Tax or Not to Tax, that is the Question

Seems every time we turn around someone is looking to tax someone or something. There is currently talk of increasing taxes on businesses and corporations. We are being told that the individual has had enough and businesses need to contribute their fair share to the tax roles. Personal taxes have overwhelmed the family. It’s time for big business to pay what they owe society.

Hold up there! Before you get your knickers in a twist, let’s give this thing a good going over.

Businesses serve two basic purposes; 1) offer a quality product desired by a group of consumers; 2) return of profit to the owners/shareholders.

1) Let’s be honest if you make or supply something nobody wants, you won’t be in business for long. The product has got to come with a quality standard that makes it desirable or competition will muscle in on your action.

2) Businesses need to turn a profit for many reasons but the key reason is a return on investment for the owners. They put a lot of hard work into the business through earned cash or sweat equity. They are looking to be rewarded for the effort and profit is the reward.

If you make a quality product, and offer it at a fair price, customers will buy it. The balance comes in keeping the costs of making this product down so that a profit will remain in the end.

So how does all that happen?

Competition in the market place usually controls the final price so the secret lies in getting the product marketable. There are three key variables, labor, raw materials and profit. Labor includes facilities and people. I am not aware of any company that is so completely automated that no people are involved. Raw materials go into everything even service related products. Finally, there are profits. Profits are the lure that bring in capital investments and allow for growth. No matter what part of your business needs improving, nothing will happen if you can’t show a way to return the investment. So profit ultimately means life for the business. If profit is reduced then investment capital is hard to come by. If profit goes up, investment capital finds you.

Given the fact that the final price is fixed by the competitive market, when a new expense is added into the business variables, how does it balance out? With what you know about profit as the life blood of the business, it’s going to have to come from one of the other two.
So do we cut facilities and labor? Most facilities are long term investments and generally won’t work to facilitate a sudden expense. Labor is a day to day expense and tightened controls and reduced costs in this area usually become a primary focus.
Raw materials are also chosen to deal with the new expense. We find lower quality or cheaper cost goods to make our product. This often hurts the final product and reduces customer appeal. Great care needs to be taken when changing raw materials.

If luck should come our way, all our competition will also face the same expense increase and we simply have a rise in the cost of product. This becomes a neutral occurrence on the balance ledger.

Get to the Point already.

Taxing a business is simply adding another expense. This new expense generally hurts the little guy by lost wages or unemployment. If the price is increased, then it hurts the customer. You and I are the customer; we are the “little guy”. One way or another, this tax becomes an increased personal expense for you the individual through higher cost of goods or increased social services. Let’s also notice that this indirect tax usually comes with a lot of handling fees along the way that further adds to the burden.

Taxing business is an indirect tax on you and me. I think I pay enough personal taxes, what about you?

Should business be taxed? I’ll let you ponder this question for a while.

Originally posted 6/05/2006