Updated: Feb 16
In the United States, a feeling of resentment toward capitalism, entrepreneurship, and the market economy, grew at an exponential pace over the last few decades. Indeed, one of the fundamental characteristics of capitalism is that it produces an unequal distribution of wealth across society. The middle and working classes have always accused corporations and wealthy people to be “greedy” as they are reaping profits while everyone else is stagnating at best or getting poorer at worse. Politicians and bureaucrats are in charge of the domestic laws of the country. They are the ones who draft the tax code. During his last State of the Union, President Biden claimed that the tax system was not fair, as if the structure of the tax system was magically designed without anyone engineering it at first. Government officials such as Robert Reich and Elizabeth Warren have always blamed the rise of the cost of living and the affordability of life on the greed of corporations and the selfishness of the upper which “refuses to pay its fair share.”
The tax system was necessarily designed by someone. It did not design itself. And only the government has the power to tax and enforce new tax laws. The government can implement a flat income tax, a progressive income tax, a regressive income tax, a sales tax, a property tax…, and so on. Corporations and small businesses cannot enforce tax laws. The reason why life has become more expensive over the last decades is because of the “hidden tax.” A hidden tax is a tax that is not visible to the taxpayer. These taxes are the ones that lead to raising the prices of goods and services and lower salaries for salaries. There are a ton of hidden taxes such as the corporate income tax, tariffs, sin taxes, cable tax, cellphone tax, gasoline tax, healthcare tax…etc. These are taxes that are incurred in the cost of production. The most notorious of all these hidden taxes is the inflation tax.
An inflation tax or simply “inflation” is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The inflation tax is a form of regressive tax because it affects the most those in the lower income brackets. Most people in the working and middle classes are not asset owners. They do not own securities like those in the upper class do. The main asset that working and middle classes people have is cash in their savings accounts. And inflation dramatically reduces the value of the money in their savings accounts compared to those who have their money tied to their investments such as stocks, bonds, real estate, or even gold. True inflation does affect securities, but not as much as cash.
Corporations are legally required to pay a corporate income tax on every profit made each quarter. And because of this tax, shareholders and employees receive less dividends and salary. Moreover, this tax is hidden in the cost of goods and services, and therefore, paid by the consumer. This tax is added to compensate for the tax that must be paid when profit is made by the business. It would be fair to say that corporations are greedy if they did not pay any corporate income tax at all. But they do. Corporations are double-taxed. They are taxed on gross profits, and on the income distributed to shareholders in the form of dividends that each shareholder must pay. Businesses end up paying more taxes than consumers overall. The biggest winner in this whole tax system is the government because taxes are essentially the main source of income for the government.
It is, therefore, in the interest of consumers that businesses are less taxed because this would reduce the tax borne in the cost of production that the consumer will have to pay upon purchase. The more government will continue to tax businesses, the more businesses will have no choice but to increase the price of their goods and services in order to make profits. Let us not forget that the profit made by a business is what helps it improve the quality of its product and services, higher more employees, and increase wages.