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Friday, May 25, 2018

Columns

Corporate taxes hurt the middle class


With the announcement last week by the Congressional Budget Office that the federal government is on track to spend a trillion dollars it doesn’t have for a third year in a row, politicians on the Democratic side of the aisle are renewing their scramble for new sources of cash to tear through.

Much like the neighborhood meth addict, they refuse to admit that they have a spending problem, and instead ramble on aimlessly about how the government needs more revenue.

They prefer this euphemism because, like most of their talking points, it conceals the true source of inflows to the US Department of the Treasury. The simple truth is that revenues do not descend on a moonbeam to D.C.; rather, they are removed from the paychecks and bank accounts of everyday Americans. When talk of revenues eventually leads down the path, we are usually assured that they are not interested in taxing the middle class, but in taxing faceless money trees called corporations.

The inconvenient truth is that taxing corporations is one of the most effective and insidious ways to tax the middle class. Whether or not a tax is levied directly on a consumer or a producer, the cost will be shared by both. This applies equally to the revocation of existing subsidies or so-called loopholes. Typically, all or most of a new tax will be passed on to consumers, effectively hitting them on their receipts instead of on their paystubs. Taxing the middle class in this way provides a great cover for politicians who wish to hide the true cost of a welfare state that needs to be paid for nonetheless.

Companies only have two sources of revenue — customers and investors. This means that if costs cannot be passed through, investors will get the stick instead. This may sound stellar to progressives, whose natural instinct tells them that profit is evil and exploitative. But it has startling negative consequences if one looks below the surface.

Lower net income for a company means a lower stock price and a lower return on equity. Who are the primary equity holders that will certainly be affected by this? It is not the group of executives and management who, for example, hold only one-and-a-half percent of outstanding stock in oil and gas companies. Mutual funds, pension funds and IRAs hold the overwhelming majority. This means that retirement savings for teachers, policemen and small business owners will all take a hit. Those who have already retired, and are living on funds invested in the stock market, will find their wealth further eroded.

Thus far, Liberals in Congress have been unwilling or unable to justify the supposed benefits of their spending largess in light of the costs that the federal government imposes on the middle class every single day, however hidden they may be. Further attempts to increase revenue to government in this manner are patently dishonest and represent nothing more than profligate political pandering.

Taxing corporations is not the be-all-end-all of the federal government’s growing debt bomb — it is merely a hidden tax on consumers, workers and retirees.

Steven Christopher is a graduate finance student in the C.T. Bauer College of Business and may be reached at [email protected]


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