This is the third in a series of commentaries in support of the Fair Tax.
By GLEN TERRELL
Line 1. Hidden taxes are those taxes, hidden from view, and unknowingly paid by the taxpayer. There are many “partially hidden” taxes. Perhaps the most misunderstood of all the “hidden taxes” are corporate taxes or taxes on businesses.
Many, maybe even most, people regard taxes on businesses as a good thing. Finally a tax someone other than me, the other guy, is paying; YES! This must be good for me and mine. Sounds good, but it’s all a myth and, to make matters worse, such taxes are bad for the economy as a whole.
All “for profit” businesses, whether small businesses or huge corporations, have goods and/or services for sale. Let’s consider an imaginary American company XYZ Inc. There are (1) costs associated with the production of goods and services; (2) income derived from the sale of those goods and services; and (3) the difference between income and costs is the company profit. The purpose of every for-profit company is to make a reasonable profit.
Suppose our example company XYZ Inc. has been operating in a stable and profitable way, successfully competing with its foreign competitors for some years when the government decides to increase its tax on XYZ Inc. by 10 percent. How will XYZ Inc. management handle this? They could reduce costs by laying off some workers or buying cheaper manufacturing materials; both with negative effects on goods and services. Management could take the money from profits thereby reducing dividends to shareholders. They could raise the price of their goods and services. They could try some combination of the three options. But there is no other alternative. Regardless of the decision by management some employees, share holders or customers … all of them people … pay the tax; the business does not.