Taxes Made Simple | Part I, from the Guest Author

taxesTaxes. It’s the topic of the day. As the United States nears Election Day it’s the hottest topic on the table. I don’t pretend to be an economic expert but I do own a business, meaning I employ people {families}—meaning I pay business taxes. So I do know a few things. Experience has taught me a lot and I’d like to share some simple principles about a topic that is discussed, explained, over-explained, not explained, but mostly … not understood.

There are two basic types of taxes.
The first is equally given to both rich and poor—these are called regressive taxes. Examples are sales tax, taxes on cell phones, gasoline, etc. The other type of tax is a progressive tax and these taxes affect the wealthy more than the less affluent. Income taxes in America are progressive. Thus, the income tax rates increase as one’s income increases.

A favorite way to raise tax dollars is to tax business instead of people. It allows us to feel like we are taking money away from the rich people who own the business instead of the working class.
Unfortunately, this is merely an illusion. When taxes are raised on any business, the cost is added to the goods or services created by the company. This means if the company creates something used by all people {families}, then all pay the tax equally. If we are honest, we quickly realize that business tax is a regressive tax.

Business taxes have another negative impact.
If businesses have to raise their prices on goods due to higher business taxes, another country with a lower business tax can easily compete and make the same product for lower cost.

Tax Preparation

Higher priced products made in America compared to the same product made in the foreign country with the lower business tax means our products can no longer compete in the international market place.

And here the dominoes begin to tumble. This decreases the number of American products sold abroad. A decrease in American products means a decreased amount of American workers {American families} needed to make the product. A decrease in the number of American workers needed ultimately decreases the number of jobs to make those products within the United States.
And I don’t need to explain what unemployment is.

With this unemployment there is ultimately decreased tax revenue that could be generated here in the United States. The increased revenue could not just return us to a robust economy but could fund our government and all of its programs.

Another unfortunate by-product of high business taxes is that it encourages companies to report profits abroad. In addition, our high corporate tax rate compared to the rest of the world encourages companies to move their corporate headquarters abroad. This again decreases income reported in the United States that could be taxed. Plus, having a headquarters located overseas decreases employment within the United States. Keep in mind the headquarters employs workers {families} from their location.

General Mills/Headquarters #1

I realize that it’s nice to feel like you are “sticking it to the rich guy” who owns a company {families}. Unfortunately these taxes have the exact opposite result.

If you ask me, this is an attack on free-market principles that will lose. And who stands to lose the most? For starters, try the middle-class. Without a strong middle-class we cannot sustain jobs to provide for our families. What will this do to lower-income working families? What happens to the opportunities for our children? Without the revenue for the government what happens to the poor, the elderly, and the handicapped?

So again, who is the real loser?

Elderly Timorese in Suai Loro

How about our entire future?

Thoughtfully,
Steve

“My reading of history convinces me that most bad government results from too much government.” ~ Thomas Jefferson

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All photos courtesy Zemanta

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13 Comments

  1. Yep, the mid class bears the brunt of it all… sadly.

    Reply
    • SimplySage

       /  October 10, 2012

      Yes, and unfortunately so will the working lower class. In fact, it hurts those who need the most help. Thanks for your comments.

      Reply
      • eof737

         /  October 10, 2012

        And so outrageous when we think about it.

        Reply
        • You state the problem with accuracy. I don’t think much thought is put into what’s really happening. Certain terms are so overused by politicians and the media and can seem to make sense until you define them in understandable terms. It is my hope the article did that. I have to give my guest author, Steve, credit for clarifying a misunderstood topic. I’m glad you took the time to read and comment.

          Reply
          • eof737

             /  October 10, 2012

            I concur. People seem to have stopped thinking and just buy the hyped, canned lines. Yes, he did a great job. thanks to Steve…

          • Agree again. Here’s a quote I like from Thomas Jefferson that speaks to that very notion. “If once the people become inattentive to the public affairs, you and I, and Congress and Assemblies, Judges and Governors, shall all become wolves. It seems to be the law of our general nature, in spite of individual exceptions.” Let the attentiveness begin this very day. I’m printing Steve’s article for my neighbors who express confusion as to the tax issues. I think he simplified a complicated topic and if we can begin engaging with each other, perhaps the end result will be more informed citizens who will investigate facts themselves—instead of all the “hyped, canned lines”.
            By the way, I hope you can take some time to read the related articles. I investigated similar articles and found these to be the most readable and simple to understand.
            Again, I want to thank you for your thoughtful comments.

  2. You made the point– who is the real loser? Thank you!

    Reply
    • Thank you, Amy. I’m glad you found the article helpful. I encourage you to read some of the related articles. I think I found the most readable ones, i.e. simple enough for my brain. By the way, my guest author gets the credit here. I think he took something complicated and made it easy to understand.

      Reply
      • Will do. Anything is touched by lawmakers and/or lawyers, it’s bound not going to be simply, straight-forward…

        Reply
  3. Kathi

     /  October 11, 2012

    Excellent article. I hope Ryan is able to explain this during the debate tonight. Obama has a way of making what’s bad for our country sound appealing to the poor. It’s not really robbing from the rich to give to the poor, it’s robbing from America’s rich and poor, disabling us, and sending revenue and jobs abroad.

    Reply
  4. Thoughtfully indeed, Steve. Concise; simple to understand. I believe that political parties that understand these principles have lost the ear of the masses. Of course they have.

    Reply
  1. Taxes Made Simple, Part II—I’m a Little Depressive over the Regressive « SimplySage
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