Is a Business Tax a Tax on the Poor?
Is any business tax really a tax on poor people? Perhaps not
all of these taxes are, but lets look at who really pays in most
cases. Suppose we raise the property taxes on those who own houses
for the purpose of renting them - a business activity. Will the
owner of such rentals simply decide to lose money and provide
housing as a public service, even if he could afford to do so?
Or if he makes less money, will he be content with that?
Not a chance! Neither you nor I would choose to deal with
being a landlord for little or no money - nor would almost anyone
else. If property taxes are raised, rents will be raised. All
of want to make enough money for our efforts, and this includes
all businesses. So in the end the tenants pay the property taxes.
In fact, a more general principle is that all costs must
be paid by the consumer before the first penny of profit is made.
That's a simple example, but business taxes in general do
provide a way for the burden of taxation to be shifted to those
making less money in favor of those making more. It is consumers
who ultimately pay taxes levied on businesses, since all costs
have to be passed on prior to any profit being made (the only
reason for a business to exist).
Now let's ask a simple question: Would you invest in a company
that promised you a 1% return? No? Then you understand what happens
if taxes are raised, potentially lowering returns. Prices are
raised to a level that sustains an after tax return that
investors in and owners of companies demand. So who is really
paying?
In fact, if taxes are implemented uniformly in an industry,
they have little effect on the owners of businesses, who just
all raise their prices then, passing the taxes on to customers.
Since the buying of services and products will always take a
larger percentage of the income of those who are poorer (the
rich can only buy so many consumer items), the poor pay a disproportionate
part of those taxes through higher prices that include them in
their cost basis. This is similar in effect to having a tax on
the poor.
Imagine for a moment a bunch of wealthy business people making
a million dollars each from the corporations they own. Now imagine
that we get rid of all personal income taxes and raise corporate
taxes. Prices of the products sold rise so that the net profits
remain the same. Now nobody pays taxes, right? But of course
they are paid! They are paid through the corporations by way
of higher prices by all consumers. Now suppose the same amount
of tax revenue is raised for operating the government.
In our scenario we see that the rich pay no income tax, but
pay a little more for the things they buy. The net amount they
pay in taxes - directly or indirectly - is much lower. Meanwhile
where is the rest of the money the government is collecting really
coming from? It is coming from all the rest of the consumers
in the country, including the poor - all of whom spend a much
bigger chunk of their income on products and services than the
rich do, and therefore get hit hardest from this higher business
tax.
To avoid this tax on the poor then, we need to tax not at
the level of the business, but at the point where those profits
go to the individual owners of the businesses. Only then can
we be assured that the wealthy will pay a fair share of the taxes
needed to operate a government. A bigger share is fair,
by the way, because the services government's provide are of
much more value to the rich than to the poor. They need patent
protection, courts to settle contract disputes and police to
protect assets much more than those with less money, for starters.
This idea suggests that to avoid burdening the poor (and the
middle class) with such hidden taxes, we might want to consider
eliminating the corporate income tax altogether, and collect
taxes only on the real income that owners of corporations receive.
I am sure someone will point out several flaws in this idea (like
to what extent the owners of business might still raise prices
to cover the loss of personal income to taxation), or things
I have overlooked, but it does strike me that if any tax is simply
passed on in prices it essentially becomes a tax on the poorest
people in society.
|
