Thoughts Aloud

I wrote this about fifteen years ago, and nothing has changed except the glimmer of hope of the “Fair-Tax” book and movement.

Who Really Pays Most Taxes?

What would happen if all Americans understood the simple truth that the private sector employee, in the roll of consumer, ultimately pays almost ALL taxes!

Once demonstrated, this is so obvious that it is astounding how politicians so easily persuade the masses to believe otherwise.  Somehow, they continue to get away with the illusion that “Corporations” or the “Rich” suffer the brunt of most taxes.  This is utterly false, and they undoubtedly know it.

Business taxes, whatever form they take, are just another cost of doing business.  ALL business costs are, of necessity, passed on to the consumer.  It could not be otherwise.  When business costs increase; whether raw materials, goods, services, expenses, payroll, or taxes… there is little alternative to raising prices.

An enterprise not covering its operating costs with sales revenue is soon out of business and paying no taxes at all.  Even all the taxes their employees pay, whether income taxes, payroll taxes, property taxes, sales taxes, etc., come out of a paycheck made possible by sales to its customers. One way or another, when the government collects a tax, the money ultimately came from a consumer.

Not just any consumer, however.  While less obvious, it is fair to conclude that ALL government employees, and anyone who’s income is subsidized by the government (welfare, the unemployed, government programs and grants, etc.), actually pay NO taxes at all.  They are the tax-spenders, not taxpayers.

Sure, the government allows them to think they pay taxes; but giving them enough of our tax money, so they can pretend to give some of it back as their own “taxes,” is a sham that creates no additional revenue. It matters not how worthy their need, or useful their contribution to society, they cannot finance themselves, and paying any tax with money collected from a taxpayer is just temporarily moving it around between banks.  Only private enterprise can generate new wealth and tax revenue through the productive efforts of their employees.

Notice too, that the consequence of government mandates on business is the same as other hidden taxes. Environmental laws, Labor regulations, Handicap rules, OSHA, FICA, Workers Comp., Unemployment Ins., License Fees, Accounting and Reporting requirements, Fines, Fees, etc.; all have the same effect of increasing the cost of doing business and thereby increasing consumer prices, whether or not they are called taxes. Again, while demagogues rail about the evils of corporations, and brag about keeping them in line, the working-class consumer ends up financing all government mandates.

Further, rich folks are not the ones who suffer from high taxes. Most of us want to get ahead, and everyone desires to continue living at least in the manner to which we have become accustomed. The wage earner is at the mercy of market forces, but the “rich” usually have more control over their income.

Most wealthy people are business owners, one way or another, so even increases in their personal cost of living are borne by some consumer.  When their personal taxes or living expenses go up, they need only to raise their salaries or dividends enough to cover them.  Who among us would do otherwise if we could?

These truths are unalterable reality, and it is a complete waste of time to wish it were otherwise.  To argue that it is unfair, bad, selfish, wrong, immoral, or any other socialistic lament, does nothing to change the facts.

Every time we spend money we are paying all the taxes, and government mandated expenses, incurred in producing the goods or services we are purchasing.  Short of total government confiscation of all private property, capital, and businesses, no amount of wishing, demanding, or legislating is going to change this reality, like it or not.

So next time you hear a politician promising to soak the rich, or punish big business, in order to increase your “benefits” or “entitlements,” or protect you from their evil ways, ask yourself who will really be soaked or punished.  Can we truly afford all of the splendiferousness that government claims to do for us?

No matter how sincere these politicians might be about redistributing the wealth; the rich get richer, the poor get poorer, and the middle class working stiff continues to finance it all.  Since we are all consumers, is anything ever “free” that government provides?

The next time you buy a loaf of bread, realize that the farmer only received a few cents for the wheat that it is made of, and he had his own production costs and taxes to pay out of that.  Then think of all of the taxes and mandated costs that went into the milling, baking, packaging, marketing, wholesaling, retailing, and all the transportation costs in between.

It would be interesting to figure out just how much of the price you paid ended up in the government’s hands, and how much went into the pockets of “greedy” businessmen.  But then, even their share eventually gets spent on goods and services; so the government ultimately gets most of that too, doesn’t it?

It would be far more efficient, and a lot less duplicitous, if all other forms of taxation were abolished and a simple final retail sales tax were collected to be split up by all the various levels of government, Federal included.  Alas, the sales tax rate, required to maintain current revenue levels, would be so high the taxpayers would revolt; wouldn’t we?  Then why are we allowing them to take just as much, and waste so much of it on the convoluted process they use to collect it?

When I was an employer, I had a “Truth in Payroll” policy.  I used to give my employees a detailed accounting of my true cost of their labor, which was between 25 and 30% higher than what is normally regarded as “gross” payroll.  I stated this total cost figure as their true “gross pay”, from which I then deducted the employer share of FICA and Medicare, Workers Comp, Unemployment Ins., medical insurance, etc. before coming up with the what I called their “W2 gross pay.”  Then, of course, came all of the regular employee payroll deductions before we got down to their “net pay” check, which they actually got to “take home.”

I explained that as the employer, I didn’t really care how much their labor cost me, as long as my competitors were required to pay the same amount, since it was just a cost of doing business which I included in the prices I had to charge customers.  In fact, I pointed out, since I got a percentage of sales as my income, the more I had to pay them, the more I ultimately made myself.

I made it clear that I would just as soon cut them a check for the “true gross” figure that represented my actual cost of their labor, and allow them to settle their own accounts with the tax collector and mandated insurance companies.  The rules we had to live by required it be done this convoluted way; I just wanted them to understand that it was really all THEIR money that was going to these entities, even if I had to deduct and pay some of it BEFORE we got to the figure the government wished to call their “gross pay.”

The effect of this was dramatic.  It is surprising how many employees generally disregard gross pay figures and think of their pay as simply the net figure they bank on payday.  They didn’t like being told their “taxes” were so much higher than they thought.  Some even resisted at first, preferring to think of the “employer’s share” of the FICA and Medicare taxes as a tax on me, rather than them; or that the mandated insurance payments were a “benefit” rather than one of their own expenses.

Eventually it would dawn on them that I was right, and they adopted a much less confrontational attitude toward employer/employee relations.  I was able to create a more cohesive team focused on the success of the business, rather than the normal adversarial relationship fostered by labor unions and politicians that waste so much time and effort in commerce.

What if we could establish a “Truth in Taxes” policy at the retail level that similarly thwarted the government’s effort to hide the true level of taxation on the consumer?  Producers could include on their labels the percentage of the price that represents all the taxes already paid, in any way, during the production, marketing, and distribution of the product.  It could be similar to the nutrition labels on processed foods.

Personally, as a consumer, I would also like to see a breakdown of the costs of materials, production, marketing, transportation, and profit; but not all producers would wish to release these percentages.  I suspect that the ultimate effect on consumers would be even more dramatic than that I experienced with my employees.

If they were able to see just how much of what they pay went to taxes, and how small actual profit margins are, the politicians would no longer be effective at blaming corporations for the ills of society, much less brag about taxing them heavily to finance their pandering “entitlement” programs.  How could we get such a “Truth in Taxes” program started in commerce, since this would be about the last thing the politicians would wish to initiate?  Would it be a useful endeavor?  ◄Dave►

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