Sunday, July 3, 2011

On the Topic of Taxes

So, I wouldn't necessarily call myself a business expert or anything. I worked in retail and sales for about 15 years. But I get pretty aggravated when politicians talk about taxes / tax breaks for businesses. In general, they demonize big businesses for making so much money and then try to convince the American people that taking tax breaks away from these greedy businesses will take some of their profit away and humble them a little so that they won't be so greedy, apparently hoping that will drive prices down for consumers. HUH?? Does that even make sense?

Business Economics 101 for Congress:

1. People go in to business to make money - the more, the merrier! It's all about the new american retirement plan - the quicker you can make enough money through a business venture, the quicker you can retire! Is it greed? Of course! Greed is what spurns ingenuity. Ingenuity is why America is the world leader. Take away greed and you are left with hard working and caring people, who have no incentive to dare to dream.

2. Most businesses have figured that it will take a certain percent above their cost in order to break even. If you are dumb enough to think that businesses don't figure taxes are a cost to the business, then you might be a congressman. Let's take Big Oil as a hypothetical example: If it hypothetically costs Big Oil $50 to produce a barrel of Oil, and they hypothetically figure that their mark-up should be somewhere around 50% in order to make a profit (figuring in salaries and putting money aside for future oil spill clean-ups, etc.), they will hypothetically aim to sell each barrel of oil for around $75. Now, basic "Supply and Demand" principles kick-in. If the demand for oil goes up, so does the price, and they will usually try to produce more oil - due to greed. When demand goes down, they usually cut production because they cannot afford to pay people to take their oil (ie. when prices are lower than costs). Therefore, if we were to take a tax-break away from Big Oil because they made more money than we felt they should have made, then the cost to produce a barrel of oil will increase - let's say to $60 / barrel. Now, if Big Oil still wanted to make their 50% hypothetical profit, the new target price for a barrel of oil would hypothetically be $90. If they were OK making $25 / barrel, they could still set their target price at $85 / barrel. Either way, Big Oil is going to make their profit. And guess what, the government hits the win-win jackpot! More money from Big Oil, AND more money from us - because the tax paid to Uncle Sam on $4.00 / gallon of gasoline is a lot more than that on $3.50 / gallon of gasoline.

So, congress, you cannot punish a business for making too much money. A tax on them is really a tax on the people who buy the product. Please don't try to tell me that you want to tax Big Oil or any other business because they make too much money. What you are really saying is you want to tax me because Big Oil sold a product people wanted, and they sold a lot of it!

INCREASED TAXES ON BUSINESSES = INCREASED COST TO THE CONSUMER (increased costs, by the way, are not generally a good thing in a recession - FYI!)

1 comment:

  1. My thoughts exactly! See todd, we are not that different! Hahahaha