Ehis Odijie

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Why I think Government should abolish corporation/business taxes.

Why I think Government should abolish corporation/business taxes.

Only people can pay tax, so a tax on business is a tax on somebody - the question is who?

There are three groups involved in every commercial venture (1) The shareholders (2) the employees and (3) the customers. A tax on business must be paid by one of this group.

It is either it paid by the shareholders through reduction of profits, or the staffs in reduction of salary, or the customers in a slight increase of goods or services – there is no other way to cover a business tax.

To know how businesses respond an exercise was conducted in UK to see how Tesco responded to an increase in taxes. It came in the form of a slight increase in the prices to customers – so a business tax is a duty on the consumer. Also – the UK government imposed an extra levy on banking recently and it filtered down to the customers.

If we eliminate business tax today it will fitter down to reduction of prices in competitive industries.

There is nothing wrong with this form of indirect tax but it is better to adopt the right language and call it what it is.

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    Aug 13 2012: I agree that all costs are defered to the end user. I disagree that if the tax is eleminated that the costs will be reduced to the consumer. Businesses and corporations are for profit. After costs, salaries, etc ... they divide up the loot for the bonuses and dividends.

    If taxes continue they are put to work in the state budget process. Without this tax the burden would be (again) levied on the citizens. The profits would then raise the bonuses and dividends which is the goal of the business and corporations. Because that is their goal (profits) what makes you think the costs would go down.

    This is a capitalist point of view but the part about supporting the budget process should apply to all.

    All the best. Bob.
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      Aug 14 2012: The price would go down from competition in the market place. Like or not all business is in a race to the bottom and this is very "moral".

      Since our politicians see fit to borrow 40 cents of every dollar they spend me thinks that it is time to put the goverment on a severe diet rather than worry about getting more revenue as this is very "immoral"
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        Aug 14 2012: Part of my Christmas wish term limits, reduce government, return power to the states, remove executive orders, return to a Constitutional government, and take the checkbook away from the dummies.
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          Aug 14 2012: Cool we are on the same page. Not sure if term limits is a panacea however it hasn't worked as intended here in Calif.
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    Gail .

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    Aug 13 2012: I agrree. Call a it what it is. A corporate tax is a hidden tax on people.

    Let's say that you just bought a car. The process began with a company that digs iron out of the ground. It is taxed and it sells the taxed iron to the smelter. It does the same with the corporate income taxes and the taxes on telephone services, etc etc etc. The trucker to moves the iron includes that corporate taxes he pays and the corporate payroll taxes in the price of his trucking. The trucker also has to pass on the built-in fuel taxes and phone usage taxes, etc. We're not yet very far up the chain, and we see how many taxes are being sent up the chain. So now the smelter has to absorb all the taxes that are passed on to it because of corprate taxes.

    The smelter turns the iron into sheets to be trucked to the engine manufacturers and the car manufacturers and the various parts manufacturers, who all pay their share of taxes, each time driving up the cost of goods and services.

    By the time you have bought your car and paid taxes on it, and taxes that the dealership pays in every area, the price of your car includes a wealth of pre-paid taxes.

    People who think that companies are not pass-through entities are just numb to reality. We humans should pay ALL taxes directly, and in this way we can know how much we are being taxed.

    Better yet though - get rid of the flawed economic model that is imposing such devastating consequences on humanity. There are money-less economic models that can work, thus eliminating the problems of taxation altogether.
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    Aug 12 2012: I think I get what you are saying. All taxes are paid by the customer, this is true, and a myth regarding the corporation pays the taxes, they do not,

    In the U.S. they pay personal tax as this is cheaper than the corporation tax.

    I agree with you that stating that anyone other than the consumer pays the tax is fallacious....

    I think you have it right, the story that need to be told is that the smaller the government the more freedom for the individual. Which in the case of the U.K. is hard to see.
  • Aug 11 2012: In the USA, this would not work unless the tax structure was completely changed.

    In the USA, the bulk of government revenues, especially the federal government, come from income taxes. If we eliminated the corporate income tax people would create corporations to avoid the personal income tax. This is already done by people who have large incomes. Most or all of their income goes to the corporation so they do not have to pay personal income tax on that income. Then the corporation buys the car that they drive and the fuel that goes into its tank. There are legal ways to have the corporation pay for much of your family vacation.

    I agree that the corporate income tax distorts the economy. In the USA corporate income taxes are about fifty percent of profits. So corporate purchases only cost the corporation fifty percent of the price, because if you don't make the purchase, then half of the purchase price is paid out as taxes anyway.

    It is very difficult to develop a tax structure that does not interfere with economic decisions.
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      Aug 11 2012: "If we eliminated the corporate income tax people would create corporations to avoid the personal income tax. This is already done by people who have large incomes."

      You are helping my case because if we eliminate taxes on corporation, and say, companies were to balance books at the end of the year, we can then create a situation where personal profits - dividends or any kind of profits – could be taxed as under personal income. Even if this is not the case, we can increase VAT and eliminate corporations’ tax since in principle, we agree, there is no such thing as corporation tax. it’s a roundabout VAT. This way we can create direct information to the public as regards knowledge of how much tax is paid through any transaction. The misleading language of tax on corporation distorts incentive from the public who are constantly calling for an increase in ‘tax on corporation’. It is like me calling for my taxes to be increased.

      I am not pro corporations i am pro consumers. Taxes have to be addressed in a more direct way - we should know what we are paying for.
      • Aug 11 2012: On your goals, we agree completely, I am just pointing out that this is not going to be easy.

        In addition to establishing the VAT, you would also have to abolish personal income taxes and go to a sales tax, or almost everyone would start corporations and hide their income and assets in the tax-free corporation. Proportionately, sales taxes tend to tax the rich less than the poor. So making the sales tax progressive would be difficult.

        I think we need a better tax system too. We need a system that is less vulnerable to loop holes and social engineering. It should be simple and transparent so that ordinary citizens can see where the tax revenues are coming from and can see that the system is progressive and fair. This is not easy. Especially because the very people you are trying to help, fight the effort every step of the way. Many ordinary people see the efforts to reform the tax system as efforts toward socialism, and their fears are promoted and used by all of the people who benefit from the many loopholes in the current system. The current system is extremely beneficial to Congress. By keeping the tax code complicated and opaque Congress can use it to give their big contributors all kinds of loopholes and credits, justifying them as helping out the country as a whole.

        Tax reform is needed, but it is not easy.
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          Aug 11 2012: Simpler is better. The only reason you have loop holes in the tax system is because you have taxes that are not addressed to people. Only people pay taxes (and only people can pay taxes) - corporation/business are empty terms in proper tax jargon. Only people deal with money so it is common sense to address taxes to people in a direct way.

          The easiest way to tax the rich is to tax earnings in a direct way. If we set up a system that all companies have to balance their books yearly then we can tax earnings in a direct way. We can tax consumers through VAT. This way there is no incentive to set up corporation for concealment of taxes because you have to balance the books and declare profits yearly.

          But let us assume that people will try to set up corporations in a bid to conceal profits. Let’s pursue this a little bit. How would they go about that? Where do you think they’d get the money from? It has to come from earnings from a particular venture – taxed as personal income – so there is really no incentive because it has already been taxed directly.

          If you have a system where taxes are not addressed to individuals then there is an incentive for people to conceal earnings with meaningless terms like corporation.
  • Aug 16 2012: So what. Corporations are creatures of government, chartered, etc. I don't know if you can imagine the experience of you being the one to pay this money not then paid by the poor corporation.
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    R H

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    Aug 15 2012: I guess I'd start with why we have taxes in the first place. To pay for gov't. Why do we have gov't? To 'protect' the people from harm, both from inside the country and without, and to support a civilized society. When I look at 'corp/bus', I certainly see wealth generation for society, but also unemployment, environmental disaster, trade wars, political influence, legal expertise/manipulation for immunity, and a host of other side-effects of corporate malfeasance. These lead to expensive environmental, humanitarian, and societal 'repair and maiintenence' issues such as welfare, unemployment insurance, public healthcare, and city services that are not profitable and/or competitve enterprises. Prices would not necessarily 'filter down' to the consumer. That would depend alot on market share and demand. Prices would eventually find equilibrium and those with huge market share and demand would become much stronger and dominate - if they didn't have to pay for the damage done through taxes. I agree that we have out-grown the current system, but many other changes and understandings of influence, much more sophistication, would have to be identified before I would vote for such relief.
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      Aug 15 2012: Lots of conjecture none of it based on fact or a understanding of economics or true.
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    Aug 13 2012: (2) is "employees"
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      Aug 13 2012: Taken - management are part of employees . . thanks.
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    Aug 12 2012: Undersatnd and agreed what you said to a some extent......
    Yes price may go down mostly in cost plus pricing model ...... , in such case Government will get that missed tax again from people......because it survives on tax money.....so net impact on people will be same.
    Moreover tax free will not garuntee price reduction by the companies.......
    Just an example , in Saudi everything is tax free, but the price of the goods of same brand are same like any other countries....
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      Aug 13 2012: Re: in Saudi everything is tax free . .

      Meaning the prices would be much more if there was a tax. Understand that there are so many market forces that affect the price of a product. Is Sadui practicing any form of import regulations in form of quota or tariff (which is another roundabout tax on the consumer) ? There are so many questions to ask - it is not enough to say everything is tax free. If that is the actual case, prices cannot be the same in other countries - It defies economic logic. The question is what do you regard as tax?
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        Aug 13 2012: Well in the era of globalization when corporations are trying building Global brands keeping price parity across the geography despite all differences in tax , duty structure is one of the important issue to be taken care of to prevent parallel trade or smuggling.......

        However let me clarify more Saudi example.....while you are proposing for waiver oif corporate tax ...I was talking about all taxes on products of services....e.g. VAT, Sales Tax, Customs Duty etc etc..... sorry for mixing up.

        What I know Saudi does not impose any qouta or tariff on any products. Moreover the companies there are predominantly Saudi owned (powerful ones) , so I doubt of exitance of any corporate tax ......as the King has enough money from oil to run meager expense for people at large.
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          Aug 14 2012: Good. When you said "in Saudi everything is tax free, but the price of the goods of same brand are same like any other countries" it meant corporations are making more money by not reducing prices to provide the tax paid in other countries to consumers in form of cheaper goods. It is not possible in the technical sense, for that to be the case, because if the profit margin is wide more capitalist will come into the business hence competition will drive the price down.

          So, in a technical sense, it is impossible for a tax free country (practicing free trade) to buy products with the same price as those of taxed countries.
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        Aug 15 2012: Technically impossible things are possible also....the proof is me....I bought few things in Saudi considering prices should be cheaper than other countries but found it's same.

        What about the practicle issue of parallel trade or smuggling due price disparity in neighbouring countries for global brands?

        Some exceptions are there also like Cars , are much cheaper . May be it is due to the reason , parallel trade or smuggling of Car is not that easy or feasible
  • Aug 11 2012: I do not think this works out. See, corporations can't raise product prices endlessly, at a certain point they got to touch their gains they made to pay taxes, they can not put that on the customers shoulder one on one. Thats why corporation taxes are used. Also, its just fair to do it that way.

    Corporations, big or small, are using the given infrastructure, which has to be build and maintained. These cost are carried by the public anyways, but forcing corporations to give a little of their gains makes it more balanced.

    And you can be sure that prices will not go down because of tax experiments. Taxes are more or less fixed, but prices jump up and down almost on a daily basis. You do not pay the product price plus taxes, you pay product, taxes and desired gain.
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      Aug 11 2012: You said "corporations can't raise product prices endlessly, at a certain point they got to touch their gains ... to pay taxes". Let us work with this for a moment. Meaning corporations really pass the cost to consumers up to a certain maximum limit before it touches on profit. We are saying precisely the same thing - what if it doesn't get to the maximum point? You must agree, based on your presentation, that the first bus stop is that of the consumers - hence corporation taxes are paid by consumers.

      But the truth is that there is no maximum point. There are two ways of getting around this - it is either an increase of prices or a reduction in quality. Take a bakery that wholesales a loaf of bread for 80 dollars - and the cost of production is, say, 70 dollars. The profit margin is 10 dollars. An increase in taxes will either lead to an increase in the price of the bread to 90 dollars or a decrease in the cost of production to 60 dollars. Normally the economist is interested in price increase but there is another story (i.e a decrease in production cost) - hence we are paying more for a comparatively lesser product.

      The distinction you have to make is between who writes the cheque and who fundamentally bear the cost. It may well be that an employee from a corporation writes the cheque but he doesn't pay it. Who pays it?

      You cannot tax Corporations because it’s a non-human institution. What you must talk about is the people involved; using a broad term conceal the fact that it is really a tax on us. This is not only based on logic there are careful studies demonstration this.

      But again, if your goal is to tax the business owners then you can do it directly from their earnings this way the consumer knows exactly what he/she is paying for.

      Prices go down when there is a reduction in tax - in a competitive industry. There is, for instance, a price war between supermarkets hence a reduction in, or elimination of, corporation tax will drive the prices down
  • Aug 11 2012: Maybe the middle class and poor taxpayers should have their taxes increased and increase the current government subsidies to big, profitable businesses such as EXXON. Maybe unemployed people can find some money to contribute to larger bonuses for the incompetent managers and owners of General Motors. I think hedge fund managers on Wall Street can use more money in their paychecks and bonuses which can come from decreasing funds for schools and infrastructure repair and maintenance. I think the top 5% of wealthy people in our country obviously need more money because, after all, new car models and new airplane models are coming out and they can always use a new mansion. Also, perhaps we should lower the minimum wage so that the top 5% will not have to pay so very much money to their maids, servants, chauffeurs, hair dressers and others who serve them. I guess you think EXXON shareholders need more money, right? Please describe the difference between slavery 500 years ago and slavery today. I wonder how many ways you can come up with to keep the majority of the population down and to lift the tiny minority of the population that is already up higher than they are now. I agree that TRUTH would be valuable in getting things right in the world. Let's begin. 10% of the price of a car goes to labor, Please continue. If the 5% at the top and the corporations, e.g., EXXON, GE, are controlling the "elected" officials, I wonder how those tax loopholes and taxpayer subsidies to big business can be erased. The power has been stolen from the voters. I wonder who will select the next President of the USA.