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Letters by a modern St. Ferdinand III about cults

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Plenty of cults exist - every cult has its 'religious dogma', its idols, its 'prophets', its 'science', its 'proof' and its intolerant liturgy of demands.  Cults everywhere:  Corona, 'The Science' or Scientism, Islam, the State, the cult of Gender Fascism, Marxism, Darwin and Evolution, Globaloneywarming, Changing Climate, Abortion...

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Saturday, November 4, 2006

Abolish Corporate Income taxes

The country that does will sprint ahead of the competition

by StFerdIII

There are very few people who defend the rights and interests of businesses. Most politicians outside of the USA engage in socialist-statist demagoguery with unrelentingly mindless attacks on ‘evil’ corporations. Since most business creations are small and medium sized businesses [about 2/3 of the total] the populist anger and attendant costs directed at businesses are in effect thrust upon entrepreneurs and small firms that employ a vast amount of people. Even beyond the immorality of such Marxist posturing there are concrete reasons why taxing any business, at any corporate tax-rate, is self-defeating and stunts economic, wage and standard of living growth. Simply put, corporate taxes must be abolished.

Consider for a minute what a corporate tax means. To the statists and demagogues business profits must in part be confiscated by the state to provide governments with monies for various purposes. Most of the money spent in the welfare state has little to do with the primary responsibility of governments; security, defense, legal protection, and immigration. Instead over 70% of all monies collected by governments in the form of taxes are given to various interest groups in society depending on region, income, race, minority status, or some other alleged grievance. Over taxation and big government is what ails our society.

Yet even beyond the dysfunctional welfare state and the inanity of redistributing income one can go further and outline three concrete reasons why taxing business is not only immoral but damaging to the economy and to individuals.

First: A tax on business is another cost and this cost has effects. Consumers will pay higher prices for products or services. The business’s employees will receive lower wages and the corporation's stockholders will witness a lower rate of return on their investment. A business income tax is harmful to production, to purchasing power, and to investment.

Second: A tax on corporate profits distorts the marketplace and impedes managerial judgment on real inputs and outputs. By distorting a market, clear analyses of what is the optimum level for production and distribution of products and services is eroded. The larger the tax, the greater the distortion and the greater the risk of having an unstable and unfair market place. A simple example would be wage and payroll taxes. By driving up the costs of businesses locally, foreign firms shipping into the market will receive an advantage forcing the local business to consider offshoring its production. At this stage the politicians and media will wail about ‘jobs being lost’ and firms being ‘unpatriotic’. A corporate income tax has the same effect.

Third: A business income tax is nothing more than double taxation. An individual taxpayer is taxed once when his profit is earned by the corporation, and then again when he receives the profit as a dividend. This double taxation makes it more difficult to get people to invest their savings in business than if the profits of business were only taxed once. Furthermore, stockholders with small incomes bear as heavy a burden under the corporation income tax as do stockholders with large incomes.

Markets do not operate in vacuum nor are they unresponsive to inane concepts like double income taxation or gross over-taxation. In any market prices and costs stabilize at a point which produces a profit, after taxes, sufficient to give the industry and its individual firms, access to new capital at a reasonable price. Otherwise the industry and the firms in question will stop growing, stop making a profit and eventually stop producing their products and services. Put it another way - an income tax on corporations is always absorbed in higher prices and in lower wages. The net effect of a business income tax is to force up prices and lower wages. Both of these results are harmful to the public welfare.

But the socialists and statists will wail that removing the business income tax will result in less money for our children; green spaces; the old; the sick; the wounded; the natives and other disadvantaged groups. Etc. etc. etc. Sheer poppycock. By removing the income tax you will allow businesses to invest in productivity; hire workers; generate dividends; or expand production or engage in process improvements to enhance market share or product-service differentiation. In a competitive market one does not put the cash under a pillow – the reduction in taxation always has a positive spillover effect. Greedy Americans and Jews don’t stuff the excess into their piggy banks and run off to Brazil.

In our somewhat globalized marketplace competition will force most of the savings from eliminating the business income tax, to result in lower prices, with a smaller share going to higher wages. If labor in the industry is strongly organized, as in the shipbuilding, railroad, steel, and automotive industries, the share going in higher wages would tend to increase. If the industry is neither competitive nor organized, nor regulated --- of which industries there are very few --- a large share would go to the stockholders. In most industries the elimination of the corporate income tax would result in lower prices and it would raise the standard of living for everyone.

So what is government’s role regarding corporate profits?

Government only has one role when you consider a business and its accumulated surplus. There can be forwarded a reasonable argument that the corporate income tax cannot be set to zero, until some way is found to keep the corporate form from being used as a repository from the individual income tax and as a means of accumulating unneeded, uninvested surpluses. Such surpluses are highly unlikely in any case but assume that some businesses piled up some cash to avoid personal income tax. We then need to find some method of adequately taxing this unused income. There are many ways to do this, but no politician or analyst mentions them. Ergo the corporate tax stays. Pity.

The real question regarding corporate taxation is this: ‘Is there a decent way of assessing taxes on people --- the consumer, the workers and investors --- who after all are the only real taxpayers?’ It is clear the effects of a corporation income tax are bad. It tends to raise the prices of goods and services. It tends to keep wages lower than they otherwise might be. It reduces the yield on investment and obstructs the flow of savings into business enterprise. In short it impedes enhance living standards and a better quality of life for all workers, in all industries in the modern welfare state.

But don’t expect any intelligent debate on corporate taxation – just more demagoguery and socialist fear mongering and of course in some welfare states, higher corporate tax rates. In these states the general wealth of society will decrease and businesses will locate their production elsewhere.

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