Sunday, July 26, 2015

Reasoning Behind Eliminating Business Tax

Whenever elimination of corporate/business taxes are mentioned, people get excited. People have been conditioned to see corporations as greedy entities. We see this conditioning happening all the time on television and in movies where CEOs are seen as Scrooge types who care more for profit than human lives. There are some who might be much like the Scrooge character, but there are many more who care for their employees. What we can't forget is that the CEO's primary obligation is to the stockholders. Sometimes it's hard not to hate a corporation when you have to deal with tech support or try to solve a simple billing problem. I sometimes feel like punishing them myself, but I know taxation should never be about punishment.

Because of how people have been conditioned to hate corporations, they want them punished through high taxes. This could be seen as biting off your nose to spite your face because at the end of the day, businesses pay no taxes. Any expenses, including taxes, are passed on to the consumer through pricing. I was just reminded that it is simpler to tax businesses than to tax each individual in the country. This is somewhat true as long as you maintain a complicated income tax system. Even with this thought in mind, the consumer still pays the tax.

We can't forget that most businesses/corporations in the United States are small businesses that have gross receipts under a million dollars a year. These companies cannot afford a team of accountants to pay taxes. If there was no tax on corporations, many would no longer need expensive CPAs for day to day operations. In many instances, CPAs could be replaced with simple, lower paid, accountants.

Because businesses pass their expenses down through the cost of goods, even the poorest of the poor are helping to pay those taxes. We must consider the poor and lower middle-class when we make decisions about taxation. It's hard not to pass the burden onto those people when the tax is hidden in the cost of most goods and services.

There are those who think it's better to tax corporations because through them we can have those in other countries help pay government expenses. The problem with that is the money often stays in the country of origin. The profits from a fast food place in Germany are taxed in that country. If those profits are then brought back to the USA, it then faces up to a 35% corporate tax. Because of this extreme tax, $3 trillion dollars is currently held in offshore accounts. If taxes were forgiven, corporations would bring that money home where it would slowly be absorbed back into the economy through expansion, employee raises, and dividends paid to millions of stockholders.

There are many goods sold by US corporations operating around the world. Let's use the Iphone as an example. It's manufactured in China and shipped directly from there to Europe where it's sold in Iphone stores. Those sales have nothing to do with the US other than the location of the home office, which is in the USA. Because of high US corporate taxes, many corporations are moving their home offices offshore. The movers and shakers of the world will always move to places where business conditions are more favorable.

We must have taxes to fund government. We must keep the process of taxation as simple and efficient as possible. The most efficient process would likely be a consumption tax. If food and utilities were exempted from consumption taxes, the burden on the poor would be held to a minimum, unlike it is today as it's hidden in the cost of all goods and services.

The current system creates a duplication of taxing agencies. You have the federal IRS and most states having basically the same thing. I have come up with the Freedom Tax that eliminates the taxing authority of the federal government and leaves all taxation of citizens to the state.

No matter if you back The Fair Tax, the Freedom Tax, a national sales tax, or the current progressive taxing system, you must look at how it affects those with the lowest incomes. Many people struggle to put food on the table and to keep the heat and lights on. Within all those things there is a hidden tax. It's this hidden tax that must be eliminated. Unless you efficiently tax the individual, there is no way to stop this from happening. The only possibility is a minimum income – not to be confused with a minimum wage – something I'll discuss later.

We must not forget that small businesses provide more than half of all US jobs and 69% of all new jobs. We must protect them at all costs and keep their tax burden as small as possible. Many of these small businesses are small partnerships that don't make millions. In fact, they often have trouble paying themselves. When people think of corporations, they tend to think of giant conglomerates, not realizing many are much smaller.

Beware: That the tax increase you want for the rich corporation is only a tax on yourself and your poor neighbor.

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