Taxes Made Simple | Part I, from the Guest Author

taxesTaxes. It seems it’s the topic of the day. As the United States nears Election Day it’s the hottest topic on the table. While I don’t pretend to be an expert on economics I do own a business, which means I employ people {families}—which means I pay business taxes. So I do know a few things. I hope to share some simple principles about a topic that is discussed, explained, over-explained, not explained … but mostly not understood.

There are two basic types of taxes.
There are two basic types of taxes. The first is equally given to both rich and poor—these are often referred to as regressive taxes. Examples are sales tax, taxes on cell phones, gasoline, etc. The other type of tax is called a progressive tax and these taxes affect the wealthy more than the less affluent. Income taxes in America are progressive. Thus, the income tax rates increase as one’s income increases.

A favorite way to raise tax dollars is to tax business instead of individuals. It allows us to feel like we are taking money away from the rich people who own the business instead of the working class.
Unfortunately, this is merely an illusion. When taxes are raised on any business, it is simply added to the cost of goods or services created by that company. This means if the company creates something that is used by all people {families} within a society, then all people pay that tax equally. If we are honest, we quickly realize that business tax is a regressive tax.

Business taxes have another negative impact.
If businesses have to raise their prices on goods due to higher business taxes, another country with a lower business tax can easily compete and make the same product for lower cost.

Tax Preparation

Higher priced products made in America compared to the same product made in the foreign country with the lower business tax means our products can no longer compete in the international market place.

And here the dominoes begin to tumble. This decreases the number of American products sold abroad. A decrease in American products means a decreased amount of American workers {American families} needed to make the product. A decrease in the number of American workers needed ultimately decreases the number of jobs to make those products within the United States.
And I don’t need to explain what unemployment is.

But the tumble continues. With this unemployment there is ultimately decreased tax revenue that generated here in the United States. The increased revenue could not just return us to a robust economy but could fund our government and all of its programs.

Another unfortunate by-product of high business taxes is that it encourages companies to report profits abroad. In addition, our high corporate tax rate compared to the rest of the world encourages companies to move their corporate headquarters abroad. This again decreases income reported in the United States that could be taxed. Plus, having a headquarters located overseas decreases employment within the United States. The headquarters employs workers {families} from their location.

General Mills/Headquarters #1

I realize that it’s nice to feel like you are “sticking it to the rich guy” who owns a company {families}. Unfortunately these taxes have the exact opposite result.

If you ask me, this is an attack on free-market principles that will lose. And who stands to lose the most? For starters, try the middle-class. Without a strong middle-class we cannot sustain jobs to provide for our families. What will this do to lower-income families? What happens to the opportunities for our children? Without the revenue for the government what happens to the poor, the elderly, and the handicapped?

So again, who is the real loser?

Elderly Timorese in Suai Loro

How about our entire future?

Thoughtfully,
Steve

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All photos courtesy Zemanta

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