The Role of Businesses in Society: It's More than Just Taxes

I often revisit the topic of taxing the rich and big businesses because I think it's crucial to understand it in a different way than we usually tend to. Although, I will admit, it's probably a rather controversial thing to say, I think it's likely in the best interests of most Americans to maintain the current system, even if it appears unfair.

If we view taxes as a contribution to society and our way of life, as they fund essential public services, infrastructure, and social programs like Social Security and Medicare, forming the glue that keeps everything functioning, similarly, businesses contribute enormously too, even if they pay a lower percentage in taxes than the average working-class citizen.

If we consider taxes as a means to enhance society, ensure smooth functioning, and in some circumstances, redistribute wealth, businesses also play a crucial role in achieving these goals through what they produce.

Consider that businesses provide employment, helping people support themselves and their families. They drive innovation, creating new products and technologies that improve our lives. Although they may not send a physical check to the IRS, they significantly contribute to the tax base by stimulating economic growth through their goods and services, which generate tax revenue. Businesses also make substantial contributions to society by supporting communities through charity, sponsorships and volunteer efforts. For example, Anheuser-Busch has donated cans of water for disaster relief, and Elon Musk made Starlink available for communication in hurricane-affected regions. Additionally, businesses heavily invest in infrastructure, including communication networks like telephone and Internet services, as well as rail and shipping services.

In other words, when we demand the rich and the businesses pay their fair share, are we overlooking the valuable contributions they already make? We all play a role in a functioning society, and if we solely measure contributions in dollars and cents, we're missing the point. We're focusing on the wrong things.

How would we feed our families without the jobs that businesses provide? Beyond that, how much wealth would we miss out on without the opportunity to invest in these businesses through stock sales? Without the profit incentive, what inventions that enhance our lives might never have existed?

Taxing businesses or the wealthy more pulls money out of the real economy and places it in the hands of the government who are not equipped to function as drivers of innovation and growth. The rich, with less to invest, would be hindered in creating new ventures or expanding existing ones. Instead of fostering economic growth, as the government suggests more taxation would achieve, taxing businesses more actually depletes resources, leaving less money available for meaningful contributions to society.

Sure, it can seem disheartening to see the top 1% getting richer and richer, and it may seem like they're holding back the lower rungs of the financial ladder. But I believe the opposite is true. Without strong businesses growing and generating massive profits, society would be in far worse shape than it is today.

As I said before, we all have a role to play. I think understanding our place in the world is important, and rather than undermining the achievements of one class, what another class achieves should be an incentive to have loftier goals for ourselves—on top of that, success should never be something that we should ever want to penalize. 

When it comes to taxation, we have to ask ourselves what truly improves our lives? Is it economic growth that fosters better opportunities for working Americans, or the artificial redistribution of wealth that fails to lift anyone out of their current class and circumstances?

Regardless of what anyone thinks "fair share" really means, I think businesses are already paying their dues and we have more to be thankful for than to be angry about. No matter how unfair it seems. When we look around us, all we see are the businesses and the massive profits they generate. We fail to see how our lives might be very different if they did not exist, or what opportunities might not exist without what they contribute for them to even be possible.

The United States is the richest nation in the world for a reason. And that's because we allow people to become rich and be more in control of their own wealth. You can say my commentary here is a commentary on trickle-down economics and claim it doesn't work. I contend it has always worked, and the only problem we have with it is that some people simply don't open the spigots to their faucets.

Taxing the rich and businesses more is not the solution to our own financial problems we face. Allowing the free markets to work and educating people on how they can participate in it is the answer. Taxes do not contribute to better opportunities for society as a whole. It robs us of them.

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© 2024 Jim Bauer

One Way Raising Taxes Stifles Growth

If Sam Walton were alive today, he would be the richest man in the world, and his riches would actually pale the worth of Bill Gates' fortune by a lot. The total wealth of the Walton family as of January of 2015 was $147 billion. Gates is only worth about $80 billion by comparison. I would even venture to guess that if old Sam was still at the helm, the additional wealth he would have accumulated would have put him closer to around $200 billion. The "kids" don't have the vision and business prowess that Sam Walton had, and his empire would be larger by leaps and bounds without a doubt.

But there is a hidden message in the success of Walmart that anyone should be able to recognize. Set aside how Walmart conducts business. Or the effects positive or negative that Walmart has on other businesses. That is for another discussion. The key here is understanding one simple concept. The more money people have to spend on goods, the more goods they will buy. Sam Walton was not a man who gave a lot of consideration to margins. What he considered was volume. And he understood that if he could create volume, he would have more ability to increase margins. The volume of goods and money flowing would make the whole process more profitable. And his ideas are still well in play today.

Enter the idea that if you raise taxes, you increase revenues.

Democrats and liberals are huge fans of simply taxing as much of any money flowing in the marketplace as they can, having the simple idea that if you take more you'll get more. But this is largely because most of these guys are of course politicians. Not businessman. So, they really have no idea how money really works. Incidentally, the majority of Americans are not businessmen either, and they know about as much about how money works as the politicians do. So, when they hear "tax the rich," and "tax the corporations," they actually believe that this does something positive for the economy, and in some odd sort of way they think it helps them out as well.

The truth is that it actually hurts everyone and there is one simple thing to keep in mind to really begin to understand the effect of higher taxes on everyone. The rich, the middle class, and yes. The poor as well.

Cost slows things down. The more something costs the less people will buy it, do it, or work for it. It is really that simple. Taxes are cost. Let's get that straight right away. Taxation adds cost to earning money. And the more something costs, the less of it will happen.

The most recent example of this effect was of course gas prices. As gas was hovering around $5 per gallon, people suddenly drove less. The median national miles driven went dramatically down. The number of gallons of gas consumed also went down. People did drive less. But they also ditched gas guzzlers for more efficient cars. People directly changed their behavior and their spending based on the price of a gallon of gas. The more the gas cost, the less people used it.

The oil companies did not make more money ultimately. The states did not collect more highway taxes. It was really a zero-sum gain when all was said and done. On top of everything else, the more people had to spend on what gas they did use, the less they spent on other things in the marketplace.

People took less vacations. People reduced discretionary spending on clothes. They spent less as a whole on everything. Higher prices at the pump slowed everything else in the economy down. The entire economy suffered. No one gained anything at all. In addition to that, higher gas prices also caused a rise in everything else in the economy slowing things down yet further.

Delivery charges were added to order out. Extra fees were added to flights. Prices on other goods and services rose as well since it cost more to move things around, and for service providers to get to customers.

A guy who sells strawberries can wake up one morning and decide that he wants more money for his strawberries. He can raise the price to accomplish this. But, if he raises the price too much, people will simply buy less strawberries. He will make less than if he kept the strawberries the same price, and actually if he had lowered the price a bit, he'd have made more money in total revenue even though he made less on each strawberry sold.

Again, enter Sam Walton who understood this very basic concept. A concept that many Americans, and certainly the government fails to understand fundamentally.

You can raise taxes to whatever percentage you want. The end result is that you will get more per dollar, but less as a whole. Less dollars will ultimately be earned. Higher taxes equal lower revenues because it slows down the process of earning and spending.

If you want to increase tax revenues, the best way of accomplishing this is by leaving more money flowing in the real economy and reducing the cost of earning. The higher the volume of money flowing freely in the marketplace, the higher the total revenues you will collect as a result of it.

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Biden Visits The Detroit Wasteland

It's a trap. That is, the unions. But Vice President Biden won't tell you that. Neither will Obama, or the entire democratic party. Because they don't want people to catch on. The truth is that Detroit us a wasteland in part due to unions who sought to siphon every penny they possibly could out of companies from wages, to benefits, to pensions and beyond.

Did anyone care to look at a balance sheet? Of course not. That would tell the real story about how much money a company could afford to pay its workers. And it would not fit the narrative that the unions wanted the workers to hear.

Companies are bad. CEOs are evil. Workers need protection from bad and evil and the unions will come to their rescue.

But they didn't, and that's the point. And one that so many workers missed then, and continue to miss today. When they think about the jobs they had that went away, they don't put the blame on the unions who essentially took those jobs away by making unreasonable and unfounded demands for more money that simply wasn't there to give. They blame it on the companies and the executives who had to make tough decisions according to what was best for the company to keep their doors open at some level.

That means shuttering some doors, and letting workers go. It is simple business. And it was the unions who caused this, and even the workers themselves. But again, that's not the story anyone will hear nor pay attention to.

So Biden made a trip to Detroit this past Labor Day to speak with workers in the wasteland, and what did he tell them? You deserve more. Forget the wasteland around you, toppled by insane demands and union work rules that made it nearly impossible for the companies to operate. Forget that in right to work states people have jobs, get paid well, and are doing well. No, workers deserve more.

But the proof that simply demanding more doesn't work doesn't matter anymore than the proof that higher taxes do not increase government revenues. They will go on and beating the dead horse until there is nothing left but dependents who will need the democrats to feed them, clothe them, and now take care of all of their medical needs.

Wake up America. Wake up workers. Let's figure out what "fair" really means instead of trying to make up a hogwash definition of it on our own.

Image is mine from my private collection © 2014

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Tax the Rich?

It's an idea that looks great on paper, and certainly the masses enjoy the idea of taking money out of the pockets of the rich. While the vote in the recent reelection for President Barack Obama was not a clear mandate for higher taxes, the Obama administration is definitely interested in continuing its pursuit of diminishing the wealth of the most wealthy people in the country. In fact, he recently announced that he wants to raise $1.6 trillion in new tax revenues, which is double the amount he originally said he wanted.

The question is who ultimately pays the tax? I think the answer is very clear. It's not the rich.

In order to understand how taxes affect everyone and not just the rich, one has to keep in mind what businesses do when they have to incur higher costs to run their businesses. Higher taxes are costs.

While it is not a direct comparison, I can use my rental property as an example of what happens when the cost of owning and operating that property increases. As a part of the rent I offer my tenants "free" heat. I put the word free in parenthesis because whether or not the heat is truly free is a bit of sleight of hand, is it not? So long as my rental property produces cash flow, the actual cost of the heat is being paid by the tenant. So, what happens when the cost of my heat bill goes up? Of course this cost is ultimately passed on to the tenant in the form of higher rent.

The same applies to the cost to insure my property, or the cost of repairs to the property. You can also apply this to higher costs incurred through higher property taxes. All of these costs are ultimately passed on to the tenant in the form of higher rent as well. Perhaps the costs are not immediately passed on. But at some point they must be, otherwise I have no reason to own the property.

I've made the point before that businesses do not pay their overhead. In fact, they recoup their overhead.

In addition, it's important to note that any money that the government collects from the private sector are essentially removed from the real economy. I've heard many people on the left argue that dollars collected in tax revenues are simply spent by the government, and that those monies ultimately wind up in the economy as a whole inevitably.

The problem with this thinking is that it is not exactly true. Consider that much of the dollars that the government collects must go to repaying debts and interest we owe on those debts. That means that a lot of the money goes to other governments we've borrowed money from—China would be one of the larger ones. We also spend hundreds of billions of dollars a year in foreign aid. Again, that money does not necessarily return to our own economy. The money essentially just disappears.

At the end of the day higher taxes on the rich and on businesses means less money will be spent on investing in new company startups. It means less money will be spent on research and development, and on capital expenditures. It means less money will be available to hire more workers, or provide pay raises. It means less money will be available to pay, for example, certain benefits like healthcare for their workers. It means less money will be available to make matching contributions to their worker's 401k plans. It means less money will be spent on marketing that helps their businesses to grow.

And let's not forget the first example I made about investment. Less money will be in the real economy for people to help companies obtain the funds they need to expand the business. All of this leads to higher unemployment, less job creation, and higher prices for all of the goods and services that the middle class, and the poor buy.

When it comes to taxes, people really need to see the forest for the trees. Sticking it to the rich is sticking it to ourselves, and there really is no way of getting around that. If President Obama does not cut spending, and reduce taxes across the board, the people who will be hit the hardest are the very people who he says he wants to help.