- Published: Sunday, 07 December 2003 13:26
I made a comment on William Burton's blog. He commented on the old saw about taxation and the rich.I commented, Businesses don't pay taxes. They pass it along as they would any other cost to the consumer.
Mr. Burton took a whole post to explain why I was wrong.
While I can't necessarily disagree with his points, all I can say is he hit the wrong target.
I could have said, "Businesses don't pay the employee payroll. They pass it along as they would any other cost to the consumer" and have been just as right.
Business taxes are just like rent, payroll and equipment depreciation, they are all costs of doing business. To the businessperson, it doesn't matter if his taxes or his rent went up $1000 a month, his expenses went up $1000 a month that must be paid for out of his gross profit. Hopefully he has some net profit left.The customer, by paying for the product, indirectly pays for all of the costs of doing business, taxes is but one part of it. If any part of the cost goes up, of course some of it will be absorbed by profit, but there comes a point where you can't squeeze any more blood out of that rock so new costs (nee taxes) must be passed, dollar for dollar, to the consumer.
Actually, he got one point wrong:
The important thing to remember is Businesses already charge as much as they can get away with in their particular market. A corporate tax increase would change the formula somewhat, as would any increase in costs, but it would not be passed along to consumers dollar for dollar. Some would be absorbed through lower profits, and some through attempts to lower other costs. (emphasis in original)
Companies like Wal-Mart see things differently. They would rather sell 2,000,000 units with a $1.50 profit than sell 1,000,000 units at $2 profit. That 50 cent price difference cuts them under K-Mart and Target, so it steals sales away from the competition.
Which is exactly how tax cuts work. By putting more money into the hands of those people with money, the people with money can expand current businesses or open new ones, which generates more tax revenue than if the government had kept the original amount. Poor people don't create jobs, rich people do.
One notion that must be disabused is the "greedy capitalist pig businessman." If your boss offered you a 50% raise, would you take it? If so, aren't you a "greedy capitalist pig worker"? Everybody wants to make money. That's what businesses are in business for. Why abuse those who were smart enough to accrue it through legal work? The reason France has a 30% unemployment rate is because business owners are considered evil for wanting to make money. The business owner is so severely hamstrung there is no incentive to go into business or to expand it at all. In fact, there is a penalty for expanding, you can't lay off workers when business goes down.
Like I said. Businesses do not pay taxes.