Taxes, Taxes, Taxes: Who Really Pays The Most?

By David Berky

Each April our thoughts turn to the coming of spring and the coming of the tax man. I hear a lot of people complaining about taxes at this time of year. Not just that they have to do their taxes and spend hours pouring over old records and trying to figure out indecipherable forms, but also musings and opinions about taxes in general.

I often hear the opinion expressed that businesses, property owners and "rich people" do not pay their fair share of taxes. And I agree. I agree that they don't pay their "fair share" as defined in most people's minds. But I also think that in certain circumstances, these businesses and people shouldn't have to pay any taxes.

That may sound a bit radical for many people reading this, but allow me to explain my reasoning.

First, why are we taxing businesses on their profits?

A business exists, whether it is a sole proprietorship or a large international corporation, to make a profit. People create businesses and invest in stocks with the idea that they will get a share of the profits. This is the basis of our system of capitalism. It is the motivation for a free marketplace and private ownership of property.

Why would anyone go to the trouble of starting a business unless they expected a significant return on their investment of money and time? Why would you bother buying stock in a company if the company never gave you any dividends (yes, stocks can appreciate, but bear with me)?

There comes a point when deciding where to invest your time and money that you have to figure out how much return you need to make your effort worthwhile. If you work at a job and earn $30,000 a year, how much will your business have to make to replace your income? How much more do you want it to make for taking the risk of quitting your job and building a business?

If you can't make much more than the $30,000, it hardly seems worth it to spend all the extra time and take the extra risk of starting the business. So let's say that you figure you can earn $50,000 with your business. And that is enough to take the risk.

But now the government comes along and tells you that you have to pay $7,000 in taxes on your $50,000 business profit. Now you have a choice. Live with less or increase your business income. Living with less defeats the whole purpose so let's look at increasing your business income.

You can either increase your business income by getting more clients, selling more goods or raising your prices. When you are in a less competitive market, raising your prices is the easiest thing to do. So you raise your prices. Now you are earning the $50,000 you wanted in the first place and you have effectively passed your business taxes on to your customers.

But not only are your customers paying a higher cost for your product or service but they may also be paying more in sales taxes. They get a double-whammy. If your customers are businesses, they will pass on their increased costs to their customers. This cycle continues until the cost of every business' taxes are eventually passed on to the consumer - me and you.

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