Each April our thoughts turn to the coming of spring and thecoming of the tax man.I hear a lot of people complaining about taxes at this timeof year. Not just that they have to do their taxes andspend hours pouring over old records and trying to figureout indecipherable forms, but also musings and opinionsabout taxes in general.I often hear the opinion expressed that businesses, propertyowners and "rich people" do not pay their fair share oftaxes. And I agree. I agree that they don't pay their"fair share" as defined in most people's minds. But I alsothink that in certain circumstances, these businesses andpeople shouldn't have to pay any taxes.That may sound a bit radical for many people reading this,but allow me to explain my reasoning.First, why are we taxing businesses on their profits?A business exists, whether it is a sole proprietorship or alarge international corporation, to make a profit. Peoplecreate businesses and invest in stocks with the idea thatthey will get a share of the profits. This is the basis ofour system of capitalism. It is the motivation for a freemarketplace and private ownership of property.Why would anyone go to the trouble of starting a businessunless they expected a significant return on theirinvestment of money and time? Why would you bother buyingstock in a company if the company never gave you anydividends (yes, stocks can appreciate, but bear with me)?There comes a point when deciding where to invest your timeand money that you have to figure out how much return youneed to make your effort worthwhile. If you work at a joband earn $30,000 a year, how much will your business have tomake to replace your income? How much more do you want itto make for taking the risk of quitting your job andbuilding a business?If you can't make much more than the $30,000, it hardlyseems worth it to spend all the extra time and take theextra risk of starting the business. So let's say that youfigure you can earn $50,000 with your b usiness. And that isenough to take the risk.But now the government comes along and tells you that youhave to pay $7,000 in taxes on your $50,000 business profit.Now you have a choice. Live with less or increase yourbusiness income. Living with less defeats the whole purposeso let's look at increasing your business income.You can either increase your business income by getting moreclients, selling more goods or raising your prices. Whenyou are in a less competitive market, raising your prices isthe easiest thing to do. So you raise your prices. Now youare earning the $50,000 you wanted in the first place andyou have effectively passed your business taxes on to yourcustomers.But not only are your customers paying a higher cost foryour product or service but they may also be paying more insales taxes. They get a double-whammy. If your customersare businesses, they will pass on their increased costs totheir customers. This cycle continues until the cost ofevery business' taxes a re eventually passed on to theconsumer - me and you.Let's look at a specific and simpler example of how thisworks. I know a person who owns some rental units. Thecity in which they are located passed a tax on rental units.Some politicians and local activists were anxious to punishthe "gouging landlords" and "rental robber-barons". Theyfigured that they could play Robin Hood and redistributesome of the rich landlord's profits to the "needy".Now my friend's costs have gone up. So what did he do?Naturally, he raised the rents to cover the cost of theadditional tax. And since it is easier to accept areasonable rent increase than to move, his tenants stayedput and paid more.Ironically, most of his tenants are the same people who thepoliticians and activists consider the "needy". So now thegovernment takes an extra $20 a month out of their pocketsthrough the "tax on the landlord".If the tenant is on an assistance program they may get someof this money back. Of course the amount th ey get back willbe reduced by expenses and administrative costs for thegovernment to collect, control and distribute the money.So who really paid for this tax? The landlord? No, in theend it is always people - you and me.All taxes are paid by the citizens themselves, regardless ofwhether they are paid directly, as in sales and incometaxes, or through increased prices of products and services,or through "fees" imposed by governing agencies. How doesyour car registration "fee" differ from a tax?Not only does each citizen directly or indirectly pay everypenny of tax money that is collected in this country, butmost people's perception that the "rich" and "corporations"don't pay their "fair-share" is accurate.These people and businesses can afford to pay an attorney$10,000 to show them how to save $500,000 in taxes. Mostlikely, you can't. The tax laws are made with loopholes forthe "rich" and for certain businesses.Part of this is because it is these people who own orcontrol the majority of the property in this country. Andno progress can be made with out a significant investment ofcapital. If these people and businesses are given the rightreasons to invest their capital (such as tax breaks) theeconomy will continue to function and grow.If they are overburdened with taxes they will either move toBermuda or start a cycle of inflation by raising prices.Either way, you, Joe Citizen, will end up paying more eitherdirectly in the form of taxes or indirectly as your cost ofliving increases.It is a double-edged sword. Joe Citizen wants "rich people"and businesses to pay their fair share (though Joe does notrealize that he ends up paying it anyway) but the governmentknows that they can't kill the golden goose (and the economyneeds a good "goose" every once in a while).So tax laws and regulations are passed which seem to targetthe "rich people" and businesses but with enough loopholesso that no real tax increase occurs. And the politicianscan blame the other party for the loopholes. But both knowthis is business as usual.Make Joe Citizen feel good about paying his taxes by raisingtaxes on the "rich" and "wealthy corporations", but givethem loopholes so that little more is accomplished thanadding another volume added to the tax code.And Joe Citizen continues to pay his taxes each year.
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