Posted on by Art Powell

Firms avoiding the payment of income taxes are good for headlines, but if we had a truly competitive market economy, the taxation of corporate profits would not be an issue because there would be no profits to tax.

Some people think profits are a divine right for entrepreneurs and shareholders and others see them as evil. I see them as an indication of the extent to which our so-called market economy is not performing the way we like to believe it does.

In a market economy a firm making profits is a signal for others to get into that field. Competition will then force prices down till an equilibrium is reached at which there are wages and a return on investment but no profits.

Generally, the owners of businesses want to limit competition to make as much profit as they can. The most effective way is to get governments to pass legislation which restricts competition. Governments are usually willing. It is an easy way to repay obligations to supporters. Licensing, trade restrictions, subsidies, copyright and patents all restrict competition. The result is that consumers pay more than they should and firms make profits. During the recent golden age of prosperity most people didn’t notice but now that things are much tighter we are noticing growing inequality and the disappearance of the middle class.

I think there is a pattern here. Firms get legislation to limit competition and when the profits become too much for people to accept the calls for reform result in regulations. As corporations have more lobbying power than consumers the regulations, if anything, restrict competition even more.

As profits result from a lack of competition the extent to which firms make profits are an indication of the extent to which we do not have a market economy.

If we really believed in economic equality and if we really want to limit profits we would repeal legislation that restricts competition.

If you like this post you are invited to comment, press the like button and/or click one of the share buttons. If you disagree you are invited to say why in a comment. While I like the idea of sharing this platform, my personality is such that I don’t reply to many comments.

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Filed under: Economics | Tagged: competitive market economy, corporate profits, Economics, equality, income tax, market economy, minimum wage legislation, taxation |