"Businesses don't pay taxes"

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Monster
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"Businesses don't pay taxes"

Post by Monster » Thu Aug 09, 2018 5:27 pm

Every once in a while, I come across this statement. "Businesses don't pay taxes." The reason people say that is because any tax increase put onto the shoulders of a business is passed to the consumer, in the form of higher prices; thus, the money used to pay the taxes comes from consumers' pockets, not the business's pockets.

Doesn't this also mean that employees don't pay income taxes? I mean, their income tax rate is actually 0%? Because their salary comes from a business, so that means that the income tax is paid entirely by the business, using the logic above. It would seem that the only people who pay income taxes are business owners.

And, I don't think the entire "businesses don't pay taxes" is even very meaningful. It's not like, once a tax is put on a business, and it raises its prices, that everything else remains the same. If a business's products are now more expensive than a competitor's, then the business's income will change. In other words, I basically think "businesses don't pay taxes" is too simplistic.

What say you? Am I wrong? Discuss! Or not.
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Re: "Businesses don't pay taxes"

Post by ElectricMonk » Thu Aug 09, 2018 6:14 pm

What's to discuss?
Of course businesses pay taxes (though not enough). And since they like being treated like Persons as much as possible, they bloody well should pay taxes like people have to.
Businesses compete on more than just price, so the argument that customers end up paying is indeed simplistic.
And, of course, there are plenty of things companies do that cause harmful externalities, for which society should be reimbursed.

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Re: "Businesses don't pay taxes"

Post by OlegTheBatty » Thu Aug 09, 2018 7:34 pm

Businesses pay taxes on profits, not on gross revenues. If a business makes a 20% profit and pays a 17% tax on it, they are still making 16.6% profit. How do they pass the difference on to their clientele?

There are numerous ways of increasing profit which do not have a negative impact on competitiveness. Price increases do negatively impact it. A price increase can even reduce profit if enough consumers switch to a competitor.

Paying taxes is not a business expense. It is not a line on the income statement. There is no mechanism for 'passing it on to consumers'.
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Re: "Businesses don't pay taxes"

Post by Gord » Fri Aug 10, 2018 3:20 am

I always thought "businesses don't pay taxes" was referring specifically to those businesses who use loopholes to avoid paying taxes.
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Re: "Businesses don't pay taxes"

Post by Matthew Ellard » Fri Aug 10, 2018 4:45 am

There are many reasons a business may not pay tax for some years.

The business may have carried forward losses from previous years to offset against their tax.

The business may be "negative gearing" where interest on asset investment, outweighs profit with the future hope the business will be profitable or the asset will have appreciated more than bank interest. ( Example: I buy a house for 1,000,000 and borrow $1,000,000 at 5%. The rental income $50,000, matches interest outgoing of $50,000. In ten year he house will be worth $2,000,000 and I sell the house at the reduced capital gain tax rate.)


In Australia, the tax the company pays is credited to the shareholder who receives a dividend, as a tax credit.
Example : Company makes $1000 profit and pays 30% or $300 tax to government and has $700 left in bank
Company issues a dividend to Matthew of $700
Matthew takes up $700 in income but adds $300 in tax credits for a total assessable income of $1000.
Matthew lodges tax return of $1,000 income but $300 tax is already paid
(Essentially in Australia companies don't pay tax but pay tax credits to add to shareholder dividends)


Tax incentives ( This is where I made my money in tax work from movies and TV in the 90s)
Movie investor Pty Ltd invests $1,000,000 in movie made by Production company Pty Ltd
Movie investor Pty Ltd is allowed by tax incentive to write 120% or $1,200,000 off taxable income.
Production company Pty Ld makes movie for $600,000 and round robins $400,000 for three years.
Production company pays back $600,000 in three years when Movie investor Pty Ltd's shareholders have retired and are in lower tax brackets.
Production company Pty Ltd also pays any real money earned by the film in three years.
(Note : This scheme only works in high inflation environments)

Films made under this scheme included Mad Max ( George Miller was a doctor who invested for tax reasons and became a director) ......Crocodile Dundee ( Well that made so much profit no one cared about the tax write off. The scheme ended as too many tax lawyers were making bad films. )

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Re: "Businesses don't pay taxes"

Post by TJrandom » Fri Aug 10, 2018 5:14 am

I once worked for an international company which made it a practice to earn their profits in low or non-taxed countries. Internal `services` were charged to the subsidiaries in the high corporate tax rate countries where profits were actually made, making it appear that they made no profit there. A second set of books was used to attribute profit for calculation of employee bonuses.

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Re: "Businesses don't pay taxes"

Post by Wordbird » Tue Aug 14, 2018 2:10 am

Monster wrote:Doesn't this also mean that employees don't pay income taxes? I mean, their income tax rate is actually 0%? Because their salary comes from a business, so that means that the income tax is paid entirely by the business, using the logic above.
I would say no, because of minimum wage. The business can't simply reduce wages to make up their taxes ad infinitum. It's legally prohibited from paying less than minimum wage.

The employee takes an actual hit from taxes, because he has no one to pass anything on to. He can't just raise his prices because he's not selling anything. He's paid for his labour, but see what happens if he tries to tell his employer to give him 5% more because that's just what his labour costs now. Very high-skilled workers may be able to do this, but this is not the norm, even for the extremely highly educated.

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Re: "Businesses don't pay taxes"

Post by Lance Kennedy » Wed Aug 15, 2018 11:17 pm

The reason everyone pays taxes is because governments like to get lots of money. After all, how can they make extravagant election promises without the income to support at least some of those promises ? Being fair is not the issue.

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Re: "Businesses don't pay taxes"

Post by Gord » Thu Aug 16, 2018 7:55 am

The problem is that once someone new gets into government, they want to avoid cutting programs for the people who might vote for them next election, but they want to create new programs for other people who might vote for them next election. In the end, we keep getting more and more programs which require more and more taxes. Eventually a candidate appears who says, "I will cut taxes!" and then gets elected and cuts some program somewhere that someone considered vital.

Also, subsidies. Governments hand them out to farmers and businesses and arts and all sorts of groups, making those groups reliant upon those subsidies. Cutting them causes turmoil in the system, which few governments want to happen on their watch.
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"You are also taking my words out of context." -- Justin
"Nullius in verba" -- The Royal Society ["take nobody's word for it"]
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