohio made Akron into an artificial person, is that as an artificial person, it could outlive all the real people who founded it. New people move to Akron. Previous residents leave Akron. New people are born into Akron residency. Older residents die and cease to be residents. The Corporation of the City of Akron carries on it’s statist business of taxing land use and providing so-called “public services”, as an artificial person, whose very existence depends on an Act of the Ohio Legislature.
Likewise, businesses that incorporate, depend on laws to give them an artificial, perpetual term of existence, outliving all of their founders.
Does this artificial personhood create new legal hazards, that did not exist when only natural persons became partners in business?
It absolutely does. Since the corporation is an Artificial Person, the natural people who act in it’s name, do not clearly explain who ordered them to do a particular action. And because the State gives the corporation limits to it’s liability, people who lend money to the corporation are not liable for damages if the corporation does harm.
If I lend money to the Corporation of the City of Akron and it goes out and kills a bunch of people in a police raid and is sued, the very worst that can happen to me, is that I lose every cent of the money I lend. Liability limits mean that I am not personally obligated to fix the problems that the Corporation creates, which I would be in an ordinary partnership.
It is the fact that states give liability limits to these artificial persons called corporations, that makes the strongest argument for why there should be taxes collected on operating a business as a corporation. Sensibly, if people want liability limits as a tool for helping them to borrow money, they must provide self-governance to insure that they do not abuse the liability limits, to cause harm to the public.
In the end, the major problem with Statism is the idea that force can create value. The reality of Statism, is that force re-distributes wealth. War, the most primitive form of Statism, re-distributes wealth from the dead to the living, by killing people and taking away their possessions. In places like Afghanistan or Iraq, where war has dragged on for decades, grinding poverty results, because no one is creating new possessions to replace the ones destroyed in the fighting. Force does not create value.
Self-governance is absolutely necessary to prosperity, because it is by freely choosing to take actions that increase wealth by creating more of it, that people improve their personal wealth without impoverishing others. Making is not taking, and taking is not making.
Everyone’s taxes could be much lower, if we tolerated less violent activity that seeks to take things from other people and make them poorer. The mere fact that I can temporarily be made richer, because a politician engages in an act of war against other peaceable people, steals their stuff, and distributes some of it to me, is not a thing I should celebrate. Rather, it is a thing that I should fear. What was given to me by force, can be taken away by force just as easily.
There’s a vast gulf of difference between a plumber who incorporates his business and an incorporated State (in this case, Akron, a local government). One surrenders taxes; the other harvests them. While there are nuggets of value in this comment, I’m hard-pressed, Bob, to see why Akron becomes the poster child for this post. I think you’ve muddied something that is remarkably clear.
Well, here we are in 2020, over two years since Trump accomplished the large corporate tax rate cut in 2017. And only one of your predictions has, maybe, come true – an increase in return on pensions and 401k’s, depending on where or how they were invested.
Yes, the stock market is stronger than ever, but that’s probably because a lot of the money that corporations “saved” from the tax cut went into stock buybacks, which usually pushes their stock prices up.
Here’s an article that sheds some light on the effect of the corporate tax cut: https://markets.businessinsider.com/news/stocks/7-charts-showing-trump-tax-cuts-not-economic-rocket-fuel-2019-12-1028780773
We have artificial interest rates. When people can’t earn normal interest from normal savings they are pushed into the stock market as the only alternative. I suspect that stock prices are largely a product of that. – Perry Willis
The article and the comments refer to customers as the ones paying for business taxes. But businesses have stakeholder groups: Customers, employees, vendors, and investors. Vendors are the least likely to suffer from an increase in taxes, but they could be asked to provide lower quality services and materials. Employees will definitely be a place where costs could be transferred, thus reducing pay and benefits. Investors will experience a lower return if part is diverted to the state, thus encouraging them to seek higher returns elsewhere. This is a point where industries are favored or disfavored by regulations that give or remove tax benefits. Investors will move their money to get higher returns. Customers are the most recognizable stakeholder group that will pay higher taxes. Perhaps it’s easiest to raise prices to recoup the cost, but competition from products made in jurisdictions not subject to the same business taxes would cause the company to squeeze the other stakeholders to avoid losing market share by having higher prices.
Businesses have four stakeholder groups:
employees
investors
vendors
customers
A rise in costs, including taxes, will result in less for one or more of the stakeholder groups.