Now and then as I interact with conservatives on the blogs I come across bedrock principles that they hold to be self-evident. One of these is that corporations don’t pay taxes, but rather just collect them. By this logic, any tax on a corporation is just a hidden tax on consumers.
It’s logical, I guess, to think that. But it doesn’t hold up under scrutiny. The underlying presumption is that corporations are free to pass on whatever costs they incur when they sell their products. Taken a step further, it also presumes that corporations are not maximizing profit potential, since when they arbitrarily pass along costs, they seemingly have the power to raise prices as they please, and have not done so.
It doesn’t quite work like that. Corporations are looking for monopoly pricing – that’s the whole game in a nutshell. But true monopolies are the exception rather than the rule. Most corporations selling goods to the public find themselves in a competitive environment, and are forced to do intense marketing to justify the prices they do charge. That’s the whole point of advertising – to create an aura around a product that justifies its price. So when I buy a bottle of shampoo at the drug store, I am paying every last dime that Proctor and Gamble thinks it can squeeze out of me for that product.
At a certain point, Proctor and Gamble will have maximized its revenue and created a profit pool. But they have to deal with one more expense on top of it all – taxes on those profits. Rates vary by jurisdiction – nationally, corporate tax rates are graduated and go up to 35%, or about the same level as individual rates. Here in Montana, corporations are taxed at a flat 6.75%, comparable again to our individual income tax.
Never mind that few corporations actually pay tax at stated rates. Conservatives say that the tax on corporations is really just a consumer tax, since the corporate profits started out as consumer dollars. But that’s true of everyone’s profit – every dollar passes through many hands – we only levy tax on certain (and arbitrary) events, as when employers pay wages, for example, or when corporations figure their annual bottom line. The corporate profit stream is split at that time, part to government, part to investors. If the tax were not imposed, the profit stream would go wholly to investors, and not back to consumers.
Investors pay the corporate tax, and not consumers. In fact, investors are unable to pass that tax along to consumers, and that’s why all the hubbub about reducing corporate tax rates. Investors don’t like paying taxes. Neither do I.
Here’s a fair point that conservatives make: Dividends paid to investors are not deductible to the corporation, and are taxed again when the investor receives them (though at a favored rate). That is indeed double taxation. It was once seen as a fair price to charge for the luxury of corporate status and all of the legal favors thereby bestowed.
But they are right – dividends are double taxed, and the practice ought to cease. I look forward to that day – the day that all double taxation ceases. But before we worry about investors’ double-tax problem, let’s first look at workers whose every dollar is taxed twice, once by income tax, again by payroll tax. Let’s be fair about this. Let’s eliminate double taxation for all of us. Workers go first. After all, they are producing the wealth that eventually ends up being called “dividends”.
Piece of Mindful 
Can we clarify the two taxes regular workers pay? I think you’ll agree that the income tax (Fed. & State)is commonly part of the payroll tax you mention. Included in this payroll tax is FICA as well. We all know this is were your Social Security money comes from. It would only be fair to mention that the employer matches this amount for every check.
As for corporations not paying taxes- I think that if you raised taxes on all the auto makers by a significant amount, the price of a car will go up in response. Show me where I’m wrong.
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You assume in saying that the price of cars would go up that auto makers are not already charging what the market will bear. They are. They cannot arbitrarily raise prices, or they would.
The employer’s share of the payroll tax is a hidden tax on the employee, and simply part of his wage, a part he never sees. I say this because the employer gets no benefit from payment of that tax except the employee’s labor. Therefore, the employer’s share of the payroll tax is a cost added on to wages, and therefore, additional wage.
The same could be said of unemployment tax, health care benefits and FUTA. With workers’ compensation, the employer achieves great benefit, so that would not be considered additional wage.
It’s basic economics – one cannot pay the expense of anotehr without in effect paying that person.
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It appears that you advocate 70% tax rates on the well heeled and that cost of doing business has no effect on price. You do see only what you want to.
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I advocate a higher tax on passive income than on wages. 70% was probably a bit steep – Jimmy Carter did away with that bracket. The impulse since the late 70’s, and especially since 1983, has been to put less of a tax burden on passive income, and a higher burden on wages and earnings from self-employment. That’s what I talk about.
I don’t know where you got that I advocate a 70% tax on “the cost of doing business”. That’s your own formulation. Here’s the tax I advocate for the cost of doing business: 0%.
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The main thing you are forgetting and not really listing in the article is the simple fact of what a corporation is. A corporation is a non-entity or more specifically is a special entity for the purposes of liability. Taxation is also in there as well. So who owns a corporation? Shareholders, who are people do. This can be sole owner or a company that has millions of those owners. It is those owners of the corporation (and there are preferred stock and common stock, etc. so not all owners are equal) that “own” the company. They reap any profit benefit but also get hit when there is a loss. When you raise the “corporate tax”, you are simply raising the tax on the shareholders, not the corporation. It should be noted that when a company can no longer raise the price for a given product due to market forces (as in your shampoo example) and their costs go up they simply do the ‘other’ thing a company can do to stay profitable: reduce costs. And what is the number one cost for a company? Employees. So anyone advocating increasing the misnomered “corporate tax” rate is really putting jobs at risk-maybe even their own.
To me, one of the strangest things about all this is that the many people who have 401(k), IRAs, and other retirement or pension accounts, who put some of their savings “in the stock market” don’t realize that they are part owners of the many companies that are traded. So when they buy into the rhetoric of raising taxes on corporations they are actually raising taxes on their own investments.
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I don’t see the logic here. I read the article a couple of times and I still didn’t see where it was explained that corporations can’t raise prices in order to cover the tax burden. I also didn’t see a breakdown of what components of the price of a good make up supplies, labor, marketing, and taxes.
Long story short: of course a company can’t just arbitrarily raise prices to cover a tax hike, but it is ludicrous to presume that the price doesn’t reflect in some part the taxes paid. Taxes are another expense and every expense is covered in the price, though not always directly.
Also, maybe companies wouldn’t raise prices immediately when corporate tax rates are hiked, but instead they layoff workers so they can save on costs. That would be great, right? No.
Our corporate taxes and payroll taxes should be 0. This would make us the economic powerhouse we once were.
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Certainly an interesting viewpoint that you have posted here, cannot say I agree entirely but it makes for good reading in viewing others opinions and viewpoints as contained here.
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While Mark’s analysis of the ability of corporations to pass on costs in a competitive marketplace is generally correct he is barking at a straw man.
In aggregate, INDUSTRIES do pass on all their costs, including taxes.
The way it really works is this:
-investment capital (equity, debt) is provided to companies based on expected risk-adjusted returns to financial stakeholders.
-that return is, in part, a function of costs (tax cost included)
-if costs go up, returns go down
-if returns go down, less capital is provided
-if less capital is provided, productive capacity will not grow, or it may shrink
-if production shrinks and demand is unchanged, prices will rise.
-this is how capital and product markets work in a free economy.
So yes, Proctor does now price in every last penny it can get out of you. But, if we raise income taxes on Proctor, (and all its competitors) they will invest less and produce less, and unless our demand changes, prices will eventually rise until THE RISK-ADJUSTED RETURN TO CAPITAL IS RETURNED TO MARKET EQUILIBRIUM.
Dumb liberals never understood economics or math so this is new to them. Smart tax-and-spend liberals (Barney Frank et al), know that only consumers pay corporate taxes, but don’t care as long as consumer don’t complain. Because the Barney Franks, and Nancy Pelosis of this world first priority is to raise more taxes, so they can spread more money around so they can get re-elected. If the voters erroneously believe that corporate taxes are paid by fat cats, so much the better.
The U.S. has one of the highest corporate tax costs in the world. So guess what happens? US corporations invest capital in other countries where tax costs are lower and risk adjusted returns to capital are higher.
Duh.
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If Procter & Gamble paid no income tax, they would still be faced with the same competitive environment that would limit their profit. Corporate income taxes are a scam that enables government to hide its total cost from the taxpayer and to manipulate the economy, usually with undesireable effects.
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