Thursday, February 4, 2010

Business taxes are as regressive as sales taxes

Taxes on businesses are as regressive as sales tax. Taxes on businesses are simply passed on to consumers in the price of products they sell. This raises the cost of things people buy just like sales taxes do. The only way taxes on businesses are not regressive is if those taxes are only on companies that sell luxury products like champaign or yachts.

I will try to make this simple, if you for example tax oil companies; the price of gas and heating oil goes up just like it would if you put a sales tax on gas or heating oil.

All costs such as labor, rent, energy, raw materials, TAXES, etc. are added together to make up the final cost of the product you are selling. If you increase any one of these, the final price of the product goes up to cover the additional cost, just as it does when you add a sales tax to it.

I will use a simple example:
If I sell 10,000 clocks a year, and you add a tax to my business of $100,000 per year, the price of the clocks goes up $10.00 each so I can pay the tax. This is the same as adding a $10.00 sales tax on each clock sold.

Taxes on business are regressive if the companies sell products that common people buy. If you raise taxes of farmers, the price of food goes up.
If you want a business tax to not be regressive, it must be on companies that produce products that only rich people buy, like expensive champaign or yachts.

It is politically easier to raise taxes on business because the taxes are hidden in the cost of the products they sell instead of showing up on your receipt as “sales tax”; but the net result is exactly the same. This is why in Europe they use a “value added” tax so people don’t realize how much tax they are paying.

5 comments:

Working Capital Business said...

Nice Example "If I sell 10,000 clocks a year, and you add a tax to my business of $100,000 per year, the price of the clocks goes up $10.00 each so I can pay the tax. This is the same as adding a $10.00 sales tax on each clock sold."

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