Trickle Down Taxation
Expect a lot of rancor over taxation and accusations of class warfare in the 2008 presidential contest. The left will scream that the rich should pay more taxes, that is, share a greater responsibility for helping the poor. The right will retort that higher taxes weaken the economy, which will hurt everyone. Both sides, technically speaking, are correct.
Remember supply-side economics? The proponents of this theory claim lower taxes promote new investment in business and economic growth, which indirectly benefits all. Its detractors nicknamed this theory trickle-down economics. They contend too little of this new investment actually benefits the people in the lower tiers. Both sides, technically speaking, are correct.
Rather than jumping on either bandwagon, let’s examine some misconceptions about taxation.
The biggest myth is that companies pay taxes. Of course, technically they do. Their tax liability is based on the revenues they generate by selling goods and services. But business regards taxes as overhead, much the same as the cost of energy, rent, accounting, maintenance and labor. All these costs are built into the price they charge for their products.
In effect, consumers contribute 100% of the tax dollars that companies forward to the government. Other than the fact that corporate taxes are buried in the cost of the product, they are identical to the state sales taxes retailers collect.
There is an adjutant to this masquerade. Corporate taxes can impact a company’s competitiveness in the global or local market. If a company can’t make sufficient internal productivity adjustments to turn a profit, it will move to a state offering tax incentives, manufacture off-shore, hire cheaper labor (read illegal immigrants), or incorporate off-shore.
The United States has the 2nd highest corporate taxes in the industrialized world. Combining this with the CEOs’ responsibility to their investors, explains the current trends.
In summary, nearly 100% of corporate taxes trickle down to the consumer. Corporate taxes are as regressive as excise taxes—which are essentially any indirect tax paid on goods and services. So the next time you hear any politician assert that the wealthy—businesses—aren’t paying their fair share, keep in mind who pays these taxes.
Liberals indiscriminately group taxes on wealthy businesses with the personal income taxes paid by the wealthy, including business owners. There is a big difference.
Income taxes are graduated. The taxes paid on individual incomes, by the rich and poor, are relatively fair because they are based on earned income. Although deductions can shield some of this income, the proceeds, not the taxes, trickle down in the form of government programs.
We hear conservatives complain that the top 10%, classified as wealthy, already pay 80% of the taxes. The liberals counter they should, because they control 90% of the wealth.
The former, mostly business owners have tax shelters, lobbyists, accountants, 8000 pages of tax code and trusts to shield their earnings from taxation. The latter, the middle class, actually owns the bulk of this nation’s wealth, invested in dwellings, land and stock. Again, both sides, technically speaking, are correct.
The middle class is getting its pocket picked by both ends of the political spectrum. It’s too late to build fairness into the current tax system. It’s way beyond fixing. The American taxpayers should demand a tax structure that encourages economic growth, balances the playing field and fairly distributes the tax burden. A Flat Tax, that shelters the initial income of all families, offers the most hope.
Remember supply-side economics? The proponents of this theory claim lower taxes promote new investment in business and economic growth, which indirectly benefits all. Its detractors nicknamed this theory trickle-down economics. They contend too little of this new investment actually benefits the people in the lower tiers. Both sides, technically speaking, are correct.
Rather than jumping on either bandwagon, let’s examine some misconceptions about taxation.
The biggest myth is that companies pay taxes. Of course, technically they do. Their tax liability is based on the revenues they generate by selling goods and services. But business regards taxes as overhead, much the same as the cost of energy, rent, accounting, maintenance and labor. All these costs are built into the price they charge for their products.
In effect, consumers contribute 100% of the tax dollars that companies forward to the government. Other than the fact that corporate taxes are buried in the cost of the product, they are identical to the state sales taxes retailers collect.
There is an adjutant to this masquerade. Corporate taxes can impact a company’s competitiveness in the global or local market. If a company can’t make sufficient internal productivity adjustments to turn a profit, it will move to a state offering tax incentives, manufacture off-shore, hire cheaper labor (read illegal immigrants), or incorporate off-shore.
The United States has the 2nd highest corporate taxes in the industrialized world. Combining this with the CEOs’ responsibility to their investors, explains the current trends.
In summary, nearly 100% of corporate taxes trickle down to the consumer. Corporate taxes are as regressive as excise taxes—which are essentially any indirect tax paid on goods and services. So the next time you hear any politician assert that the wealthy—businesses—aren’t paying their fair share, keep in mind who pays these taxes.
Liberals indiscriminately group taxes on wealthy businesses with the personal income taxes paid by the wealthy, including business owners. There is a big difference.
Income taxes are graduated. The taxes paid on individual incomes, by the rich and poor, are relatively fair because they are based on earned income. Although deductions can shield some of this income, the proceeds, not the taxes, trickle down in the form of government programs.
We hear conservatives complain that the top 10%, classified as wealthy, already pay 80% of the taxes. The liberals counter they should, because they control 90% of the wealth.
The former, mostly business owners have tax shelters, lobbyists, accountants, 8000 pages of tax code and trusts to shield their earnings from taxation. The latter, the middle class, actually owns the bulk of this nation’s wealth, invested in dwellings, land and stock. Again, both sides, technically speaking, are correct.
The middle class is getting its pocket picked by both ends of the political spectrum. It’s too late to build fairness into the current tax system. It’s way beyond fixing. The American taxpayers should demand a tax structure that encourages economic growth, balances the playing field and fairly distributes the tax burden. A Flat Tax, that shelters the initial income of all families, offers the most hope.
Labels: corporate taxes, flat tax, supply-side economics
posted by David at
6:37 AM
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