Everyone hates taxes…even the IRS (I’m sure they hate being the bad guy, but who knows). Buy why do we hate taxes? Because we have to give up our money? I don’t think that is the pure reason – I mean you only pay taxes on what you earn net, so you’re not really out anything you didn’t gain. At the end of the day, you should have at least one more dollar more than you started with, or you wouldn’t have paid taxes.
So, what is the real reason people hate taxes: jealousy. Yes, I said it. You are jealous of others who don’t have to pay taxes or don’t pay as much tax as you… And that is also why taxes stifle businesses, and in the end, the US economy.
Why There Is Tax Jealousy
If everyone paid a tax, let’s say 90% of your income, flat out, every business and person would still have the same incentive to earn their remaining 10%. Yes, it is not a pretty rate to pay, but everyone does, so it works. However, lets say your neighboring country suddenly said let’s lower our taxes to 50%! That creates jealousy. You suddenly feel like your country is unfairly taxing you, not because you did something different, but because someone else did.
And some companies will be able to take advantage of this – companies that are agile, maybe they don’t have factories – because they can just move across the boarder. Now they can keep 50% of their income, when they used to be able to only keep 10%.
Some companies will not be able to take advantage – the companies that build large, immobile infrastructure. These companies will become the ones that gripe, and say that the taxes are unfair. But they have a point – they suddenly have become uncompetitive to new, start-up companies in the lower tax rate area.
Then, there are the creative companies. These are the Fortune 500 of the 90% tax rate country. They say – “Hey, what if I opened a new corporate headquarters in a strip mall in 50% land, staff it with a secretary, and move all my money there, but do nothing else!” Now, these companies spend the money on a lease, and get to have their profits taxed at 50% instead of 90%. Now the home country loses as well.
Does anyone see a connection here? It is not that taxes are bad, and taxes by themselves don’t stifle business growth. It is the fact that there are better tax options that do. The poor mom-and-pop shop can’t take advantage of this, and so they feel unduly burdened.
So, what’s the answer? Just like all parts of the economy, the tax paid needs to be competitive with the rest of the world. We have a global economy, and we need to compete as such. I hate hearing businesses say their burdened by taxes. NO, you’re not. You’re only taxed on what you make, and be happy you made a profit. You are just jealous that other people pay less taxes than you do.
Readers, what are you thoughts on taxes? How competitive is the US, or even your State or Country?