Businesses Do Not Pay Taxes

How much tax would the government collect from Microsoft tomorrow if not one person showed up for work? No one to take orders or ship orders. No one to maintain the thousands of computers that serve downloads and accept credit card payments. No one to program, to design, to answer phones. What if everyone from the president and CEO to the guy who cleans the bathrooms just stayed home from work? How much money would Microsoft earn and how much would the government collect in tax for that day?

Easy answer: $0.00.

That’s because a business, public corporation, LLC, sole proprietorship, or whatever form a business enterprise takes, pays no tax. It’s not a difficult concept, but it’s one that escapes the vast majority of people.

Revenue that flows to a business of any kind goes to one of very few categories. Income to a business that is not paid to employees and owners flows to plant and equipment, research and development (R&D), or retained earnings.

Funds that maintain and grow plant and equipment provide a safe and effective work place for employees ( humans) and enable the efficient manufacture of goods and creation of services to offer to the market. To the extent that plant and equipment is maintained, is modern and efficient, it helps the enterprise to continue earning profits and paying its employees and owners.

R&D allows the business to maintain its competitive position within its market and allows the business to grow with new and better products. To the extent that R&D is effective and creates new and better products and services, it allows the enterprise to continue earning profits and paying its employees and owners.

Retained earnings is the business’s savings account that enables it to weather business downturns or finance future growth without having to borrow or dilute ownership (sell additional stock). An appropriate level of retained earnings protects the business from an uncertain future and allows it to take advantage of opportunities rapidly, possibly allowing the enterprise to gain market position faster than competitors, thus giving the enterprise a better chance of staying in business, providing income to employs and a fair return to owners. If retained earnings are inadequate the company faces more risk than it should. The company may find itself unable to weather a business downturn or take advantage of changing market conditions. If the balance of the retained earnings account is too high the owners will rightfully say that those funds are not being used to the best advantage of the enterprise and will (or should) force management to make better use of scarce resources for the good of the company. In either case, a judicious balance in retained earnings and its wise use benefits the enterprise and helps it to stay in business, paying salaries to employees and paying a fair return to owners.

Note that in all cases, plant and equipment, research and development, and retained earnings properly managed are components of a well-run business that earns and pays salaries and dividends to employees and owners, those human beings that actually do the work of the business and are the only source of income that the government can tax.

If the government taxes the revenue of the business those funds are not available to the business to perform its operations that create revenue and, so, must reduce the business’s ability to operate, grow, and ultimately provide income and dividends to employees and owners. This is no different from a withholding tax, an onerous method of hiding the fact that the government is taking more money from individuals than they realize. The government is benefiting from the facts that the vast majority of people do not realize that businesses do not actually pay taxes and that the tax revenue is taken from the employees and shareholders before they even see the money. That the governments of the world get away with this is testament to the business ignorance of the general population and to a strong sense of envy. Most people like nothing more than to see businesses pay “their fair share.” Never mind that “fair share” cannot be defined and that those tax revenues are only diverted from the source before they reach their intended destinations – again, those employees and owners, the humans, who are actually the creators and rightful direct and indirect beneficiaries of all business revenue.

Remember, only humans can pay taxes. Taxing anything else is a scam.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.