Corporate Taxes are Bad for the Economy

I’ve often wondered what the average American actually pays in taxes. There are statistics that show what I call “transparent” taxes: Federal income tax, Social Security, Medicare, State income tax, property tax, sales tax, etc. We can make general statements regarding these taxes since not everyone pays them equally or pays them at all.

In addition, there are cell phone, cable, internet, cigarette, gasoline (state and federal), alcohol, ad valorem (cars and boats), and more taxes. We are taxed everywhere and on everything. There really isn’t a facet of society where we do not pay some sort of tax. The average American pays roughly 28% in income taxes. Think about that. For every $100 you earn, you can beĀ guaranteedĀ $28 goes directly to an entity that does nothing for your hard-earned money. That doesn’t include the above taxes I just started listed.

My goal isn’t to do a statistical analysis on our taxes but to bring to light one aspect no one ever talks about in a way that Americans can understand: Corporate Taxes are bad for the consumer and economy.

Most Americans believe that corporate taxes are good because we Americans want to make sure those big evil businesses pay their fair share. Sure, that sounds like a simple enough idea. The average American has to pay his share of income taxes so why shouldn’t corporations? Anyone who believes that corporations pay any tax does not understand economics. Corporations should NOT be taxed. This is beneficial to corporations, consumers, the economy in general, and even government tax revenue.

Corporations nothing in taxes. Corporations have two items that matter when it comes to selling goods or services. 1. Cost of Goods Sold. COGS encompasses ALL of a business’ expenses no matter how the financial statement is broken down. Every expense is a cost of doing business. All of those expenses are built into the selling price of a good sold. That includes taxes. 2. Income. Only after all expenses are accounted for (taxes included) and products properly priced in terms of the market can a business actually earn a profit. If taxes go up, product prices go up to account for that change and become part of the price that you and I pay when when we purchase it.

A business has to earn money to survive. It needs a surplus of money to grow. If taxes go down, product prices go down (think Wal-Mart). Corporate taxes are where the consumer gets reamed. On every purchase you make, you are paying for the corporate taxes you demanded that the government impose.

Not only are you paying the retailer’s taxes when you purchase goods or services, but you are paying taxes that are built into that product up through the entire chain of production. This includes raw materials all the way up to the point you bought it. If a pair of jeans goes from a farm where they grow and harvest cotton, to a factory that takes that raw cotton and turns it into jean material, then it goes to a manufacturing plant to turn into a pair of jeans, and finally it ends up in retail where you bought it. By the time you get it in your hands it has been taxed at least four times. This example doesn’t even include all the buildings and machinery these businesses use to produce their products. Just like you and me, a business is the consumer of business related products which are taxed in the same way. This in turn continues to increase the COGS.

The benefits of no corporate taxes are simple. No taxes mean cheaper COGS, which mean cheaper goods and services for the consumer. Cheaper goods and services for the consumer mean your money goes further and you can purchase more. The more you purchase, the more products need to be made, which eventually requires corporate investments and employee hiring. Eventually, you have more business generated for corporations which eventually lowers prices to stay competitive, higher employment which means more spending in the economy, and lastly a higher tax revenue from the larger economy and increased employment.