Corporate Taxes are a Heinous, Hidden Tax on the Poor.
Business entities in the U.S. fall into two major categories: C corporations, which pay corporate income tax; and pass-through entities such as S corporations, LLCs, partnerships, and sole proprietorships, which “pass” their income “through” to their owners as personal income tax.
Many Americans believe that corporate taxes are paid by corporations. Let us dispel this myth.
Corporations are legally separate entities. The human managers of for-profit corporations owe their fiduciary duty to the company’s stockholders. At times, this duty might make a corporation appear to be greedy because management is trying to maximize value for those stockholders. But corporations are not human beings. They can’t be greedy. Corporations are merely pieces of paper in a file cabinet.
The taxes that a corporation pays is money that comes from someone. Taxes are simply another line-item expense for a corporation like utilities are. The corporation passes those costs on to human beings. Higher corporate taxes result in:
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smaller profits for shareholders,
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slower wage growth for employees, and/or
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higher prices for consumers.
These stockholders, employees and consumers are us. There is no free lunch. And corporate management prefers to pass on tax increases to consumers in the form of higher pricing as opposed to disappointing their own stockholders and employees.
Corporations simply don’t pay taxes. They collect taxes from us and pass that money on to the government. Corporate taxes are just a sneaky way for the government to tax Americans. And the earlier the tax is levied in a supply chain, the more hidden it is from the end customer. For example: When we tax aluminum mining companies, we are taxing every consumer of products that contain aluminum. Every corporate tax is an indirect sales tax on people.
Corporate taxes are inflationary in four ways:
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First, and most obviously, is that all increased costs of production are reflected in higher prices.
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Any money a corporation gives to the government can’t be used for innovation or the production of goods and services. Fewer goods and services lead to higher prices.
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The government uses tax money to hire people. And since the government doesn’t produce anything (it has no factories), siphoning otherwise productive labor out of the economy is inflationary.
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And, lastly, the government competes with consumers for products and services. Every ream of paper or rubber stamp that a bureaucrat buys causes the price of paper and rubber stamps to increase.
Inflation pumps up assets owned by the wealthy, such as stocks, businesses, and real estate. Conversely, for the poor and middle class, inflation also increases their cost of living. Warren Buffet loves when inflation causes the price of his breakfast sandwich to double because his railroad stock also went up.
Inflation is a regressive tax. The term “regressive” refers to a tax that takes a larger percentage of income from low-income earners than from high-income earners by blindly charging everyone equally. For example, when we raise the taxes on oil companies, they collect that tax from us at the gas pump. And gas pumps charge everyone the same. Gas pumps don’t know or care if you are rich or poor.
We sometimes hear politicians say nonsense like “We need to make corporations pay their fair share of taxes.” But politicians have economic advisors. They know the truth.
Corporate taxes are inflationary and regressive. They are a heinous and hidden tax on the poor.
