One of the most difficult concepts to grasp in tax policy is that taxes on businesses are not taxes on businesses. The reality is that taxes on businesses require higher prices for consumers, since the taxes become another cost of doing business, just like paying rent or insurance or employees.
In fact, when taxes are high enough, and when the minimum wage increases, or when other costs are imposed by government, some small businesses can’t hire additional people or, even worse, they might have to lay off employees, because the business owner can’t pay the government and all his employees and still make a living for his own family. In short, he can pay the government or he can pay employees. And, as one economist said, the tax of not having a job is the highest tax there is.
The business owner will pay personal income taxes on whatever he takes out of the business, so I’m not suggesting that business owners not pay taxes. So the question is this: Is it better for a business to pay the government or to pay someone who needs a job and would pay taxes on their own?
To learn more, go to mspolicy.org.