Conservatives have gotten rather animated about the idea that approximately 50 percent of the population does not pay taxes. They point at this as an example of a government that lulls the majority to sleep by keeping their tax burden low (or even "no"), while pounding the wealthy minority in order to keep themselves in power. Conservatives are half right, the intention of the "soak the rich" philosophy is to make the rest of America believe it is not paying taxes, and is thus distracted from the government's irresponsible fiscal activities.
Those who are offended by the fact that the federal government does not directly tax such a huge population, should be angry, but for very different reasons. What is offensive is not that these people are not paying taxes -- because they are. What is really offensive is that they are paying taxes through a huge shell game that has them being economically exploited without even realizing it. They are being taxed through the prices that businesses charge them. It is a game in which cowardly politicians use businesses that don't vote, to tax the individuals who do through the selling goods. Worried about the possibility of a Value Added Tax? Don't be, we already have it in the form of corporate income taxes. Meanwhile, politicians disparage "big business" for its exploits and profits. The one who really takes advantage of the "little guy" is the government who uses businesses as a tax collecting vehicle.
The common retort to this argument is "that is ridiculous, businesses pay taxes just like everyone else." The people who are most likely to say this are those in business. In reality, taxes are little more than a fixed cost of operating a company. When the taxes go up, businesses transfer the cost to consumers in the form of higher prices or in the reduction of the quality of the products they make. If the taxes go up to levels that a business finds prohibitive, they move their companies to other countries in order to be more competitive. Businesses do not pay taxes, people do. Businesses are only tax collectors.
The next argument is, if the government cuts or eliminates taxes on corporations, businesses would simply become richer. Maybe, but not from the tax cuts. In reality, in every industry across America there would be players that would lower prices in proportion to the cut in order to get a larger share of customers. This would drive prices down rather quickly across all industries, making consumers richer and creating huge numbers of jobs. Walmart, for example, has the lowest cost per product of any retail company in the world. There is no doubt in my mind that it would drop prices immediately and others would have to quickly follow to stay competitive. The vast majority of companies makes a net profit of 7 percent on average. This is how the market works — either competition or the threat of competition — forces companies to keep profits modest so their business can steadily grow. As the saying goes, "pigs get fat and hogs get slaughtered." This simple adage explains why the end of corporate taxes would lead to a proportional savings to consumers.
So what about the huge deficits and the need for additional revenue? It would come from everyone directly, preferably through a sales tax, rather than one on wealth creation. A sales tax would increase fiscal responsibility because it would have to remain low in order to prevent a black market. It would get revenue from everyone — ranging from the undocumented to the drug dealer, as well as honest working Americans — who all have to buy things in order to live. Most importantly, those who vote would see the cost of government in every purchase they make and that would lead to a government that is much more accountable and a tax system that is far more honest.
Republicans and conservatives in general are preaching the wrong message about the middle class and taxes. Instead of arguing that the middle class and lower income groups do not pay taxes, they should argue that they do pay and it is through a very dishonest system. These groups will be far more interested in supporting a movement that is opposed to their exploitation, than one that merely discredits them.
Host, Price of Business on CBS Radio. PriceofBusiness.com
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