As previously discussed, the profit function for a business is:

Total Profits = Total Revenue – Total Costs

So when discussing taxation on businesses it is important to realize that the taxes are not extracted from the entity ultimately.  They are always transferred either to the the employees, or to the end consumer- either by transferring the additional costs incrued to the cost portion while reducing current costs, or by increasing revenues through price hikes.

This is a fact which, while trivial, often goes overlooked in political punditry and the media.

Now there is an argument to be made that the way that the taxation is distributed amongst the employees may not fall upon the low level employee (though often it does, in the form of lay-offs or wage cuts), or it may not fall on the consumers inside the country of that the tax is extracted.

Regardless, the economic consequences of business and corporate taxation should be clear.  It is a transfer of wealth from private to public, and more often than not it will adversely gut prosperity for a group of individuals in order to bolster the society at large (or occasionally just the politicians.)

Why do I mention this?  It is an important distinction to make for an upcoming question which I will be discussing.

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One thought on “Corporate/Business Tax- a Red Herring

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