You Do, That’s Who

Every business in America is keeping a remarkable secret that few people believe and even fewer understand. Not one of those businesses pays a penny in taxes, not a single solitary cent. The notion is stunningly simple: Businesses don’t pay taxes because people do.

By way of background, there are roughly 30 million businesses in the United States. Some of those businesses are enormous, such as Facebook, Amazon and Hilton Hotels. However the vast majority of them are small. There are approximately 23 million sole proprietorships in our country, and many employ just one person, namely the owner.

Businesses pay taxes differently than the average person. Here is how it works: Taxes constitute an expense and are really no different than rent, labor, broadband, phones, and lowly extension cords. When the taxman demands his (or her) largess, that money comes directly or indirectly from people.

The Taxman Doesn’t Care

Slimy politicians lie when they claim that new programs will be painless since they’ll be funded by new business taxes. Every business collects the money to pay new taxes in at least one of three ways. Each one of them leads back to individuals: employees, consumers, and investors.

Politicians arguing for higher business taxes are harming tens of millions of average Americans.

Employees are the first group to chip-in to pay for higher business taxes. Salaries and benefits collectively are by far the largest expense for most businesses. To come up with the money needed to pay new taxes, businesses are often forced to delay raises, lower 401(k) contributions, cancel bonuses, or reduce headcount.

Each one of those choices is gut wrenching for owners and managers. Each of those actions is terrible for the morale of the business. More importantly the terminated employees and their families are devastated. The tax man doesn’t care.

The Inflation Factor

Customers are the next victims of higher business taxes. In 70 percent of the US economy, that means American consumers pay for new taxes through higher prices. Hiking business taxes leads to price increases at the gas pump, a larger bill at the grocery store, and less disposable income for some of the niceties of life.

Companies that don’t sell to the consumer market peddle products to other firms, but the same process applies. Suppose a farmer buys a new John Deere tractor, for example. He accordingly has to charge more for his crop. That increase gets down the line until it shows up at the grocery store. Eventually, the consumer always picks up the tab.

Finally, the last victims of higher business taxes are business investors. That number is much larger than most realize. There are approximately 130 million people working full time in the US. And according to the Pension Rights Center, 55 percent of both full- and part-timers participate in some form of workplace retirement plan.

As profits become siphoned off to pay new taxes, those investors receive a lower rate of return. Stock prices flatten, dividends may be lowered, and the nest egg people were relying on to fund their retirement may no longer be adequate. Seniors are the most vulnerable since their earning years are usually limited or in the past.

Few Business Owners are Wealthy

Super-wealthy businesses make the most news because they are rare. Most business are not immensely profitable. The average grocer earns just one percent profit, restaurants make around two percent, and gas stations make about three percent.

Those small profit margins are why just 50 percent of new businesses survive to the five-year mark. Despite the long odds, small businesses created an estimated 62 percent of new private-sector jobs following the 2008-2009 Great Recession. Higher taxes kill jobs and make it harder for business owners to succeed.

Politicians arguing for higher business taxes are harming tens of millions of average Americans. That misery arrives in the form of lost jobs, increased prices for life’s essentials, and weak economic growth. There is simply no free lunch.

Some politicians don’t understand the basic economics of running a business. Others simply don’t care. They just want your money. Regardless of the political rhetoric, taxpayers need to understand one very simple fact: Businesses don’t pay taxes, people do.