I have an older dog.  She insists on being walked every day.  In other words, I get no peace unless I do.  Now for me, dog walks are the most boring things.  She has an interest in all the natural world.  It is all new to her each and every day.  I get tired of the same old scenery. I tried entering into the spirit of the thing, since I was getting exercise too and enjoying the great outdoors.  That worked for a little while.  Then I tried reading from a little pocket size Buddhist scripture that I had and contemplating what I had read as we walked.  Life is suffering, indeed! 

Then I hit upon doing thought experiments.  No, not the Einstein kind.  Just more or less letting an issue or a fact enter my mind and then talking silently to myself about it and seeing where it led.  You do not want to ask me to compare the modern army organization to the Roman Imperial Legions (basic structure is the same).  Nor do you want to hear why I think King John of England got a bad rep (you probably know him better as Prince John of the Robin Hood stories).

However, today’s starting thought was:   Don’t people realize that all taxes are ultimately paid by individuals (of the country that instituted the tax).  It seems to me most people do not.

A prime example of this is a tariff (import tax), which somebody who shall remain nameless is pushing.  Sure, some foreign company is paying it to the U.S. Government.  But if Ms U.S. Citizen (we’ll call her Gloria) still wants the product she will pay the higher price, thus reimbursing the company that sent it over here.  But of course, she could decide to do without it in which case she is foregoing something she must have needed or wanted in the first place.  Or maybe she buys a cheaper domestic version (if one exists).  Again, Gloria has paid a price in reliability or whatever.

That is a simple example.  However, there is a tax that people really get deceived about:   the corporate income tax.  Let’s raise the taxes on those big rich corporations.  OK, right now it is not on the table but it will be in the future, I assure you.  Here is the way it plays out.

Let’s make it a Texas corporation, say in something related to the oil and gas business.  It is publicly traded which I think facilitates my point.  And, while we are at, they are reasonably efficient and so are their competitors.

The corporate tax rate goes up.  The company has a choice of doing one or more of three things (in no particular order).  The first one is simply take it on the chin:   absorb the loss of profit.  It does happen.  There are two main uses for profits:   (1) as retained earnings for future endeavors and growth of the company, (2) as dividends for the stockholders.  Wait a minute!  I live off my 401K.  I own a mutual fund that has this company’s stock in its portfolio.  My income is going down.  I am paying that tax.  Well, I not paying all of it because it is spread over many people.  What is probably going to happen is I am going to lose more by the stock price going down.

The second thing the company can do is raise their prices.  Do you drive a car?  I do.  Do you use petroleum products?  I bet you do.  Boy I am so glad they stuck it to those big corporations.

The third thing is to cut expenses.  I made it a “reasonably efficient” company to avoid all the permutations of talking about stuff they buy to use in, or to make, or to support their products.  I didn’t want to talk about them trying to do things on the cheap because that is a company killer, thus making this blogpost shorter.  You can only save so much money cutting down on your use of paper clips.

So that leaves the expense of labor – to cut.  Let’s dispense with one theory off the bat.  There probably are not enough high priced executives to meet the tax bill.  Sure, if we got rid a LeBron James we could use his salary to hire teachers.  That would increase the supply of teachers in the U.S. by 2/100 of a percent.  Would we notice?

Cutting everybody’s salary by a percentage sounds like a reasonable way to go but it may cause other difficulties (union contracts etc.).  But I don’t need to go any further with this line of thought because all these workers are individuals who end up paying that corporate income tax with reduced salaries.

So obviously, what is left are lay offs.  Gloria had a pretty good technical job with this company.  Her and the two kids were really making a go of it until this.  All taxes are ultimately paid by individuals.

Now how did my dog do me a favor?  We took a longer walk than usual and we were both tired when we got home.  She looked up at me and said, “George, you gotta cut that blogpost down or the readers will be at the front door with pitchforks and scythes.”  She is a big fan of classic horror movies.

-George Reynolds