The Myth about Corporate Taxes

Democrats generally favor tax increases. The last time a Democrat ran for president on a platform of cutting taxes, I was spending my days dressed up as Bat Masterson and struggling to learn long-division. So that you won’t question my mental health status, please understand that the year was 1960 and I was seven!

Of course, raising taxes is never popular. So Democrats almost always resort to class envy to advance their agenda of higher taxes. They are going to cut taxes for most Americans and only raise taxes on the filthy rich (defined in this year’s political debates as those making more than $250k annually ) and on greedy corporations. Don’t worry, average, hard-working Americans, you will not be affected.

For this post, let’s look at the idea of raising taxes on corporations. Imagine that a tax increase on corporations is implemented. One or more of the following effects will occur.

First of all, a company can simply pay the tax and accept a lower profit. With a lower profit, the company is worth less and the value of the company’s stock decreases. The net result is that individual stockholders have paid the tax.

The second thing that a company could do with a tax increase is to pass it on to consumers. This is inflationary and it means that consumers pay the tax through higher prices.

The third and final option for a company hit with a tax increase is to reduce expenses. This allows them to maintain profitability without raising prices. Since the biggest expense for most companies is wages and salaries, this is a logical place to look for savings. Even if wage and salary cuts are not made directly, expense reductions in other areas ultimately translate to unemployment somewhere. A company might, for example, reduce its advertising budget and this affects employment in ad agencies and various media outlets. Thus, in this third scenario, employees ultimately pay for the tax increase through reduced or stagnant wages and/or layoffs.

Lower profits, rising prices and job losses are the inevitable result of corporate tax increases.

A call by politicians for higher corporate taxes is really a call for a declining stock market, rising prices and increased unemployment – and all three impact average, hard-working Americans.

Now Democrats claim to be concerned about declining stock market values and unemployment and high prices for food and energy. Yet they are pursing policies that will create everyone of these problems.

According to Democrats, risky lending practices in the financial sector have caused recent stock market declines and impacted the 401ks of average Americans. Democrats claim that they will protect you from this sort of thing yet higher corporate taxes will create the same effect.

When oil spiked at close to $150 a barrel, Democrats rushed forward to blame manipulative oil speculators and greedy oil companies for a callous disregard of the impact on the budgets of average Americans. But a higher corporate tax is also a cost increase to a corporation and just as likely to lead to increased prices.

Unemployment has risen to 6.1% and Democrats blame this on the policies of the Bush administration and again claim to be terribly concerned about how this impacts the everyday American worker (forget the fact for the moment that unemployment averaged 5.1% for the eight years of the Clinton administration and has average the same 5.1% during the eight years of Bush). Well, empirical studies show that increasing taxes usually lead to job losses.

It appears to me that Democrats are only concerned about stock market declines and escalating prices and loss of jobs unless they are the ones causing them!

Of course, I’m not saying that Democrats want people to be hurt by stock market declines or increases in prices and unemployment. They don’t. But the danger of Democrat style liberalism is that it wants to be judged by its good intentions rather than its actual outcomes.

When Democrats tell you not to worry about tax increases because they are only going to be paid by others, rich corporations in this case, they remind me of the woman in England in WWII. She said that she would not be impacted by the bread shortage because all her family ate was toast! When the bread of corporations is sucked up in higher taxes, there will be no toast of rising profits, lower prices and abundant jobs that benefit all Americans.

The United States should eliminate all corporate taxes since such taxes are ultimately borne by individuals. Calling them corporate taxes simply disguises their true nature.