Objectivism & Libertarians
The Philosophy of Freedom & Its Practitioners
Who is John Galt?

There is a mythology that businesses pay taxes. This is a myth used by politicians to play [and prey] on the ignorance of their victims to tolerate ever higher taxation of their income, property, etc. The ignorance is a product of poor to non-existent education regarding the nature of basic economics and lies by politicians whose aim is anything but the benefit of society at large.

Consider what it takes for a business to bring a product or service to market.

If a man (or group) develops an idea for a product they wish to attempt to sell in the marketplace, there are certain things they must achieve in order to realize their vision.

First and foremost, they must be able to produce the product. To do so requires capital (monetary) expenditures for a facility and materials necessary for said production efforts. They must also procure labor to facilitate the manufacturing process and the means for delivery of their product to the customer. The customer may be either the consumer directly, a reseller (retailer or another business whose business is selling) or both.

All of these needs incur costs which must be recovered if the business is to survive. The very worst circumstance the business can tolerate is the break-even situation, i. e., revenues from sales covers all costs but does not provide any economic reward for the efforts involved.

Human nature being what it is, such a situation does not provide the incentive to perpetuate a business operating on such a fine line. In short, if the owners are not receiving revenues adequate to provide themselves some financial gain, they are disincentivized to continue their pursuit.

To identify some of the costs with specificity, let us consider what is required to establish and operate a simple business:

As one might construe from the above specification, anything that incurs costs to the manufacturing process must be considered in the cost of the product to the end consumer. That end cost to the consumer also includes a markup which is the profit, i. e., the incentive for the business operator(s) and investor(s) to pursue the sustenance and perhaps expansion of the business.

Another factor that is subtle is the cost of maintaining financial records, accounting. Typically, this is achieved in smaller businesses by hiring a firm whose business is accounting. These people have access to the company’s revenues and expenditures. They track the company’s transactions and provide a status of the company’s fiscal health, i. e., is it collecting revenues sufficient to keep the business operating and growing.

The factors identified here are all factors which contribute to the value of the product, i. e., to deliver to the consumer a product he wants at a price he is wiling to pay. The accounting costs, while not adding to the value of the product per se, are necessary to provide and maintain a record of the company’s economic health. This does, then to a degree, contribute to the value by providing the data to assure the company’s solvency and thus the sustenance of the business as a viable entity over the long haul.

Consider now another cost which is very real but, while increasing the cost of the product, does not increase its value. That cost is taxation.

For example, the facility is real property (real estate). This almost certainly guarantees that local and state authorities exact a fee in the name of property taxes. These taxes are figured into the rent charged if the property is leased or rented. It is figured into the monthly mortgage payments if the property is purchased. Regardless of the specifics, however, the taxes paid are figured into the cost required to produce the end product and thus increases the price which must be recouped from the consumer to keep the business operating.

In order for a business to sustain its operations, it must produce enough profit to serve as an incentive to its owners, operators and investors or they will abandon the pursuit. If the profit margin diminishes, the owners, operators or investors are motivated to seek a more rewarding (profitable) venue.

In light of this knowledge, consider the effect of imposing a tax on the company’s earnings, i. e., its profits via an income tax. The profit margin diminishes or disappears unless the revenues increase. Revenues can increase by either or both of two means: reducing costs or raising prices of the end product. In general, the cost of materials do not become cheaper as time progresses. Occasionally, finished goods used in the manufacturing process may. But more often, increased costs must be compensated by increasing the end cost to the consumer.

There are things that can affect the cost and value of the product in a beneficial manner. For example, finished goods used in the product may be improved or made cheaper by improvements in the manufacturing process by the supplier. New machinery used in the manufacture may speed up production or reduce the need for manual labor involved in the manufacture of the product.

A tax on profits, i. e., confiscation of the company’s earnings by political will, is an increase in the cost of doing business which does not add value to the product. In fact, it diminishes the value of the product because it adds to the cost without a corresponding improvement in the product. This taxation, then, becomes a new cost which is passed along to the consumer who ultimately pays the tax in the form of a higher wholesale and retail price.

There are also subtle ripple effects that are easily missed by the uninformed or ignorant consumer. Presuming the item sold is subject to a sales (consumption) tax, the higher cost of the item dictated by the taxation levied on the business results in a higher sales tax collected at the point of sale. Another of these hidden costs comes in the form of accounting services required as a normal course of business operations. The finances of a company require accounting procedures to maintain an awareness of the fiscal health of the company. This involves collections of payments due and the payments of bills the company incurs as a matter of the normal course of business.

As taxation becomes a part of the picture, additional accounting procedures are required to collect and administer the portion of company monies going to pay the taxes. This requires added procedure which requires additional man hours by the accounting staff, and thus another (hidden) cost incurred in the course of normal business operations.

Consider another factor. With the implementation of the Personal Income Tax and the concomitant withholding, Social Security. Medicare and the myriad of other items withheld from the paychecks, the accounting efforts and complexity becomes even more time consuming and thus more costly. Thus, the cost to the consumer is in fact considerably greater than to actual tax imposed on the business because of the additional hidden costs.

And to provide some insight as to the utterly ridiculous nature of political thought, California had (and may still have) an inventory tax! This idiotic tax is imposed annually on a company and is based on the company’s on-hand inventory. It is the utter arrogance and stupidity which could only be rationalized by a politician that it is somehow beneficial to exact a fee on a company for having inventory on hand. What is the incentive nature of this idiotic tax? It motivates a company to reduce its inventory prior to the imposition of this moronic tax purely to avoid the increased cost incurred. The corresponding effect is that it makes the availability of products to the public restricted during this pre-tax imposition period as well as an overall increase in the product cost.

In light of the reality of business operations and the imposition of taxation, it should be painfully obvious that business taxation is just another hidden cost passed along to the consumer. Yet politicians routinely play on the ignorance (and malice?) of their constituents to garner support for their incessant increasing of the tax burden on the average man with his full support born of ignorance.

At this point, if you have begun to grasp the reality of government imposed taxes, you should already have begun to realize that when politicians in their magnanimous generosity (with other peoples' money, of course), by mandating that an employer provide health insurance and other benefits for employees paid by the employer that government is once again forcing up the cost of doing business and thus increasing the cost to the consumer by such generosity.

If you are really beginning to grasp the overall effect of such irresponsible actions on the part of politicians who probably, based on observation of their behaviors, have little grasp of an economic system, are actually hurting those whom they inevitably contend they care for so intensely, the poor.

The reality is that by imposing all the additional costs on the business to meet the irrational feel-good mandates of the all-caring politician, they are forcing the cost of the goods these same people will be purchasing. Thus while proselytizing how they are helping the 'little guy', 'the poor', 'the underprivileged', etc., the truth is their actions are actually hurting him financially by increasing the cost of the goods and services he buys.

These cost increases also impact the wealth but not nearly to the degree they impact the lower income strata since the wealthy have a greater margin of discretionary spending capacity. For example, increasing the minimum wage may appear to benefit the McDonald's worker if one ignores all other consequences of the irrationally mandated increase in wage.

But the reality is that the increase wage is not the result of increased productivity of the worker. Instead it is the result of a political fantasy. The truth is, the coerced wage increase results in an increase in the product cost to the general public at large which includes the minimum wage worker. This in turn increases the cost of the very product he produces if he patronizes his own workplace.

Politicians rely on a grossly misinformed or uninformed public to sell the tripe they do and the public education system is a primary means of perpetuating the ignorance required to maintain the status quo for the politicians.

The politicians’ success is based on a cultivated attitude of malice and greed, i. e., the desire for the unearned benefit, by asserting that the alleged benefit they seek to bestow is not to be paid by the average person, but by the rich, evil, exploitive businessman, the bogeyman of the politician who is far more often responsible for the ills of society.

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