Submitted by Norm Robins
Presidential candidate Joe Biden and the Democratic Party have in their platform the elimination of President Donald Trump’s tax reductions. One plank in this platform increases corporate income tax from 21% to 28%.
Patricia Ackerman is our Democratic candidate for the House of Representatives against incumbent Mark Amodei in District 2. Her website is silent on tax increases. Neither Senator Catherine Cortez Masto (D-NV) nor Senator Jacky Rosen (D-NV) is up for re-election in 2020. Both voted no on President Trump’s tax reduction package.
Ackerman, on her website, seems like a likeable enough candidate, and her family history is touching. But her silence on tax issues is redolent of someone who doesn’t understand the issue. And if she doesn’t understand taxes she will become just another Nancy Pelosi sock puppet like hundreds of other Democratic members of the House.
Corporations don’t pay taxes. People pay taxes.
Corporations collect taxes from people and remit them to taxing authorities. Don’t believe me? Look at your next restaurant check. See the sales (excise) tax there? Governments fought prodigiously to include this excise tax in the restaurants’ cost of doing business rather than on the check. Restaurants resisted, and they won. It is now readily apparent the customer pays the sales tax, not the restaurant.
Let’s illustrate the error of Ackerman’s, Cortez Masto’s and Rosen’s ways with a hypothetical.
Assume there is a moderately sized refinery with a capacity of 100,000 bbl. (barrels) a day. It is in West Elephant’s Breath, Nevada, a little bit west of West Wendover on I-80 by the Utah border. They buy their crude oil from Sinclair in Wyoming. They refine this crude oil into diesel fuel for Nevada’s mining and trucking industries, propane and gasoline.
They have 30 employees whose payroll cost them on average $33.33 an hour each. Call the refinery the WEB (West Elephant’s Breath) Refinery.
During his administration President Obama tried to get a $10 per barrel tax on crude oil passed. It failed. This is true, not a hypothetical. But let’s say it did pass. With 100,000 bbl. a day subject to a $10 per barrel excise tax, WEB Refinery would have to come up with $1 million a day to pay this tax. Where would they get the money?
Cash flows into WEB, and cash flows out. WEB gets their cash flow from their customers who buy their products. Their cash flow goes out to suppliers, employees, investors and taxing authorities.
WEB could raise the tax money by squeezing their crude oil suppliers except that won’t work. WEB is a price taker, not a price maker. They have to pay the going market price. Okay, they can buy crude oil from Wyoming, the Bakken in North Dakota, the Athabasca in Northern Alberta, California’s Kern County, or from the Permian Basin in West Texas. But wherever they buy it they are going to have to pay the market price. There’s no wiggle room here.
WEB could get the $1 million a day by lowering its wages. That won’t work either. The 30 employees working eight-hour days at $33.33 an hour make for a total payroll cost of $1000 an hour or $8000 a day, chump change compared to the $1 million a day tax bill.
They could get the tax money from their investors by lowering dividends. A 100,000 barrel-a-day refinery probably represents an investment of $20,000 per barrel of capacity, or $2 billion. A return on investment of 10% means the refinery turns a profit of $200 million a year. The refinery needs cash for taxes of $1 million a day or $350 million a year (365 days minus 15 days for annual maintenance shutdown). Close but no cigar; $200 million profit won’t pay for $350 million in excise taxes.
So, who is left to fund their taxes? There is no one left but customers. That’s you and me. WEB would have to raise prices so that we would fund WEB’s tax bill. Of course, WEB doesn’t care, so long as all its competitors get the same bump in their tax bills. It would get buried in their prices, and no one would notice since gasoline, diesel fuel and propane prices fluctuate daily anyhow. There are 42 gallons in a barrel. In round numbers, a price bump of 25 cents a gallon would fund the $10 per barrel tax.
And that’s what I sought to demonstrate: Corporations don’t pay taxes. They collect taxes from people, in this case from customers, and remit them to the taxing authorities that impose them.
So, when White House candidate Biden, candidate Ackerman, and Senators Cortez Masto and Rosen tell you they are going to make corporations pay “their fair share,” don’t believe them. When they say they are coming after corporations they aren’t. They are really coming after you and me. Corporations are not their target. Corporations are their tax collectors.
Norm Robins is a retired entrepreneur and ex-engineer whose first love is economics and who has lived and worked all over the world. He has a B.S. in Civil Engineering from the University of Illinois, Champaign-Urbana, and an MBA in International Business from the University of California, Berkeley. He and his wife and one of his three children live in Reno, Nevada.
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