Sunday, July 3, 2011

Does Taxing the Employer {Businesses/Corporations} Really Make Sense?

by: Les Carpenter
Rational Nation USA
Birthplace of Independent Conservatism
Liberty -vs- Tyranny


Following my recent post entitled Property Rights -vs- Progressive Statism I received, via e-mail, the following question from a  RN USA subscriber. 
"Why do voters (or non-voters) think that placing taxes on the employer rather than the individual somehow takes away the cost of taxes to the individual?"
Certainly a valid question, yet one I suspect a fairly large segment of our populace have never taken the time to consider. As I sat pondering my reader's question it occurred to me most people fail to question because they have been conditioned over many years to believe this only affects businesses and corporations, IE: the employers. Or put another way, they have grown to accept the mentality that taxing businesses and corporations heavily it somehow reduces the tax burden on the individual.

If just scratching the surface I suppose a case can be made that by taxing businesses and corporations heavily it would reduces the percentage of the governments revenue stream that comes from each individual taxpayer. Thus keeping their taxes lower than they otherwise would be if businesses and corporations pay little or nothing in federal tax.

Politicians of both parties, primarily Democrats but many Republicans as well, have been arguing forever and a day the deep pockets of the employer {businesses and especially corporations}, ought to be taxed at much higher rates in the spirit of keeping the average working individual and their families tax burden as low as possible. This mentality fuels the class warfare fervor, consistently pitting the wealthy employer against the lowly downtrodden working man.

This argument has been used since the turn of the 20th century. It has always been nothing more than, to use the progressives favorite phrase, "putting lipstick on a pig." When one hears the progressive argument that employers ought to be carrying a heavier tax burden they never mention the real world result of higher taxes on those who choose to employ others. IE; businesses and corporations.

Employers start businesses for the sole purpose of making money. They exist only for the purpose of making money. Unless a business is a non profit, or a governmental undertaking, the businesses exit for the sole purpose of making profit. It is as simple as that.

The risk takers... the businessmen and businesswomen who lay it on the line to start and run a business have every ethical and moral right to make a healthy profit. They take the risk, pay the local, state, and federal taxes required, comply with regulatory requirements, pay SS taxes on their employees, and absorb all other costs associated with the cost of doing business.

Oh, and perhaps most important, these risk takers create jobs for the rest of us who either lack the ability or the entrepreneurial spirit and motivation to start our own business. Something all who work for the risk takers ought to respectful of and be thankful for.

Now to the original question. While it may seem sensible to tax employer's at higher rates to keep individual taxes lower one should ask themselves what the business owners response to taxes might be. The answer should be quite obvious. As taxes on business increase, whether the result of increased regulatory burdens and controls, direct tax on the businesses profit, increased property taxes, increases in licensing fees, or whatever, the result is an increase in cost to the business.

The risk takers, the ones providing jobs for the rest of us, have two choices. One, absorb the increased cost thereby reducing their profit margin. Two, increase prices thereby passing the increase in taxes and regulation on to their customers.

Most businesses will first try and maintain pricing levels for as long as possible. They do this through process improvements that increase productivity {this often requires capital outlays}thus keeping cost increases minimal and manageable.

Ultimately businesses have no choice but to pass their increased cost and taxes on to the consumer in the form of higher prices. So,a business tax ultimately becomes a consumption tax on the consumer who purchases the businesses product{s} or services. If taxes increase on the business the price of the product will increase and we pay the increase.

It should be easy to see that taxing businesses really does not keep your taxes significantly lower. You're in fact paying a share of the business tax each and every time you go to the grocery store, the clothing store, purchase a vehicle or a TV, or take a trip, or anything and everything else you do in the process of living your life.

Pondering the subscribers question just may cause you to reconsider some long held beliefs.

6 comments:

  1. Trying to explain that to liberals is as futile as trying to explain to government employees that they pay NO taxes!

    ReplyDelete
  2. You are making one huge mistake with your argument here right here:

    "The risk takers, the ones providing jobs for the rest of us..."

    First: The fact of the matter is the wealthier the person or the larger the corporation the less risk they are willing to take. Study after study has proved this.

    Second: Corporate taxation is barely if at all burdened on less wealthy people and smaller corporations. Only about 5% of American businesses pay any corporate taxes at all.

    Third: Though corporate tax rates are as high as 35%, the effective rate averages 16% and that average is skewed high by a handful of very large corporations.

    When you attach your (I'm sorry, but...) wrong Objectivist argument to the argument against corporate taxation, you are shooting the latter - correct - argument in the foot.

    I've been arguing against the corporate tax for years. I think it is regressive, hinders our international competitiveness, and is really nothing but a cheap ploy to convince idiots that taxing "corporations" is the same as directly taxing the very wealthy. It is not.

    In the end, corporate taxes are simply hidden, flat, regressive, sales taxes. It's all the argument you really need.

    But here's your dilemma - the corporate tax is just a rhetorically ostensible tax on the wealthy, when in the end it is not. If we end that tax, then where we will get that money from? Let me guess. Nowhere? Nice try.

    That's a lot of money. The wealthy should be paying it. They're the only ones that can afford it right now. It's time they started pitching in.

    After all - and here's the other part of the argument against corporate taxation - corporations are NOT people. They are abstract contractual arrangments.

    Yes, taxes are on transactions, and yes corporations can make transactions, but shouldn't taxes be due from people who make transactions, as opposed to abstract contractual arrangements that "make" transactions?

    And the only reason the corporate tax rate is as high as 35% but only rakes in about 16% is because of abstract contractual arrangements between business and government. We HAVE to separate those two little bad boys.

    If we ended the corporate tax and replaced it with a more progressive, slightly simplified, income tax rate, it would go a long way to getting this nation out of the red. It would also deal with the immigration issue, military spending, and all discretionary spening in general.

    You Objectivists and libertarians should look at my argument. It's pretty fair and smart.

    JMJ

    ReplyDelete
  3. >The fact of the matter is the wealthier the person or the larger the corporation the less risk they are willing to take.

    Of course, you overlook the fact that to get there, they had to take risks. That's what you are punishing.

    >Only about 5% of American businesses pay any corporate taxes at all.

    But the burden on larger corporations is always spread to the employees and the consumer. Essentially, everybody suffers...except for the DC thugs that benefit from it.

    >the effective rate averages 16%

    No sane, decent, freedom-loving person would ever believe that that is low. It's 16% too high.

    >If we end that tax, then where we will get that money from?

    Nowhere. That's the point. Stop feeding the cancer.

    >The wealthy should be paying it. They're the only ones that can afford it right now. It's time they started pitching in.

    Why should they be punished for their good choices and hard work? Bill Gates doesn't have any more rights under the Constitution than I do. Why should he have to pay more of the burden? And the idea that the wealthy haven't been "pitching in" is absolutely insane. The bulk of income tax is already paid by the wealthy. The wealthy provide jobs. The wealthy finance the development of technology. The high standard of living we have in the United States was made available by people with a lot of money that were willing to finance those efforts that resulted in affordable necessities and luxuries. People like you want to end that.

    >It's pretty fair and smart.

    No, as always, it's a combination of ignorance and intellectual sloth.

    Seriously, why are you so against allowing people do determine themselves what they do with the product of their life and liberty (their property)? Why do you hate liberty? Why are you so dead-set against the central concept of the Founding? Are you just plain afraid of having to take care of yourself? Or do you get some type of perverse pleasure from voting my property away from me to give to somebody else, giving yourself the pitiful illusion that you are doing something good? Why don't you get a hobby or something and stop stealing from me to finance your dysfunctions?

    ReplyDelete
  4. JMJ said: "The fact of the matter is the wealthier the person or the larger the corporation the less risk they are willing to take. Study after study has proved this."

    So? The vast majority of corporations are very small, run by the non-wealthy. This is because the system forces small business to incorporate to protect from frivolous lawsuits and other reasons.


    "...The wealthy should be paying it. They're the only ones that can afford it right now. It's time they started pitching in."

    Done. The wealthy now pay the lion's share of taxes.

    "and here's the other part of the argument against corporate taxation - corporations are NOT people. They are abstract contractual arrangments."

    That is a very bad argument. Why? Because corporations are made of people. They are merely organizations of them.

    Yes, taxes are on transactions, and yes corporations can make transactions, but shouldn't taxes be due from people who make transactions, as opposed to abstract contractual arrangements that "make" transactions?

    And the only reason the corporate tax rate is as high as 35% but only rakes in about 16% is because of abstract contractual arrangements between business and government. We HAVE to separate those two little bad boys.

    If we ended the corporate tax and replaced it with a more progressive, slightly simplified, income tax rate, it would go a long way to getting this nation out of the red. It would also deal with the immigration issue, military spending, and all discretionary spening in general.

    You Objectivists and libertarians should look at my argument. It's pretty fair and smart.

    ReplyDelete
  5. Bastiat,

    Actually, with upward mobility what it is in America, no, the wealthy did not take risks to become wealthy. In all likelihood, they were born that way. They went to the best schools, lived in the best neighborhoods, got the best medical care, and then safely landed a job with a large corporation that doesn't take risks.

    As I said above, the 16% rate is skewed high because the corporate tax is paid by so few, mostly very large, corporations. The average effective rate for the majority of corporations, small corporations, is closer to zero.

    No one wants to punish the wealthy for anything, Bastiat. We simply need them to step up to the plate and help their country in a time of need. It's about caring about your country.

    Dmarks,

    I'm not sure what you're arguing there, other than your arbitrary assertion that the wealthy are already taxed enough, which I obviously disagree.

    JMJ

    ReplyDelete
  6. >In all likelihood, they were born that way.

    In reality, most of them weren't. Reality trumps likelihood.

    >The average effective rate for the majority of corporations, small corporations, is closer to zero.

    If it's not zero, it's too high.

    >We simply need them to step up to the plate and help their country in a time of need. It's about caring about your country.

    They already have been. Are you truly so brainwashed into the totalitarian-collectivist cult that you believe that rolling over and letting the government rape and pillage at will is the way that you "care" about your country? Are you that much of a lemming?

    Why do you hate liberty?

    ReplyDelete

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