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.
Think about it. The business collected the money and passed it on to the government but the origin of the money was people. The same is true of any tax on businesses. Businesses do not pay nor have they ever paid taxes. Only people pay taxes!
The situation may actually be worse than it seems. What may be the unintended consequences if the prices of goods and services were increased to “come up with the money” to pay the tax bill? XYZ Inc. has competitors all over the world. The competitors didn’t experience the 10 percent tax increase. Now the cost of XYZ’s goods are higher than its foreign competitors; the worldwide demand for its goods shrinks, its share of the market drops and employees begin to be laid off.
The upper management of XYZ Inc. begins talk of moving its operation to another country where the business tax climate is more favorable. Does any of this sound familiar?
Economic studies have found that the consequences of the federal tax code add an average of 22 percent to the retail prices of all American produced goods and services.
From page 106 of “The FairTax Book” by Neal Boortz and John Linder, “Economists estimate that in the first year after the Fair Tax Act becomes law, the economy will grow by 10.5 percent. Exports will grow by 26 percent and capital spending will increase by more than 70 percent. Has there ever been a day in your lifetime when the American economy was this robust?
Please call, email and/or write your representative and senators: request that they support American businesses and all Americans by supporting the progressive Fair Tax system.
Glen Terrell is an Arlington resident and proponent of the Fair Tax. Contact him at firstname.lastname@example.org.