Taxes   September 20, 2012

Being that it is election season, a lot has been said about taxes recently so I'm going to thow in my 2 cents.

Let me give you some context. I have owned several businesses for over the last 20 years. A couple were in this country and one was overseas. I know a lot of current and former business owners, some successful, some unsuccessful, some too early to judge, and some ridiculously successful. I gre up middle class. I have lived below the poverty line and I have lived well. Politically I am an extremist, on some issues extremely conservative and on some extremely liberal. Occasionally I am in th middle but not as often. So I am not tied to either party, I dislike them equally.

I don't think raising the top income tax rate will decrease business activity. Certainly raising the tax rate for pro athletes, entertainers, corporate executives, etc will not. But even raising the tax rate on business owners will not in my opinion because if anything it gives them more incentive to reinvest their earnings back into the business so that it is not taxable.

And I don't think that raising the rate on investment income will decrease business activity unless there is a lower rate for investments in companies that operate only in the USA. People who have money to invest are going to invest it regardless of the tax rate they pay on their earnings.

The think the Republicans are simply wrong about this. But they are not the only ones who are wrong.

The taxes that inhibit business activity are actually the TAXES ON BUSINESS ACTIVITY, for instance the taxes that you pay for having employees.

There are plenty of things that we can and do tax. If we want more employment I can't understand why we make businesses pay taxes on their employees-but only employees in this country. We want businesses to invest in assets to be more competitive or to compete in industries of the future but then we tax those assets-but only if they exist in this country).

And the amazing thing is that many of the payroll taxes are a regressive tax in that you pay a lower rate for high salaries than for low salaries. So not only does our government make business pay taxes for having employees, they pay higher taxes for having a lot of low or middle income salaries than they do for having the same payroll but with fewer workers making ridiculously high salaries. And my observation is that when a business does go out of business it is more often than not these kinds of taxes that ultimately shut them down.

You'd think that any scheme that rewards companies with fewer high income workers or for hiring or investing in assets overseas must be a Republican plan. You'd be wrong. The Democrats are responsible for this and they are wrong also. Maybe more wrong than the people who believe in supply side economics.

Obama temporarily reduce the payroll taxes as part of his stimulus in an attempt to spur hiring, so it is not just my opinion. But if he believes that payroll taxes inhibit hiring then why is the reduction temporary? Why do we tax it at all? As I said, there are plenty of other things we can and do tax already.

The answer of course is that our elected officials are primarily concerned with what gets them elected, not what actually benefits the people they represent. And I guess one can't blame them because if they do what was best even if it was unpopular we will replace them with someone who will give us what we want even if it is not beneficial.

We have found the enemy and he is us.
The only popular tax is a tax that someone else pays but not me. Taxes on businesses are very popular because they don’t vote. But a business can’t really pay a tax, only people pay taxes.

Imagine if someone suggested that we will raise property taxes but not to worry, you don’t have to pay the tax, your house will pay it. We would all laugh at the stupidity. My house is an inanimate object. It has no money of its own. Obviously the tax will be paid by a person, the owner, the renter, someone.

The same is true for a business. It is an inanimate object. A corporation or a partnership is just a legal construction that lets people pool their assets in order to engage in a business activity that none of them could afford to do individually. A tax on a business is going to be paid by people, owners, employees, customers, vendors, someone. Probably all of us will contribute a little. And taxing business activity that occurs in this country makes or products and services less competitive compared to products and services from other countries.

One of the undeniable rules of the universe is that you get more of the behavior that you reward and you get less of the behavior you punish. It does not matter if you are training an animal, raising or educating a child, gardening or taxing. Our politicians obviously believe this or they would not use the tax code to encourage people to do things like get a college education or energy efficient improvements. And they would not use the tax code to discourage things like smoking or drinking.

If we want more business activity in this country we need to tax it less. If we want a lot more business activity we should stop taxing it at all. There are plenty of other things we could be taxing or could be taxing more heavily.