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Is a Business Tax a Tax on the Poor?

Is any business tax really a tax on poor people? Perhaps not all of these taxes are, but lets look at who really pays in most cases. Suppose we raise the property taxes on those who own houses for the purpose of renting them - a business activity. Will the owner of such rentals simply decide to lose money and provide housing as a public service, even if he could afford to do so? Or if he makes less money, will he be content with that?

Not a chance! Neither you nor I would choose to deal with being a landlord for little or no money - nor would almost anyone else. If property taxes are raised, rents will be raised. All of want to make enough money for our efforts, and this includes all businesses. So in the end the tenants pay the property taxes. In fact, a more general principle is that all costs must be paid by the consumer before the first penny of profit is made.

That's a simple example, but business taxes in general do provide a way for the burden of taxation to be shifted to those making less money in favor of those making more. It is consumers who ultimately pay taxes levied on businesses, since all costs have to be passed on prior to any profit being made (the only reason for a business to exist).

Now let's ask a simple question: Would you invest in a company that promised you a 1% return? No? Then you understand what happens if taxes are raised, potentially lowering returns. Prices are raised to a level that sustains an after tax return that investors in and owners of companies demand. So who is really paying?

In fact, if taxes are implemented uniformly in an industry, they have little effect on the owners of businesses, who just all raise their prices then, passing the taxes on to customers. Since the buying of services and products will always take a larger percentage of the income of those who are poorer (the rich can only buy so many consumer items), the poor pay a disproportionate part of those taxes through higher prices that include them in their cost basis. This is similar in effect to having a tax on the poor.

Imagine for a moment a bunch of wealthy business people making a million dollars each from the corporations they own. Now imagine that we get rid of all personal income taxes and raise corporate taxes. Prices of the products sold rise so that the net profits remain the same. Now nobody pays taxes, right? But of course they are paid! They are paid through the corporations by way of higher prices by all consumers. Now suppose the same amount of tax revenue is raised for operating the government.

In our scenario we see that the rich pay no income tax, but pay a little more for the things they buy. The net amount they pay in taxes - directly or indirectly - is much lower. Meanwhile where is the rest of the money the government is collecting really coming from? It is coming from all the rest of the consumers in the country, including the poor - all of whom spend a much bigger chunk of their income on products and services than the rich do, and therefore get hit hardest from this higher business tax.

To avoid this tax on the poor then, we need to tax not at the level of the business, but at the point where those profits go to the individual owners of the businesses. Only then can we be assured that the wealthy will pay a fair share of the taxes needed to operate a government. A bigger share is fair, by the way, because the services government's provide are of much more value to the rich than to the poor. They need patent protection, courts to settle contract disputes and police to protect assets much more than those with less money, for starters.

This idea suggests that to avoid burdening the poor (and the middle class) with such hidden taxes, we might want to consider eliminating the corporate income tax altogether, and collect taxes only on the real income that owners of corporations receive. I am sure someone will point out several flaws in this idea (like to what extent the owners of business might still raise prices to cover the loss of personal income to taxation), or things I have overlooked, but it does strike me that if any tax is simply passed on in prices it essentially becomes a tax on the poorest people in society.

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Tax on the Poor