Their fair share – The myth of business taxation

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**This article was contributed by Keegan Weber**

 

It is hard to find a myth more widely believed in society today than the idea that the government can tax business as a source for revenue. First, what is business? Businesses are simply organizations of people, namely the owners and investors, employees and the customers of the product or service the business creates. It is easy to mistake a business for some separate entity that exists on its own, but it is made up of people and cannot exist without them. Therefore, you can never truly tax business, the cost has to be borne by people. Only people can pay taxes. Initially you may think, “of course we can tax business, we do it now through corporate taxes”, but this is exactly the myth that must be defunct.

You must distinguish between who writes the check and who ultimately bears the cost of the taxes. In order to stay in business, a corporation must pay taxes by charging higher prices, paying less to their employees, or returning less to their investors. The taxes are paid by one of the three groups of people discussed at the beginning: investors, employees or customers. When the government taxes business, it is simply a cover for the true costs these taxes impose on society.

Let’s say, for example, that all of these taxes are passed onto the customer through price increases. At a corporate tax rate of 35%, the prices customers pay for goods are 35% higher than they should be. That means you are paying $27,000 for a car that should cost $20,000 or $2.70 for a loaf of bread that should cost $2.00. This is inherently a regressive tax because these price increases hurt the poor most significantly.

Alternatively, let’s assume that all of these taxes are passed on to workers through lower wages. At the same corporate tax rate, a worker who is currently paid $40,000 could in fact be paid $54,000 if the corporate taxes did not exist. This $14,000 difference would not only make the worker better off, but it would indeed help create jobs and growth throughout the economy through the purchases and investments that the worker makes with his or her extra salary.

Finally, let’s assume that all of these taxes are passed on to the owners of the business. If the owners bear the burden of the tax, they will have less capital to expand the business, create jobs and pay greater future taxes. As much as some would like to demonize these people most, it is a grave mistake to pass the taxes on to the owners because it destroys their incentives to create and invest in new businesses.

In reality, the taxes are assumingly┬áspread among the various groups of people, making the effects of the tax unnoticeable to the average American. Therefore, the myth of taxing business is even more dangerous to society because the taxes artificially inflate prices, lower wages and hurt investors all in the guise of sticking it to the “evil” corporations. This is why politicians will often say we must increase taxes on business instead of individuals.

Sorry to tell you, but the government has duped you into thinking businesses are bearing the burden of this taxation. In fact, it is you, the average American, employee, customer and shareholder who gets stuck with the higher tax bill.

Keegan Weber
Keegan Weber is a tax consultant for one of the largest public accounting firms in the world. He earned his accounting degree from the University of Iowa at age 20 and has done extensive research in economics, taxation, and investing.

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