AGAIN: Taxing Businesses
Here we go again… some economically ignorant Congressmen are jumping on the results of a recent report by the GAO that indicates companies try to avoid paying federal income taxes.
First, please remember that companies don’t really pay taxes… people do. Companies pass taxes through as a cost of doing business. Their customers pay the taxes. In order to continue to make a profit, companies increase the prices of their goods or services to cover any taxes they will have to pay.
This also means things cost more for consumers… and some will actually not be able to afford to buy when the price is higher… which means less is sold at the higher price. So, the impact echoes on. But this aspect of taxing businesses is a discussion for another day.
Next, an expert points out that many of the companies are “small businesses” with Subchapter S status… meaning they are included in their Individual tax filing. The fact that they pay any owed taxes as individuals vs. businesses shouldn’t really matter… left hand or right hand… the government gets what is owed. Of course, this “small fact” is being overlooked by any politicians who want to demonize businesses.
Even though the GAO study didn’t explore WHY no taxes were paid, they did point out a couple of reasons companies don’t pay taxes: due to operating losses or because of tax credits.
So, if a company lost money and didn’t owe any taxes, is that a reason for political outrage? Not really, unless it might be to explore ways to help companies become profitable (and therefore be able to pay taxes).
And, if a company takes advantage of any available tax credits, is that cause for members of Congress to decry no taxes being paid. Of course not! THEY were the very ones who approved such tax credits!!
If anything, this latter situation points out one problem with our tax coce: it is too complicated. Not even those in charge of it know all the nuances. The way we collect federal taxes needs to be revised to eliminate both the confusion and the favortism of such tax credits. Please look into the Fair Tax to learn more about a better way to get this job done.
Last, consider that part of the problem is caused by companies transferring profits from U.S.-based entities to foreign-based entities to avoid taxes. Even “American” companies do this. Why? Taxes are lower in some other countries than in the U.S.A. High taxes provide an incentive for companies (and individuals!) to expend a lot of time, money, and effort to avoid paying them. If tax rates are lower (more reasonable), companies are not motivated to do unproductive things simply to avoid paying a little more tax… but, if a LOT more tax must be paid, they WILL “play the system”. This is entirely rational behavior.
How about this for an idea? Turn the table.
LOWER corporate tax rates in the U.S. so more companies will have an incentive to pay taxes here rather than abroad. This might even encourage FOREIGN companies to base more operations HERE to avoid paying taxes in THEIR countries!
Remember, too, that a lower tax RATE does not mean lower taxes paid. History has shown that a lower tax rate encourages production and increases business activity… and, even though paid at a lower tax rate, MORE TAX DOLLARS are actually collected. This is the desired win-win scenario between government and business.
