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Taxing business 101

By George Baumler

   As the KY legislature gathers to "modernize" our tax system, they should be watched carefully, to make sure they aren't selling the "old tax business" snake oil.  To the unsophisticated, taxing business, especially big (Read profitable) business or corporations, seems at first glance a way to avoid paying for government services or entitlement programs out of their own pockets.  While this rhetoric is good for hoodwinking the uneducated, it does not bear up well under even casual inspection -- its flaws visible to all but the densest.  Those who advocate such schemes are well aware, as educated men or women, that what they are doing is tantamount to smoke and mirrors, and they assume that there aren't enough libertarians around to challenge the "something for nothing" fraud.  

  First of all, it is not possible to tax a business; a business can only be made to collect taxes for the government.  A business gets the money for the taxes by charging more for the goods or service that it produces.  There is no magic cash register that a business possesses that the owners dip their hands into and pull out wads of cash for the tax.  The tax is paid by the customers in the form of increased costs of goods or services.  On the surface, even this seems like not so bad a deal to someone looking for a free lunch. 

"There ain’t no such thing as a free lunch."  Though grammatically atrocious, the old saw is none the less accurate.  As the price of the products of the business escalate, a couple of things come into play.  One should be obvious; as the price increases, the demand falls, and the law of diminishing returns has its day.  As demand decreases, the need for production also falls, and the need for personnel with it.  (Read layoffs and downsizing)  Another drawback is the increased viability of competition not subject to the tax.  (Read out of state or foreign companies.)  Suddenly it become financially rewarding to ship an item, once made down the street, from halfway around the world.

  Of course, the smiling Jacks who sell these schemes are well aware of the consequences.  They're educated folks, which makes them all the more sinister.  They do not even have the cover of ignorance as an excuse.  What they do, they do with the full knowledge that the costs will be ultimately paid by you.   

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