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A Tax on Business is a Tax on Consumers

August 3, 2009 - 9:25pm
Nick Coons by Nick Coons


All taxes imposed on business transactions ultimately hit the consumer's pocket. Regardless of this economic truth, it's always popular to recommend hitting businesses with the burden of pulling our weight.

Last year, the catch phrase was "windfall profits tax" when it came to the oil industry (care to guess who made "windfall profits", the oil industry or government, as a result of high prices?).  This quickly went away as market forces in the form of low demand forced prices back down.  This year, politicians want to put the cost of health care on businesses.  Nancy Pelosi has suggested adding an 8% payroll tax on businesses to cover the cost of a government-funded health care system.

Businesses are economic machines.  Their purpose is to produce so they can earn profit.  The fact that other businesses exist to compete with them keeps them in line (as long as they aren't granted government favors).  Most businesses realize fairly slim profit margins.  Huge profit margins means they are either charging consumers too much or not paying employees enough, and they'll lose consumers/employees to competition.  So when their expenses go up, those funds have to come from somewhere, and usually it comes from the consumer.

Sales tax is an excellent example of this.  In Arizona, and in other states, our sales tax is a tax on businesses, not on consumers.  The state and local authorities collect sales taxes from businesses, usually monthly, and they require that businesses pay these taxes as a percentage of their gross taxable sales, whether or not the business collected the tax at the point of sale.  In other words, the business doesn't have to charge you sales tax, they are only required to pay it.  As we all know from experience, businesses don't simply "absorb" the cost of the sales tax, they pass sales taxes on to consumers.

If a business has a new tax to pay, then they have either a new charge to the consumer, or a new wage-cutting measure to implement.  In either case, politicians have hurt those that they say they've intended to help.

Related Content:

Do Rich/Wealthy People Deserve Tax Breaks? - Nick Coons
"Windfall Profits" Tax Cause Price Increases - Nick Coons
Who Cares If Production Drops? - Nick Coons

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