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September 19, 2008 / Gabriel

The Myth of Corporate Taxes

Some politicians claim that they’re not going to raise your taxes; instead, they say, they’re going to raise taxes on corporations. Those nameless, faceless, greedy corporations will shoulder more of the tax burden instead of Joe American.

This is utter nonsense.

Here’s the reality: corporations do not pay taxes. Corporations collect taxes. People pay taxes.

Corporations may be legal entities, but money always comes from someone. Real people. And when it comes to corporate taxes, that someone is either consumers, employees or investors.

Here are the three ways in which “corporate” taxes are automatically, ultimately paid by real people:

1) By increasing the price of the product or service. Corporate tax is passed on to consumers as a hidden sales tax.

2) By reducing employee wages and benefits. Corporate tax is passed on to employees as a hidden income tax.

3) By lowering returns to investors. Corporate tax is passed on to investors as a hidden capital gains tax. This drives down the value of the stock market and lowers the rate of new investments and job creation.

That’s it. Those are the only three ways in which a corporation can “pay” taxes, and they all come from actual people’s pocketbooks. People like you and I. There’s no other choice. Because corporations do not ultimately pay taxes: people do.

Ask yourself these questions:
– Do you buy products or services from businesses?
– Do you work for a business?
– Do you own mutual funds, stocks or bonds?

If you answered “yes” to any of the above, that means your taxes are going up if corporate taxes are increased. Period. Be it via a hidden sales tax, a hidden income tax or a hidden capital gains tax, your taxes are effectively going up.

So the next time someone tells you that they’re not going to raise your taxes, but that corporations will foot the bill instead, the only question you should be asking yourself is whether they’re economically illiterate or trying to fool you. And wonder which is worse.

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3 Comments

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  1. jenn / Sep 22 2008 10:04 pm

    Bravo! Finally someone is clearing the smoke around the fire.
    A great example of your point is gas prices – those horrible expenses which have stolen the spotlight on many “news” programs. I remember burying my head in my hands when hearing that raising the taxes on foreign oil was the solution, and thinking ‘God, what happened to competent thinkers?” They raise the “foreign” taxes and the gas prices are just going to keep rising to compensate for the additional corporate expense.
    So why is the gas so expensive? The media has most people believing because Americans use too much fuel. Maybe we do, maybe we don’t. The US has always been the #1 consumer of crude oil, so that is a constant in the equation. Is it the war? Well, that has pretty much been going on for over 15 years, so that is fairly constant too. So what is the variable? The answer is really quite simple – China.
    What you are seeing in the gas economy is the US bowing down from its reign as number one consumer and handing the scepter over to China. Until recently the US has not had too much competition for crude oil and thus maintained some control over the prices. However, now China is consuming even more and this creates competition for the supply. Now the Middle Eastern oil tycoons are in the middle of an auction to see who will line their pockets with more money for their goods.
    As a result, the US can decrease its oil consumption all it wants, but it will not bring any significant change to the price because China is not going to decrease its use…and heading up with a strong third place in the race for number one consumer – India.
    What a dance.

  2. Gabriel / Sep 23 2008 5:19 am

    Absolutely right. The idea that you can make goods cheaper by increasing the taxes on the producers of those goods is absurd. Although, apparently, politically popular.

  3. jenn / Sep 23 2008 5:55 pm

    Too politically popular. Talk to most people and they will tell you the US economy is worse than it’s ever been in their lifetime. Yet I’m pretty sure (correct me if I’m wrong) that GDP is the best indicator of economic stability. And the US second quarter GDP in final preliminary stages is at a 3.3% increase in annual rate – http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm
    When stripped of politics and propaganda, economics is simple, logical, and most importantly – predictable.
    So how about Overpopulated Earth? That’s another one of my favorites 😉

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