Corporations Don’t Pay Taxes

2

Neither do Partnerships, Sole Proprietorships, or any other form of business. Don’t believe me? Ask any economist.

Or you can do this experiment (bear with me, the experiment sounds stupid because it is, but it makes a point). On Exxon Mobil’s website you’ll find its Certificate of Incorporation. Print this out and set it on the floor in your living room. Now sit back and watch as an oil derrick starts pumping crude, a supertanker steams down the hall, a refinery springs up generating millions of gallons of gasoline, gas stations pump gas to thousands of fuel starved motorists, and dividend checks are mailed from your house to disperse the $9.1 billion in quarterly profits.

Not happening, is it? All you see is a stupid stack of paper sitting on your floor. According to the law, that stack of paper is Exxon Mobil Corporation, the richest business on the planet. Without this document the company wouldn’t exist. And yet, that stack of paper can’t accomplish any of the things Exxon does as a business.

Thus we must ask a basic question. If Exxon can’t do anything by itself, can it then pay $5.9 billion in quarterly income taxes? Of course not.

So why do so many people get riled up about corporate income taxes? Don’t they understand a paper document can’t pay them?

No, they don’t, and therein lies the problem.

Exxon, like every other business, can’t accomplish anything without people. For Exxon, it’s people who extract the oil, ship it to a refinery, convert it to fuel, distribute gas to motorists, and make the profits. It’s also people who pay the business taxes.

Yeah, yeah, yeah – it’s those evil rich bastards making all the money. They’re the ones paying all the taxes. We should tax the hell out of ‘em! Right? If this is what you said to yourself, you couldn’t be more wrong.

Yes, there are rich people making money off Exxon, and paying the taxes. But they aren’t the only ones. When a business is forced to pay taxes (any tax, not just income taxes) everyone pays, not just the guy on his yacht collecting a dividend check. Continuing with Exxon I’ll give some examples of how you are paying Exxon’s taxes.

Economists place business tax payers into 3 groups – owners, customers, and employees. Exxon’s reach in the US economy is so broad that practically every American falls into one of these groups to pay the company’s taxes.

Let’s start with the owners. Obviously the dude on the yacht is one of these, but so are millions of people who don’t even realize they own a chunk of Exxon. Do you own stock in Exxon? If yes, then you get a dividend check for your share of the profits. Unfortunately that check is smaller than it could be because Exxon pays 1/3 of its profit to the taxman. That money was taken from you, but attributed to a stack of paper. What if you don’t own Exxon stock? Then how about a mutual fund or a pension plan at work? Many mutual funds and almost all pension plans own stock in Exxon. It’s a huge company with unspectacular but predictable earnings, so funds and plans like to have it in their portfolios. That means you are an indirect Exxon owner and you are paying Exxon’s taxes through decreased fund or pension appreciation. If you’re like most people, you never even realized this. Your ability to save up for your first house, retirement, or to send your kids to college is hampered by business taxes.

How about the customer’s share of the taxes? I’m not talking about sales taxes here, but the “hidden” taxes that are embedded in the price of a product. Because fuel is crucial to a modern economy the demand for it is very inflexible. If you need to put gas in your car to drive to work then you’re going to do it whether it’s $2/gallon or $4/gallon. You don’t even have to drive to get stuck paying part of Exxon’s taxes. That quart of organic strawberries didn’t magically appear at your local co-op. It was grown by a farmer who used fuel to raise it and then shipped in a truck. When you paid for the delicious fruit, part of your money went to the farmer, who then sent it to Exxon, who then sent it to the IRS. A 2001 study by the Institute For Policy innovation estimated that 37% of the price of a gallon of gasoline is caused by hidden taxes. If you pay $3.17 for a gallon, only $2 of that goes to Exxon to pay them for the work of getting the gas to you. The government gets $1.17 which it spends to spy on you, murder people with flying robots, and jet Michelle and the girls to China on vacation. Everything you buy is more expensive than it needs to be because of the business taxes hidden in the price.

The worst part about taxing customers via hidden business taxes is how regressive it is. The rich yacht owner pays the same amount of tax when he buys a gallon of gas as the poor guy with a 25 year-old Chevette. But the yacht owner has a million times greater assets then Mr. Chevette. To the yacht owner, the hidden taxes are pocket lint. But Mr. Chevette has to work a second job just to cover the cost of these taxes – or go hungry. Hopefully he won’t lose the job.

The last group might leave some people scratching their heads. How do business taxes get paid by employees? Through decreased compensation, and more importantly through decreased employment. Now, if you’re the guy who sweeps the floor at an Exxon refinery you’re not going to get a raise even if ALL taxes were eliminated tomorrow, you are simply too easy to replace. But, if you’re the engineer who developed a cheaper way to get oil out of the ground you’ll probably get a big raise if taxes disappear – Exxon wants to make sure you don’t leave for a competitor.

Taxes also impede a business’s ability to grow. Building a new refinery isn’t cheap, but if the IRS stopped grabbing $5.9 billion from Exxon every 3 months then Exxon would have the cash to build them. More refineries mean more jobs. In Exxon’s case we’re talking thousands of jobs. According to the Bureau of Labor Statistics there are 16 million unemployed workers in the US. How many of those people can’t find work because the government retards business growth through taxes? The answer must be millions.

It should be clear that businesses don’t pay taxes, it’s physically impossible for them to do so. All business does is collect taxes from you and send them on to the government. Taxing “evil” corporations is one of the biggest scams the government has ever pulled. When a politician tells you he’s looking out for the little guy by raising taxes on business, grab your wallet. He really means he wants to tax YOU.

Exxon Certificate of Incorporation

http://corporate.exxonmobil.com/en/investors/corporate-governance/certificate-of-incorporation/overview

Institute For Policy Innovation: Hidden Taxes – How Much Do You Really Pay

http://www.ipi.org/docLib/PR160-HiddenTax-FINAL.pdf-OpenElement.pdf

Wayne Middlesteadt is the author of Five Ways To Beat The Market, proven methods to lower your risk while making above average gains in the stock market. For more information on the book visit http://www.slightlyangryoldman.com/Downhome/Five-Ways-To-Beat-The-Market

 

About Author

Wayne Middlesteadt

Wayne Middlesteadt is a 1986 graduate of Georgia Tech and has an MBA from Georgia State University. Currently working as a financial writer and track and field historian, his latest book is Five Ways To Beat The Market.

  • Matt Lobb

    Externalizing cost, that’s all it ever amounts to.

  • swimz

    Vote the FairTax!!! HR25